ESB Accountancy takes a look at what digital records will be acceptable under MTD for VAT for Gloucestershire businesses.
A new draft VAT Notice 700/21 has been published by HMRC giving guidance on what records must be kept digitally within ‘functional compatible software’ in order to comply with the requirements of Making tax Digital (MTD) for VAT.
By mandating digital record-keeping and filing, the Government expect to reduce the amount of tax lost through error and failure to take reasonable care.
MTD will affect businesses with a turnover of more than the VAT registration threshold of £85,000 per annum from 1 April 2019.
However, such businesses must remain within MTD for VAT, even if their turnover drops below £85,000. Businesses that are VAT registered, but have a turnover of less than £85,000 per annum will not be required to participate in MTD, but can do so voluntarily.
Under MTD for VAT, functional compatible software will be used to maintain the mandatory digital records, calculate the return and submit it to HMRC via an Application Programme Interface of API..
The complete set of digital records to meet MTD requirements does not all have to be in one piece of software. If there is a digital link between the pieces of software, records can be kept in a range of compatible digital formats.
Functional compatible software is a software program or set of compatible software programs that must be able to:
- record and preserve electronic records in an electronic form;
- provide to HMRC information and returns from the electronic records in an electronic form and by using the API platform; and
- receive information from HMRC.
Businesses must keep the following information digitally:
- the address of the principal place of business;
- VAT registration number; and
- a record of any VAT accounting schemes used.
For each supply made the business must record:
the time of supply;
- the value of the supply; and
- the rate of VAT charged.
For each purchase received the business must record:
the time of supply;
- the value of the supply including any VAT that is not claimable; and
- the amount of input tax claimed.
The transfer of data from the mandatory digital records through to receipt of information by HMRC must be digital. Information can only be submitted to HMRC via APIs, this can be from software, bridging software or API enabled spreadsheets.
To show the link between the output tax in business records and the output tax on the return, the business must have a record of:
- the output tax owed on sales;
- the output tax owed on acquisitions from other EU member states;
- the tax due under the reverse charge procedure;
- the tax that needs to be paid following a correction or error adjustment; and
- any other adjustment required by VAT rules.
To show the link between the input tax in the business records and the input tax on the return the business must have a record of:
- the input tax claimable on business purchases;
- the input tax allowable on acquisitions from other EU member states;
- the tax reclaimable following a correction or error adjustment; and
- any other necessary adjustment.
Please talk to us at ESB Accountancy to discuss the filing of your MTD VAT tax returns – with several decades of financial experience here in Gloucestershire you can either ring us now on – email us on firstname.lastname@example.org or click the Contact Us buttonor please fill the form at the bottom of the contact us page.