The introduction of Making Tax Digital (MTD) makes fundamental changes to the way the UK, including Northern Ireland, tax system works, and represents the biggest change to the VAT compliance rules in decades. From 1 April 2019, most VAT registered organisations with a turnover above the VAT registration threshold (currently £85,000) will be required to:
- submit their VAT return data digitally using software compatible with HMRC’s Application Programming Interface (API) platform
- maintain digital records and a digital VAT account
This applies to VAT periods commencing on or after 1 April 2019. Affected businesses will no longer be able to submit their VAT return by entering the details into HMRC’s online portal.
HMRC has recently announced that this will be deferred until 1 October 2019 for taxpayers with more complex requirements, including trusts, ‘not for profit’ organisations that are not set up as a company, VAT groups, certain public sector entities, local authorities and traders based overseas. However, ‘not for profit’ organisations (including charities) set up as companies will still be subject to MTD from 1 April 2019.
In addition, with effect from 1 April 2020, all businesses will be required to maintain a clear digital ‘journey’ or ‘digital links’ between their accounting systems and the software used to prepare and submit their VAT returns.
All affected organisation should review their VAT accounting processes to establish whether their existing systems and any relevant software meet the stringent MTD requirements. For many organisations, upgrades, add-ons and, in some cases, completely new reporting systems or software will be required.
Businesses should also review the quality of their accounting data and ensure that all necessary VAT information is captured by the reporting systems. Where manual adjustments are made outside those systems, these should be reviewed to make sure they are correct.