VAT Returns & MTD
Registering for Value Added Tax (VAT) can be daunting because there are numerous VAT Schemes (Standard or Accrual Scheme, Cash Accounting, Flat Rate Scheme, Retail Scheme, Margin VAT Scheme) – let us talk through the options with you. Currently, when a business is close to a turnover of £85 000 in any 12 month period, they are required to register for VAT.
However this registration is voluntary for businesses whose turnover is under that amount. VAT returns are usually computed and filed with HMRC on a quarterly basis but some businesses will file monthly or even on an annual basis. Business owners are now required to sign up to Making Tax Digital (MTD) at the time of registering for VAT. Once a business is registered for VAT, HMRC will send a notice by post which will tell the business owner when their VAT Return is expected by HMRC. At the time of engagement we offer a service of becoming HMRC Agents for both filing returns and discussing VAT affairs. It is important to note that even if a company is not trading but has registered for VAT that a NIL VAT return is required each quarter.
WHAT IS MTD AND HOW WILL IT AFFECT MY BUSINESS?
MTD stands for MAKING TAX DIGITAL – The exchequer loses billions of pounds of revenue each year due to mistakes in taxpayers VAT returns. MTD is modernising the UK tax system by creating a digital service to help businesses get tax right first time.
How VAT returns are being submitted is changing from April 2019. For each business their existing quarterly reporting will stay the same, the deadline for sending returns and how payments are made is not changing. What is changing is the way returns are submitted, this is now required to be in a digital format. Below we have detailed out who this affects and what exactly is changing.
WHO IS AFFECTED?
- Most VAT registered businesses with a turnover of OVER £85k*
- MTD is voluntary for VAT registered businesses with a turnover UNDER £85K
What about those businesses UNDER VAT threshold?
§ Businesses that are not VAT registered are not affected
§ Businesses that are VAT registered but with a turnover UNDER £85K, then MTD is optional. (a monthly check on the turnover for the previous 12 months is advised)
Once a business falls under MTD even if the taxable turnover falls below the £85k threshold then the business remains MTD mandated.
What is changing?
Businesses will need to start to use MTD compatible software to create a digital link between business accounts and the HMRC portal. This will mean businesses will need to:
Maintain information in a digital format. These are
- Time of supply
- Value of supply (net value)
- Rate of VAT charged
- Time of supply
- Value of the supply
- Rate of input tax that will be claimed
Invoices both sales and purchases must still be kept in either paper or electronic form
– Submit VAT returns – the digital link between VAT records and the return submitted to HMRC must be through API (application programming interface) enabled software
– Business name, principle place of business, VAT registration and VAT accounting scheme used must also be stored in the enabled API software.
MTD requires a digital link between business software and HMRC. This therefore means no manual intervention or re-typing of information from one product to another and no copy and pasting.
What isn’t changing?
- Box 9 to be completed for a VAT return
- VAT frequency and payment deadlines
- Eligibility for VAT schemes
What about specific VAT schemes?
- Retail schemes – Retailers will be able to record gross daily takings (not weekly, monthly or quarterly) rather than each individual transaction. This means that there does not need to be a digital link between tills and the accounting records; recording the daily totals in the digital accounting records meets the requirements. Many businesses are using a retail scheme without understanding that they are doing so.
- Flat rate schemes – The flat rate scheme will continue and digital records of supplies received will not be required (unless they relate to capital items which cost more than £2,000 including VAT).
- Margin schemes – The additional records required for margin schemes and the calculation of the marginal VAT charged do not need to be kept in digital form. These records must still be maintained in some format.
MTD for Income tax and Corporation tax is on hold. HMRC have yet to announce any further details.
CAN WE HELP YOU?
Bookkeeping Synergy can help with a smooth transition into digital tax by seamlessly moving your existing accounts to a cloud-based system and giving your business the peace of mind that you are MTD compliant as well as a full range of other services on offer.