UK Making Tax Digital for VAT

According to the research by ICAEW, over 40% of businesses about to be affected by Making Tax Digital for VAT are not yet aware of it, despite the April 2019 deadline for its introduction, and 20% have made no preparations.

Making Tax Digital is the government’s flagship scheme that requires online tax filing and payment, as well as digital record keeping. All business taxes will be part of this scheme, but only Making Tax Digital for VAT currently has an actual roll-out date, and the rest will be following in 2020 at the earliest.

If you are running a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000), you have the obligation to keep digital VAT business records and send returns using Making Tax Digital (MTD)-compatible software. The vast majority of the businesses will need to do this for VAT periods starting on or after April 1, 2019. Firms with a taxable turnover below the VAT threshold can also sign up for MTD for VAT voluntarily.

The MTD pilot for VAT started in April 2018 and is now open to VAT businesses and their agents. If you are eligible, joining the pilot now will help you prepare for these changes sooner, and your feedback will also help shape the service as it continues to develop.

MTD aims to fulfill three essential requirements:

  • Digital Record Keeping
  • Digital Links
  • Digital Submissions

Digital Record Keeping

Although this does not mean that the businesses will have to store each invoice and receipt digitally, the transaction data will need to be stored digitally. This includes an AP and AR transactional listing, and a digital VAT account from which the VAT return is prepared.

Digital Links

VAT returns must have digital links to digital records – spreadsheets can remain, but they will need to include ‘digital links’ to the source systems. HMRC has announced a soft landing period of 12 months; however, digital links will be mandatory as of April 2020.

Digital Submission

At present, most businesses submit their VAT returns through manually re-keying into HMRC’s online portal. This will no longer be permitted once Making Tax Digital comes into force and instead, VAT return submissions must be made digitally via HMRC’s Making Tax Digital API. Digital submission of VAT returns will be required for most businesses for periods starting on or after April 1, 2019

The following businesses are deferred for MTD for VAT:

  • Businesses required to make payments on account
  • Annual accounting scheme users
  • Trusts
  • Not-for-profit organizations that are not set up as a company
  • VAT divisions
  • VAT groups
  • Public sector entities that are required to provide additional information on their VAT return
  • Local authorities
  • Public corporations
  • Traders based overseas

How should businesses get ready for MTDfV?

MTDfV is a significant challenge for businesses as it introduces an utterly new technology for completing VAT returns over a relatively short period, during which many will also be making significant system changes to prepare for Brexit. It will also be particularly difficult for larger businesses with sizeable and complex accounting systems to adapt them to comply with the requirement for full digital linkage by 2020.

Here is a checklist to help businesses plan for compliance with MTDfV:

  • Determine the date on which MTDfV becomes mandatory for your organization. Are you required to implement MTDfV on April 1, 2019? Or, are you on HMRC’s list of complex businesses for whom MTDfV is deferred until 1 October 2019?
  • Examine the software on the market. Decide on which will best meet your needs for complying with the requirements to use bridging software to submit VAT returns under MTDfV from 2019. If you are using commercial software to complete your VAT returns, ask your software provider how their product will be updated for MTDfV.
  • Consider when and whether you should join HMRC’s pilot before MTDfV becomes mandatory. Bear in mind that once you have signed up to take part in the pilot, you must continue to use MTDfV to submit your VAT returns.
  • Review your current accounting systems to map the VAT audit trail and identify the areas where digital links will be required. While some digital links, such as transfers from non-API enabled systems to one or more spreadsheets may not be obligatory until 2020, businesses should start preparing their systems for full MTDfV compliance now.
  • Consider precisely what data you will have to share with HMRC as a consequence of MTDfV, and make sure you have reviewed the quality of that data.

The need for a Bridging Software

This is a digital tool (incorporating relevant Making Tax Digital APIs) that is used to connect accounting software to HMRC systems and allows the required VAT information to be reported digitally to HMRC, and data to be sent digitally back to the business from HMRC.

Foriba SAP MTD Cockpit Offers

The Foriba SAP MTD Cockpit is built on SAP and delivered as on-premise/private cloud solution – enabling a central framework for reporting compliance delivery, and it is built as platform-independent for the SAP Environments. The solution allows you to generate and submit statutory reports that contain country-specific indirect taxes (such as, value-added tax). These tax computations are in accordance with the guidelines defined by the local tax authorities.

Foriba SAP MTD Cockpit provides the pre-packaged MTD requirements for rapid service activation and on-boarding including a guided setup enabling a good time to value delivery option. The SAP MTD Cockpit is fully integrated with SAP without an external interface or use of an external software and SAP release, and upgrades independently as an end-to-end coverage.

Further reading and resources:

https://www.accountancydaily.co/40-businesses-unaware-making-tax-digital-vat
https://www.sage.com/en-gb/blog/making-tax-digital-for-vat/
https://www.bdo.co.uk/en-gb/insights/tax/vat-and-indirect-taxes/making-tax-digital-for-vat-hmrc-delays-start-for-complex-businesses
https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat
https://blogs.sap.com/2018/10/07/making-tax-digital-with-sap-uk-hmrcs-initiative/

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