The regulations to bring into force Making Tax Digital for VAT are now law, and digital VAT returns will be required from 1 April 2019.
This is the first phase of HMRC’s landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system and maintain digital accounting records.
Under the new rules, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software. For businesses which meet the criteria, the current ‘box entry’ into the VAT Return via the HMRC website will no longer be available.
The new rules take effect from 1 April 2019, where a taxpayer has a ‘prescribed accounting period’ which begins on that date, and otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019.
HMRC is piloting this process throughout 2018, ahead of its introduction in April 2019. Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2020, although businesses below the VAT threshold which have voluntarily registered for VAT can opt to join the scheme.
Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software will not be available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.