Making Tax Digital for VAT, are you ready for the new guidelines?
HMRC have issued their detailed guidance on digital record keeping and return requirements for Making Tax Digital for VAT.
VAT Notice 700/22 clarifies that spreadsheets may still be used to keep business records provided that there is bridging software that links to the Government gateway.
There will however be a one year “grace” period during the first year of Making Tax Digital. During this period there isn’t a requirement for businesses to have digital links between software programs. They refer to this as a “soft landing” in the VAT notice.
The VAT notice also includes a number of helpful examples. These illustrate different accounting systems and the digital links required to comply with Making Tax Digital for VAT. This is essential reading for all VAT registered businesses.
As Cloud Accounting specialists we can certainly assist your business.
When does Making Tax Digital for VAT start?
Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019.
Take this example. Where a business submits quarterly returns covering the periods to 28 February, 31 May, 31 August and 30 November, the business will need to comply with Making Tax Digital rules for the VAT quarter starting 1 June 2019 and ending on 31 August.
“Soft landing” for Making Tax Digital for VAT for the first year
For the first year of Making Tax Digital for VAT (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. The one exception to this is when transferring data to another product that is Application Programme Interface (API). This solely enables the purpose of submitting the 9 Box VAT Return data to HMRC. The transfer of data to this product must be digital.
For the first year HMRC will accept the use of cut and paste as a digital link for these periods.
However, for VAT periods starting on or after 1 April 2020, there must be a digital link. This is for any transfer or exchange between software programs, products or applications used as functional compatible software.
Use of spreadsheets in preparing VAT returns
Example 3 in the VAT Notice describes a business that uses a spreadsheet and bridging software from April 2019. This allows the transferring of information to HMRC via an API. It uses a spreadsheet to record all sales, purchases, and expenses in a digital format. We then prepare the VAT Return within the spreadsheet, using formulae already written into the spreadsheet.
The VAT Return information is sent via a mandatory digital link to bridging software, which digitally submits directly to HMRC. Example 6 shows how a spreadsheet would be acceptable in order to consolidate VAT information prior to submitting a Group VAT return.