During the summer it was announced that Making Tax Digital (MTD) for VAT will come into effect from April 2019. This is in advance of the anticipated introductory date for other taxes which has been deferred, and will now not be implemented until at least April 2020.
From April 2019, businesses that have a turnover above the VAT threshold (confirmed in the recent budget as remaining at £85,000 until 2020) will have to:
- Maintain their VAT records digitally.
- Submit VAT return information digitally.
This means that those who are voluntarily registered with turnover below the threshold, will not have to comply at that stage. However, the details about this substantial change to the VAT compliance requirements, are as yet rather thin on the ground.
That said, an overview of the proposed legislation has been provided, which includes a commitment to provide and consult on draft legislation and to have the necessary regulations in place by April 2018, to give businesses and, perhaps more importantly, software developers, a chance to prepare.
A summary of these proposals is as follows:
- It will apply to businesses which are VAT registered and have a taxable turnover above the registration threshold.
- Once a business is in the regime, the only escape is deregistration, falling below the threshold does not preclude the MTD provisions from applying.
- There are exemptions which can prevent the regime from applying where:
o The commissioners are satisfied that there are religious reasons that electronic communications cannot be used.
o The company is insolvent.
o The commissioners are satisfied that there are specific reasons for the inability to use the applicable software (including for example age, location and disability).
o The value of taxable supplies in the year prior to the start of the month was below the VAT threshold and the business is not already in the MTD regime.
o A business can elect out of these exemptions.
- Digital records must be maintained for up to 6 years and these will form the basis of the VAT returns submitted.
- The Retail and Flat Rate Schemes will remain largely the same but will have specific provisions governing the digital storing and submission of information.
Perhaps unsurprisingly, VAT compliance post MTD looks very much like VAT compliance before, just with the additional requirements surrounding the storing and submission of returns electronically. The difficulties are likely to arise for those businesses that do not already use up to date accounting software for their record keeping, and those who need to make manual adjustments to their accounting data before submitting their VAT returns (for instance, those within partial exemption).
The differences between the two regimes will no doubt become more pronounced as draft legislation is released. Businesses will need to ensure that they are ready to comply, and might find that next summer, once we have more detail, is a good time to review whether their software will be compatible.