Making Tax Digital for VAT

Digital tax large

There was a collective sigh of relief when the Government listened to concerns and agreed to delay the implementation of its Making Tax Digital initiative. The first wave of mandatory Making Tax Digital for Business (MTDfB) will now take effect from April 2019 and be limited to the VAT reporting of those businesses whose turnover exceeds the VAT registration threshold (currently £85,000).

These businesses will be required to:

  • keep their records digitally (for VAT purposes only), and

  • provide their VAT return information to HMRC through Making Tax Digital (MTD) functional compatible software.

Those who are VAT registered but have turnover below the VAT registration threshold and businesses who have wholly exempt income will not have to comply with Making Tax Digital for VAT, but may be affected from April 2020 when Making Tax Digital for income tax and corporation tax is introduced.

Much of the detail as to how MTDfB will work is as yet unknown.  The intention is that detailed regulations will be in place by April 2018, thereby giving businesses and software providers at least 12 months to prepare before the regulations come into force.  In the meantime, the Government has just released draft legislation for consultation. These proposals have addressed some of the uncertainties.

It has been confirmed that a business must use a software programme or programmes that can connect to HMRC’s systems via an Application Programming Interface (API). This software must be able to:

  • keep and preserve records in a specified digital form

  • create a VAT return from digital records and provide HMRC with this information digitally

  • provide HMRC with information on a voluntary basis and

  • receive information from HMRC via the API platform.

Businesses will be required to submit their VAT returns using this software. Monthly and non-standard returns will continue to be available, as will the annual accounting scheme.

Digital records will need to include the VAT account, which provides the audit trail between primary records and the VAT return. This will include information about the supplies made and received.  A minimum data set must be kept electronically but retailers will be allowed to record sales data on gross daily takings rather than on an individual transaction basis.

Data keeping requirements are also relaxed for those using the flat rate scheme, who will retain the current record keeping obligations.

Businesses will be able to voluntarily submit data more frequently than their VAT return obligations require. They will also be able to provide supplementary data. HMRC anticipates that this will enable it to target its compliance activity more effectively.

HMRC has confirmed that the existing error correction rules will continue to apply.

For entities with more unusual VAT affairs – such as sectorised partial exemption methods or business / non business apportionments – there are still many unanswered questions. PEM will keep you informed of the developments but please contact us for more information.


Sarah Davis

Assistant Director, VAT
I am the Assistant Director of the VAT department at PEM. I am a Chartered Tax Advisor with 15 years experience in VAT. I advise a broad range of clients and professionals, covering most aspects of VAT. My main area of expertise is property and construction and I also advise on Stamp Duty Land Tax (SDLT) and the Annual Tax on Enveloped Dwellings (ATED).

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