What happens if I need to prepare for important changes to VAT reporting?

VAT has been a part of the UK tax system since 1973 and is the third largest revenue-raiser for the Treasury, but the basis for recording and reporting this indirect tax is about to go through a big change.
From April 2019, most VAT-registered businesses earning above the VAT threshold (£85,000) will be required to report their affairs digitally on a quarterly basis, using software that is compliant with HM Revenue & Customs’ (HMRC) systems.
The change comes as part of the tax authority’s flagship Making Tax Digital (MTD) project – which will affect VAT-registered firms from April next year and will be rolled out for other taxes and types of businesses ahead of 2020.
What is changing?
While more than 70 per cent businesses already report their VAT online, MTD will lay down stricter rules and requirements that businesses will have to abide by.
Under the new system, the information reported to HMRC will essentially remain the same, but the requirement for maintaining records will differ significantly in that businesses must store digital information and create VAT returns from digital records.
They must then use ‘functional compatible software’, or an API-enabled spreadsheet or a traditional spreadsheet and a bridging software to link with HMRC digitally.
Does this apply to all VAT-registered businesses?
Most businesses that fall within the threshold must start following the MTD rules from the first day of their first VAT period that starts on or after 1st April 2019.
However, those with complex matters may be able to delay their start date to later in October 2019. This delay is only applicable to:

  • Trusts and unincorporated charities
  • Local authorities and some public sector entities, including Government departments and NHS Trusts
  • Public corporations
  • Overseas businesses which are UK VAT-registered but do not have an establishment in the UK
  • Businesses with more complex VAT affairs.

The Government has promised a grace period during which ‘copy and paste’ or manual input is allowed to a certain extent when it comes to digital linking. However, if businesses do not join MTD, they will be penalised.
The importance of early preparation
Businesses that meet the criteria and are not afforded any exemption must begin to prepare immediately as there are now less than six months left to prepare.
If you need help or advice with regards to MTD for VAT, please get in touch with our expert team today.

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