Latest Industry News
With the introduction of Making Tax Digital for VAT (MTD for VAT) rapidly approaching, new developments may affect how certain businesses prepare for the measure. We take a look at the latest changes to the MTD for VAT regime.
MTD for VAT is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000. As part of the initiative, businesses must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).
Any business making use of MTD for VAT whose turnover subsequently falls below the VAT threshold must stay in the regime, unless they deregister for VAT. Any firm exceeding the registration threshold after 1 April 2019 must comply with MTD for VAT, and is given 30 days to ensure that the appropriate digital software is in place.
Deferral for certain businesses
In October, HMRC’s MTD for VAT guidance was updated, outlining a significant deferral of the initiative for certain businesses and organisations. A small group of taxpayers with ‘more complex’ requirements will be given an additional six months to prepare for MTD for VAT, and will therefore not be mandated to use the system until 1 October 2019.
The deferral applies to: not-for-profit organisations that are not set up as a company; trusts; VAT divisions; VAT groups; local authorities; public corporations; and traders based overseas. Public sector entities required to provide additional information on their VAT return, those who must make payments on account, and annual accounting scheme users are also covered by the deferral.
Meanwhile, HMRC also launched its second pilot scheme for MTD for VAT, inviting more than half a million UK firms to test the system ahead of its April introduction. The pilot is open for businesses with ‘up-to-date and straightforward’ financial affairs. HMRC intends to extend the pilot to ‘most other business types’.
MTD for VAT ‘encouragement letters’
HMRC recently sent businesses within the scope of MTD for VAT so-called ‘encouragement letters’.
These letters were sent to 200,000 firms which are eligible to join the pilot scheme, and some VAT-registered businesses with a turnover just below the VAT registration threshold.
HMRC stated that it is ‘committed’ to writing to everyone within the scope of MTD for VAT.
When should I start to prepare for MTD for VAT?
Businesses are advised to begin preparing for the initiative now. Firms will need to ensure that they are using digital accounting records as soon as possible.
As part of MTD for VAT, every business will be required to make use of an online Business Tax Account (BTA). Firms which do not currently have a BTA are advised to set an account up ahead of the MTD for VAT start date. The first step is to generate a Government Gateway ID – this can be done here.
Preparing for and complying with MTD for VAT will undoubtedly prove to be challenging for many businesses. As your accountants, we are always on hand to answer any questions you may have – simply contact us for more information.
For tailored advice on how to best manage your personal and business finances, get in touch with us today and find out about how CBHC can help you do more with your money.