Sarah Laing looks at some of the issues businesses will be facing as they prepare to report digitally for VAT from April 2019.
Although there is widespread agreement that the government’s Making Tax Digital for Business (MTD) project is the right approach for the future, many concerns have been raised over recent months regarding the pace and scale of changes. As a result of the representations made by business and the professional bodies, the government has recently confirmed that the rollout of MTD has been postponed, thus giving businesses more time to adapt their systems and processes to accommodate the necessary changes.
The revised timetable, which works towards the full rollout of MTD, is now as follows:
- late 2017: small-scale, private testing of MTD will commence;
- spring 2018: a wider, live pilot will begin;
- spring 2019: businesses with a turnover above the VAT threshold will be required to keep digital records for VAT purposes; and
- 2020: MTD is expected to affect small businesses under the VAT threshold.
This revised implementation schedule means that businesses will not now be mandated to use the MTD system until April 2019, and then only to meet their VAT obligations.
This will apply to businesses who have a turnover above the VAT threshold (currently £85,000) - the smallest businesses will not be required to use the system from that date, although they can choose to do so voluntarily if they wish.
The VAT regulations will specify the information a business will need to maintain in digital format, and this will include:
- the business name, principal place of business and VAT registration number, along with information about VAT accounting schemes used;
- the VAT account that each VAT registered business must keep, by law – this is the link between primary records and the VAT return; and
information about supplies made and received.
Those reporting under the VAT flat rate scheme will not have to report under MTD, except for purchases relating to capital goods with a VAT inclusive value of £2,000 or more.
Quarterly reporting for VAT is already mandatory for most businesses. However, although 99% of VAT returns are currently filed online, only around 12% are currently filed via software. The majority of returns are therefore (presumably) manually entered onto the government gateway page and submitted to HMRC - requiring manual input and intervention.
Linked information
Under MTD, businesses will not be able to keep manual records. Currently, spreadsheets are commonly used - not only to maintain records, but also to convert the information from accounting software into the VAT return figures. MTD will require these spreadsheets to interact directly with software, thus cutting down on errors caused by previous human intervention. This change is likely to require some careful thought for many businesses, and overcoming the issues may be challenging.
Brexit
MTD applies for VAT return periods commencing on or after 1 April 2019. This is the same time that the UK will leave the EU. VAT is likely to be significantly impacted by Brexit, particularly in relation to the VAT treatment of transactions between the UK and EU. Businesses may be facing EU-related changes at the same time as implementing MTD-compliant procedures. Again, the issues will need careful consideration.
Businesses and their advisers are likely to be in for a busy time in 2019 - early planning and preparation will be the key to a successful transition.
Practical Tip:
Broadly, by April 2019, businesses will need to:
- understand the tax-technical changes to the UK/EU VAT rules; and
- ensure that their accounting systems and processes can deal with such changes correctly.
These changes will need to be implemented via the new reporting requirements of MTD.
