Extension of Making Tax Digital for VAT from 1 April 2022
All businesses will be required to use MTD for VAT returns due on or after 1 April 2022, apart from those businesses that are exempt.
MTD is part of the government’s ten-year strategy to make the tax system more simple, efficient, and effective.
Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HMRC. Under the changes, those who do not already keep their records digitally will need to start doing so to meet their VAT obligations. The process of then sending returns to HMRC will become more straightforward, with their returns generated and sent directly from the software they are using to keep their records.
What does this mean for record-keeping processes?
All VAT records must be in digital format. For most businesses, this means the use of accounting software or similar for invoicing processes and may mean little change to their everyday record keeping.
If you use manual records currently, you will need to prepare for next April as MTD will have the most impact on how you keep your business records, e.g. once an invoice is processed, there can be no manual adjustments as there must be software links from the submitted return to the business records.
How to keep digital records
You need to use accounting software or bridging software (if you use any type of spreadsheet) that connects to HMRC systems.
If you use more than one software package to keep records and submit returns, you need to link them.
Some ways you can link your software include:
- using formulas to link cells in spreadsheets
- emailing records
- putting records on a portable device to give to your agent
- importing and exporting XML and CSV files
- downloading and uploading files.
Records you must keep digitally
You need to keep the following records digitally:
- your business name, address, and VAT registration number
- any VAT accounting schemes you use
- the VAT on goods and services you supply, for example, everything you sell, lease, transfer or hire out (supplies made)
- the VAT on goods and services you receive, for example, everything you buy, lease, rent, or hire (supplies received)
- any adjustments you make to a return
- the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
- the rate of VAT charged on goods and services you supply
- reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
- your total daily gross takings if you use a retail scheme
- items you can reclaim VAT on if you use the Flat Rate Scheme
- your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme.
There are some businesses that will continue to be exempt for reasons of;
- Age or disability or you live in a remote location with no internet
- You object to computer use on religious grounds
- It’s unreasonable or impractical
But this is expected to be exceptional and you must notify HMRC who will consider each case.
Further information is available from HMRC here:
- VAT record keeping – Making Tax Digital for VAT.
- Accounting and bridging software compatible with MTD can be found here.
- Apply for an exemption from making tax digital for VAT.
If you have any queries or concerns about MTD, please speak to your usual contact at Gerald Edelman or theVAT team.