Making Tax Digital becomes a reality for VAT in April 2019. That’s not much time to make sure you’re compliant – and there’s a lot of information to get your head around. In the first of two blogs, Nigel Roberts, Johnston Carmichael’s Head of Indirect tax considers why HMRC are pushing a digital agenda for tax and how to get ready for the deadline.

It’s nearly three years since HMRC unveiled its Making Tax Digital (MTD) roadmap – without doubt the single largest reform to the UK’s tax compliance landscape in decades. The initial aim of the MTD project is to ensure most taxpayers maintain digital records and submit tax returns digitally through accredited software and with minimal manual interference in the data.

Initial timescales for bringing all taxes within the MTD framework were ambitious, to say the least, so HMRC pared down the first phase to VAT only, with effect from April 2019. Other taxes won’t have to be submitted digitally before 2020 at the earliest.

HMRC was keen to stress that MTD would not mean additional reporting of information. Largely true as far as it goes – but this ignores the impact on business records for most affected taxpayers and the potential for HMRC to expand the requirements in future.

After the initial launch of MTD, perhaps its most notable feature has been the lack of detailed information from HMRC on the requirements for business. This meant MTD slipped slowly down the change agenda, with many taking the view that there was no point in worrying when there were no answers available.

This was understandable, but it no longer stands up as an approach. In July, HMRC finally published detailed MTD for VAT guidance, together with details of several software providers that have approved products available to meet MTD requirements. This was helpful – although it raises as many questions as it does answers.

There are two fundamentals of MTD for VAT:

• Businesses that are caught by the regime (which are, broadly, all VAT registered businesses trading over the VAT registration threshold) must ensure that “core” VAT accounting records and processes are maintained and linked digitally so that there is no manual intervention in the production of the VAT return
• The VAT return must be submitted digitally from the accounting records via a specialist software link – the Application Programming Interface (API).

All affected businesses will need to ensure existing records meet these two fundamental requirements or can be adapted to do so. Alternatively, they’ll need to consider switching to a proprietary MTD-ready package – bearing in mind that many providers are only just launching solutions. Ideally, any solution needs to also provide for future requirements to manage tax digitally as MTD expands.

This is a lot to do in seven months, so where to start? 

Firstly, take some time now to understand what HMRC will require from April and take advice on anything that’s not clear. Secondly, review your existing VAT processes – are they MTD compliant? If not, why not – where are the gaps? Thirdly, start to put together a plan to fill those gaps – whether you look at changes to existing systems and processes, or implementing something new.

So, what are the detailed requirements? We’ll cover that in our second blog – but if you can’t wait, get in touch with me, Nigel Roberts, or another member of the VAT team now.