Making Tax Digital (MTD)
Making Tax Digital (MTD) for VAT became mandatory for most businesses trading over the VAT registration threshold from the 1 April 2019.
What is MTD all about?
The stated aim of MTD for VAT is to make it easier for businesses and other organisations to get their VAT right and keep on top of their affairs. Broadly, the way it seeks to do this is by removing manual elements which have historically been part of many VAT return processes and which may result in human error.
Under MTD for VAT, businesses and organisations must show a digital trail from their source records through to their VAT return submissions. This means that where data is transferred, exchanged, recaptured or modified as part of the journey to submitting a VAT return, it must be done through what HMRC calls a ‘digital link’.
Does MTD affect all VAT registered businesses?
Not all VAT registered businesses and organisations have obligations under MTD from 1 April, although it is now very widely applicable.
If a business is trading below the VAT registration threshold (currently £85,000) but has elected to register for VAT voluntarily it will not normally have an obligation to follow the MTD rules although it may choose to do so.
There are also other circumstances when a business can ask for exemption from the MTD rules such as (in certain circumstances) on the grounds of location, a disability, age or religious beliefs.
Moreover, there is a deferral of the start of MTD for certain types of organisation until 1 October 2019 including VAT groups, certain overseas persons and trusts (amongst others).
Is MTD the end of spreadsheets?
It’s not true that MTD for VAT means that businesses and organisations can no longer use spreadsheets as part of their VAT process. HMRC has indicated that a spreadsheet can be used to calculate or summarise VAT transactions to arrive at the return information. However, the requirements around ‘digital links’ must still be respected, and it may be necessary to use some sort of ‘bridging software’ to send the VAT return information to HMRC without manual intervention in the process. Several software products cater to this scenario.
Can I do anything manually under MTD?
In certain circumstances businesses and organisations may be allowed or required to make adjustments to the input VAT they claim or the output VAT they must declare under normal VAT rules. Whilst HMRC expects the total adjustment to be recorded in MTD compatible software, it does not require the details of the calculation underpinning it to be kept in that software. This may occur where, for example, a business makes a capital goods scheme or partial exemption adjustment.
How strict will HMRC be if businesses don’t get MTD right straight away?
Although MTD is now live for many businesses, HMRC has indicated that it will operate what it has called a ‘soft landing period’. During this period HMRC will be more relaxed regarding the ‘digital link’ requirement that apply down the trail from records to reporting. This soft landing period will apply in the first year that MTD is mandatory and HMRC has suggested that the use of ‘copy and paste’ can exceptionally be regarded as a digital link at this time.
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