in Sage February 25, 2019
Are you ready for Making Tax Digital - Further Detail for Businesses
Ahead of the April 2019 deadline for Making Tax Digital (MTD), TMS Director Alastair Thom has been speaking at 3 days of MTD workshops with Document Data Group, sharing his thoughts on next steps for businesses.
VAT is the first taxation to move under the MTD, with other such as CIS return and corporation tax moving from April 2020.
For VAT, there are 4 specific requirement areas:
- Keep VAT records in a digital form
- Preserve those records in a digital form for 6 years
- Create a VAT return from those digital records
- Submit your VAT return via MTD-enabled software
In terms of VAT Records which have to be managed digitally:
- For each purchase – date of the purchase, net value, VAT amount
- For each sale – date of sale, net value, VAT amount
- Summary data – total sales, total VAT on sales (split by UK/EU), total reverse charge VAT, total purchases, total VAT on purchases (split by EU/UK)
The detail within those requirements is where things get a bit more interesting.
For example, where the HMRC specify that there must be a ‘digital link’ between the software used to calculate, manage and submit the digital VAT records. In this case a digital link is said to be ‘the ability for data to be imported/exported between programs without the need for manual intervention’.
The records don’t all have to be saved in one place but the digital link must be maintained between the software package being used to keep the digital records and the software used to submit the return.
If you use a single API enabled account package (to both record and submit your VAT return) or use two software package (such as accounting software to record the transactions and API enabled software for submitting the return) then there are no issues with this process for your business.
However, if you record all sales and purchases in accounting software before transferring the totals of these into API enabled software for submitting the return, then you will have until April 2020 to find an alternative solution. Simply manually cutting and pasting data from one system to another isn’t accepted as a digital link, though there is one (short-term) exception regarding the use of Excel, which will remain in place until April 2020.
If you currently have an Excel spreadsheet for managing VAT and use formula to make the calculations, this will be an acceptable short-term solution.
For this to apply to you, your business would need to have access to HMRC approved bridging software, which would allow you to automatically (not manually) import your records from the spreadsheet into the bridging software and submit your VAT return from there.
There are different variations of this, which include consideration to those who use multiple spreadsheets for sales and purchases. In this case, a third sheet would have to be added, using formula to calculate summary data. This would then be automatically imported using the bridging software to submit the final tax return. This too, would only apply for the ‘soft landing period’ until April 2020, but won’t be allowed thereafter.
In another scenario, if you use both accounting software and Excel with your VAT records held in accounting software and you transfer the totals into a spreadsheet for manual calculations (such as partial exemption calculations), then again, you will have until the end of the ‘soft landing period’ to find an alternative solution. The main issue with this process is the manual transfer of data from one to the other, without a clear digital link.
For companies that operate VAT groups, each company needs to maintain their own VATrecords.To provide the overall totals, each group’s information can then be combined into a spreadsheet, which is then used to submit the VAT return using bridging software. It should be noted that this way of working is, again, only permissible until April 2020. For this to be valid, long term, there would have to be clear digital links between each group’s accounting software and the group totals spreadsheets.
As the deadline to Making Tax Digital approaches, now is the time for consider the impact it will have on your business. Think about the key processes in your business including the management of tax submissions on a monthly or quarterly basis and what software can help to stay compliant with VAT registration requirements.
If your business is already using accounting software, check that your software provider will be upgrading their products to be MTD compatible
As a leading software solutions provider in Scotland, TMS can help to facilitate the transition to your new business accounting package and provide the local support, training, and confidence you need to ensure you are MTD compliant.