We are now eight months into HMRC’s regime of “Making Tax Digital” for VAT (which commenced on 1 April 2019). This covers VAT registered entities whose VATable income is in excess of the registration threshold (which currently stands at £85,000 and is measured on a rolling 12 monthly basis). The requirement for these entities is that the data to complete their VAT Returns is submitted directly from the accounting records, which are maintained in an electronic format, without the need to retype the relevant figures into the boxes that make up the VAT Return.
This does mean that the basic accounting records need to be kept in a bespoke software package, which is compatible with HMRC’s systems (the most popular ones being Quickbooks, Xero and SAGE), or in a spreadsheet format. If the records are maintained as a spreadsheet a summary tab will be required which draws the figures for the VAT return boxes from the general data for sales and purchases, or income and expenses, within the document. Those VAT details then need to be submitted via software which bridges with HMRC’s interface. There are a number of products available some of which are free. However, we have access to such a bridge, via our general tax software, and have taken on the task of VAT Return submission for those who have not upgraded to a software package.
Generally, “Making Tax Digital” has meant an end for manual cash book and ledger systems. However, there are exceptions to this. If your VATable income remains below £85,000 you are not required to register for “Making Tax Digital” and can continue to file Returns via your existing HMRC account. (You can however register for “Making Tax Digital” on a voluntary basis but, once in the scheme, you cannot leave). In addition, a VAT registered trader may not have to follow the rules if they can satisfy HMRC that it’s not reasonably practicable for them to use digital tools to keep their business records because of age, disability, remoteness of location, or for any other reason. We have had a reasonable degree of success making claims for some clients who have continued to trade after their retirement age with long established manual record keeping systems and who do not generally make use of IT.
Some VAT registered entities, such as Trusts, Groups and not for profit organisations, had their entry to the scheme deferred until 1 October 2019. They do now need to take steps to “come on board” and the first cycle of Returns that will be relevant in this case are those with quarters ending 31 December, 31 January and 29 February.
At the outset of “Making Tax Digital” HMRC announced that there would be a light touch approach to compliance in the first year of the scheme and that penalties would not be levied during that period. VAT registered entities who did not sign up in the first cycle of VAT returns after 1 April with quarter ends of 30 June, 31 July and 31 August will have received a gentle reminder that it is a legal requirement for them to do so. We are expecting that the letters to those entities that miss the second cycle of VAT Returns will be somewhat more “heavy handed” so time to take action, if you have not already done so!