This guidance note provides an overview of the recent announcements made by HMRC with regard to submitting VAT returns and other information electronically. HMRC has also published VAT Notice 700/22 which provides greater detail of the new requirements and should be read by anyone preparing for the new regime.
HMRC has also produce a Making Tax Digital for Business ― stakeholder communications pack that is intended to support businesses that need to make the transition to digital VAT record keeping and submission of VAT returns using MTD-compatible software from 1 April 2019.
Businesses that currently do not use software to complete their business records or use software that is not MTD-compatible (functional compatible) will need to take steps to ensure that they are VAT compliant with the new rules coming into effect on 1 April 2019. The rules also apply to agents who submit VAT returns on behalf of their clients as they will need to use MTD-compatible software.
The government announced in Budget 2015 that it intended to transform the tax system and in December 2015, it published the Making tax digital roadmap, which laid down the government’s plans to make the fundamental changes by 2020 in order to make it more effective, efficient and simpler for taxpayers. Initially, the government intended to have a phased introduction of the MTD provisions for businesses, self-employed and landlords for income tax self assessment, VAT and corporation tax between 2018/19–2020/21. Finance (No 2) Act 2017, Part 4, s 62; Value Added Tax (Amendment) Regulations 2018, SI 2018/261; VAT Notice 700/22; Explanatory memorandum to the Value Added Tax (Amendment) Regulations 2018, SI 2018 No. 261
The government subsequently published a Ministerial Statement on 13 July 2017 which reduced the scope of the MTD and lengthened the implementation period. Currently, the MTD provisions will only apply to businesses with a turnover exceeding the VAT registration threshold (see the Overview ― registering for VAT guidance note) and it only applies to the business’ VAT obligations. Businesses are required to use the MTD online provisions with effect from April 2019. Businesses that are trading below the VAT registration threshold are not required to file their returns using the MTD provisions; however, they can do so voluntarily if preferable. Businesses will also be able to voluntarily opt in for other taxes if they wish to benefit from what the government is calling a ‘streamlined digital experience’.
The government also stated that it will not widen the scope of MTD beyond VAT reporting obligations until they are satisfied that the system is functioning correctly and any extension of the provisions will not take place until April 2021 at the earliest as the government announced in the Spring Statement 2019 that it would not include any other taxes into MTD during 2020.