VAT Making Tax Digital – A Giant Step

Growing confidence

It’s official. Sole traders and companies with up-to-date VAT affairs are now able to join HMRC’s test phase for VAT Making Tax Digital (MTD). While testing of VAT-MTD started last April, until now it has been on a limited, controlled, invitation-only basis.

In what can be taken as a clear indication of the department’s confidence, the VAT MTD pilot has now been opened to accept everyone.

New guidance

In support of the public test phase, a suite of new and updated guidance is available to help VAT-registered businesses and their agents get to grips with the new requirements.

The newly published guidance covers:

Use of software to submit VAT returns. A guide outlining how to sign up a business for the MTD-VAT pilot and how to join.
For agents: use of software to submit VAT returns. A guide outlining how an agent and their clients can sign up for the MTD-VAT pilot.
Find software suppliers for sending VAT returns and Income Tax updates. This lists third-party HMRC-recognised software packages that support the Income Tax and VAT-MTD pilots.

HMRC has also published a series of videos on its Help and Support page:

How to sign up for Making Tax Digital for VAT.
How does Making Tax Digital for VAT affect you?
Making Tax Digital for VAT – what software is compatible?
Digital record-keeping for VAT.
Creating an Agent Service Account.

Can everyone join?

As of last month, provided they haven’t incurred a default surcharge in the last two years, just over 40% of the approximate 1.1 million VAT-registered entities, who are required to keep digital records and file MTD-compliant VAT returns from April next year, will be able to apply to onboard early.

A further 100,000 will be able to join the public pilot by the end of this month.

Those who can’t join

There’s a small but significant list of VAT registered entities who yet remain unable to join the pilot. These include those who:

trade with the EU;
are based overseas;
submit VAT returns annually;
make payments on accounts;
use the flat rate scheme;
are newly registered and have not yet filed a return;
are members of VAT groups or VAT divisions;
have received a Default Surcharge notice in the last 24 months. However, they will be allowed in by the end of this month;
are unincorporated not-for profit organisations;
are trusts;
are Local Authorities who complete VAT form 21;
Public Corporations;

Timetable

To help them plan, HMRC has published a timetable indicating when each of the embargoed cohorts will be able to join the pilot.

3.5% to get a deferral

HMRC has reported that 3.5% of those mandated will not be able to onboard before the end of December.

This cohort will have their mandation date pushed back to October 2019.

Those affected include:

VAT groups or VAT divisions.
Overseas traders registered for VAT.
Trusts.
Local Authorities.
Public Corporations.

All of those in the deferral group will be written to by HMRC.

What is Making Tax Digital?

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and to keep on top of their affairs. This will ultimately result, for millions of people, in the end of the annual tax return.

As the first stage of a wider roll-out process, VAT-registered businesses with VAT-able turnover above the compulsory £85,000 registration threshold will be mandated to join the VAT Making Tax Digital for Business regime. To meet their VAT return obligations, this will apply to all return periods commencing April 2019.

As a minimum, they will be required to maintain their VAT records digitally and to file MTD-compliant VAT returns using third party software. Those mandated to join will no longer be able to log on to HMRC’s portal to complete and file their online return.

Those businesses who voluntarily registered for VAT, with a VAT-able turnover under £85,000, will not be required to use the system, although they can choose to do so voluntarily.