MTD for Businesses – The First Stage – VAT Reporting
7th February 2018
“The Times They Are a-Changin”. Bob Dylan
Change is a-foot in the way that all types of businesses report to the HMRC. Either we change with the times – or change happens to us. This is not something we should bury our heads about, hoping it will go away – it won’t!
At Quay Accounts – we are actively planning for MTD – we are well placed to advise you. Making Tax Digital is going to happen – it is now just a matter of timing. We think that the business of the future needs to be preparing now.
VAT Reporting is Changing – From April 2019
From April 2019 all VAT registered businesses with turnover above the VAT threshold will be required to maintain digital records and will need to send their VAT information to the HMRC using third party commercial software. HMRC’s online portal will remain available to all other businesses that complete a VAT return but have turnover below the VAT threshold.
Currently the situation is……
Start Date: We expect that a business will have to keep digital records and submit its VAT returns digitally with effect from the first VAT return period beginning on or after 1 April 2019.
Third party commercial software must be able to:
- Keep records in a digital form
- Preserve digital records in a digital form
- Create a VAT return from the digital records
- Receive information from HMRC via the API (application programme interfaces) platform. This will allow the HMRC to send ‘nudges’ to the business/agent
Digital Record Keeping Requirements: HMRC has confirmed that the requirement to keep digital records does not mean that businesses will have to make and store invoices and receipts digitally. Businesses can continue to keep documents in paper form if they prefer, although transactions will need to be stored digitally.
For Each Supply You Make – You Must Record >>>>>
1) The time of supply
2) The value of the supply
3) The rate of VAT charged
For Each Supply You Receive – You Must Record >>>>>
1) The time of supply
2) The value of the supply including any VAT that is not claimable by you
3) The amount of input tax that you will claim
The VAT Account
The VAT account is the link – the audit trail – between your business records and your VAT return. Under MTD for VAT, the information required to be held in the VAT account must be kept digitally (the regulations refer to this as your “electronic account”), and the information in that electronic account will be used by functional compatible software to calculate and fill in your VAT return.
To show the link between the output tax in your records and the output tax on the return, you must have a record of:
- the output tax you owe on sales
- the output tax you owe on acquisitions from other EU states
- the tax you are required to pay on behalf of your supplier under a reverse charge procedure
- the tax that needs to be paid following a correction or error adjustment
- any other adjustment required by VAT rules
To show the link between input tax in your records and the input tax on your return, you must keep a record of:
- the input tax you are entitled to claim from business purchases
- the input tax allowable on acquisitions from other EU member states
- the tax that you are entitled to reclaim following a correction or error adjustment
- any other necessary adjustment
Records must be kept for six years (or 10 years if you use VATMOSS). Digital records will need to be maintained for six years following deregistration.
All VAT schemes will be required to comply.
Quay Accounts is a progressive accounting firm who adopted online accounting solutions well before they started to become popular. We have a wealth of experience and are well placed to help you and your business through times of change. MTD and this first stage in particular need not be anything to worry about.
As we move towards quarterly reporting, here are three positive spin offs for applicable businesses.
Firstly you are forced to keep fairly up to date with your record keeping – which is no bad thing.
Secondly by being up to date quarterly this introduces the opportunity to benefit from management accounts and budgeting to keep a closer eye on the workings of your business.
Thirdly tax payments will move to a quarterly basis – this should help with cash flow, tying tax payments more closely to the activity of the business.
Let’s focus on the positives and embrace this brave new world……
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