Making Tax Digital for VAT: legislation overview


Neil Steven

Neil Steven

Business Advisory Partner


Ministers revealed further details on the roll out of Making Tax Digital (MTD) for VAT in a legislation overview published on 13 September. MTD for VAT will take effect from 1 April 2019 and will require VAT-registered businesses above the VAT threshold to keep digital records and provide regular updates to HMRC.

The “Making Tax Digital for VAT: legislation overview” provides further clarity to the scope of the roll out. An open consultation, the Government has asked for comments on the legislation by Friday 10 November 2017 with the aim of having regulations in place by April 2018.

Who is affected and what is the timescale?

To recap, the revised timetable as announced in July was as follows:

  • Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. This requirement will remain, even if they fall below the threshold at a later date. The requirement will cease upon deregistration.
  • They will only need to do so from 1 April 2019.
  • Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.

What businesses are affected?

MTD for VAT will apply to unincorporated businesses, companies, LLPs, and charities noting the following:

  • The rules apply to individuals who pay income tax, other than in partnerships, and falls into one of the categories below:

    - A trade, profession or vocation the profits of which are chargeable to income tax under Part 2 ITTOIA 2005
    - A property business the profits of which are chargeable to income tax under Part 3 ITTOIA 2005
    - Any other activity which may give rise to profits or other income chargeable to income tax under Part 2 or 3 ITTOIA 2005
     
  • The rules apply to a partnership if one or more of the partners pays income tax, unless all the activities are excluded activities.  The partnership requirements must be met by the nominated partner.
  • The rules do not apply to the trustees of a charitable trust or of an exempt unauthorised unit trust unless they elect for them to do so.
  • The exemptions that already apply to electronic VAT returns will be extended to cover digital record keeping requirements. This includes those who genuinely cannot use digital tools, due to individual circumstances such as disability, religion or geographical location.

MTD will be available on a voluntary basis to other businesses, for both VAT and Income Tax.

Business annual turnover

 

Quarterly reporting for taxes

 

Old timetable

For accounting periods beginning on and after

New timetable

For accounting periods beginning on and after

Over £85k and VAT registeredVAT only1 April 20191 April 2019

Over £85k: all businesses and landlords

(not necessarily VAT registered)
Income Tax & National Insurance6 April 2018At least April 2020
£10K to £85k*Income Tax & National Insurance6 April 2019At least April 2020 but on voluntary basis
All companiesCorporation Tax1 April 2020At least April 2020

*This threshold not confirmed as being limit of ‘smallest businesses’

What is required?

All affected businesses with a turnover above the VAT threshold will have to keep their records digitally (for VAT purposes only) and provide their VAT return information to HMRC through Making Tax Digital compatible software.

HMRC’s online portal will remain available to all other businesses that complete a VAT return but have turnover below the VAT threshold.

Content of digital records

The VAT regulations will specify the information a business needs to preserve digitally and will include:

  • Business name, principal place of business and VAT registration number - this ‘designatory data’ will also include information about which VAT accounting schemes they use
  • The VAT account that each VAT registered business must keep, by law - the VAT account is the link – the audit trail – between primary records and the VAT return
  • Information about supplies made and received.

Businesses will need to preserve digital records in functional compatible software, for up to six years. 

Alignment of reporting

The intent from the original MTD consultation was to align the deadline for the submissions of information for income tax and VAT. The draft legislation however states: “we will reconsider the position if and when MTD for income tax becomes mandatory”, so for the time being, there will be no change to statutory VAT returns or payment dates.

What are the next steps?

We will continue to keep you informed of any further updates to help you understand what this means for you but if you have any queries please do not hesitate to get in touch with me at neil.steven@jcca.co.uk or your usual Johnston Carmichael adviser.