HMRC’s Digital Revolution – implications for VAT returns

23 Nov 2018

The global digital revolution has taken over much of our daily lives in some form or another. From contactless payments to household appliances that can be remotely operated. Transactions are becoming more efficient and the digital revolution is rapidly transforming how businesses operate.

More companies are embracing technologies to stay ahead of the competition, aiming to become more efficient to create more time for providing value added services to their customers. Digitisation is also being embraced by governments all over the world.

Time is of essence and we are now six months away from 1 April 2019 when the much talked about Making Tax Digital (MTD) provisions will come into effect. This is the first stage of digitisation being introduced by HM Revenue & Customs (HMRC) to make tax administration more effective and efficient.

From 1 April 2019, MTD will become applicable to VAT registered businesses that do not have ‘complex requirements’ according to HMRC. For ‘complex businesses the first VAT return which has to be submitted via MTD compatible software will now be the VAT return beginning on or after 1 October 2019. Businesses having ‘complex requirements’ include:

  • VAT Groups and VAT divisions;
    • public corporations;
    • overseas traders;
    • businesses that are required to make payments on account;
    • businesses on the annual accounting scheme;
    • trusts;
    • not for profit organisations that are not set up as a company;
    • certain government departments;
    • NHS Trusts; and
    • local authorities.

Therefore most businesses will be caught by the 1 April 2019 deadline.

Small businesses will not be required to adopt the system but will be allowed to do so voluntarily. Businesses must follow the MTD rules from the first day of your first VAT return period that starts on or after 1 April 2019/1 October 2019. After these dates you will no longer be able to manually complete the nine boxes of a paper-based VAT return, or manually complete your VAT return online at the HMRC VAT portal.

Businesses that are mandated to apply MTD will be required to maintain their accounting records digitally within a suitable software or spreadsheet. They will also be required to submit their VAT returns using a functional compatible software that can connect to HMRC’s Application Program Interface (API). The API will integrate the business records that are digitally maintained with HMRC’s systems. It should be noted that spreadsheets will have to be API enabled. This would mean that most businesses would have to invest in a suitable commercial software or appoint an agent (usually their accountant) to submit VAT returns on their behalf.

MTD for VAT is currently under pilot testing with invited volunteer businesses, agents and software providers taking part in the programme.

Once MTD for VAT is successfully implemented, HMRC aims to introduce MTD to other areas e.g. corporation tax and income tax. These will not be in operation before April 2020 but the MTD for Income Tax pilot is already available on a voluntary basis.

The obligations of businesses and individuals for filing returns and their respective filing deadlines will not be changing. MTD will make it possible for tax payers to be able to view their tax positions on a real time basis and update information on HMRC’s systems regularly so that they can get their tax right.

Through digitisation, HMRC aims to become one of the most advanced and efficient tax administrations in the world. In doing so, it will enable tax payers to understand their taxes better and create more time for tax payers to be able to plan ahead.

Article written by:

Silver Levene LLP
Contact Vinku Shah
020 7383 3200