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Tax is going digital, just as sure as Brexit is happening. The first business transactions to be affected by this Making Tax Digital (MTD) revolution will be those relating to VAT.

If your business is VAT registered, and your turnover is £85,000 or more per year, you will be required to submit your VAT returns using MTD-compliant software for quarters that start on and after 1 April 2019. You will also be required to keep the records from which the VAT return is derived in a digital form. This means recording digitally the date, the VAT rate, the VAT paid, and the value of each transaction. It won’t be necessary to keep a digital copy of each sale or purchase invoice.

MTD-compliant software must be capable of transferring data to and from HMRC via an application program interface (API). A spreadsheet on its own can’t qualify as MTD-compliant, but if it is used with an API add-on (aka ‘bridging software’), it may qualify as MTD-compliant.

Your first step in preparing for digital VAT should be to contact your accounting software provider and ask when they will issue an upgrade which is MTD-compliant. HMRC won’t provide free software for businesses to comply with the MTD regime.

If you currently keep all your VAT records on spreadsheets and/or paper, we need to talk about how you can digitise your recording systems over the next nine months. We can continue to submit your VAT return on your behalf, but we will need to receive the VAT information from you in a digital fashion, such as transferred on a memory stick, or downloaded from a cloud-based accounting package.

If you are VAT registered but your turnover is below £85,000, you will be able to carry on submitting VAT returns as you do now, either using your accounting software or by typing the sales and purchase figures into the online VAT return form.

It will be possible to claim an exemption from the new digital rules for VAT based on the business owner’s disability, the business having no access to the internet, or on certain religious grounds.

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Clarke Nicklin House, Brooks Drive, Cheadle Royal Business Park, Cheadle, Cheshire, SK8 3TD. Registered Number OC309225.
The firm is registered to carry on audit work in the UK & Ireland. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001178544. The professional rules applicable are the Audit Regulations and Guidance which can be found at www.icaew.com/regulations, and the International Standards on Auditing (UK and Ireland) which can be found at www.frc.org.uk/apb/publications/isa.cfm.