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Articles 24.10.17 Author: Thomas Adcock

MTD is starting to take shape

Articles 24.10.2017 Author: Thomas Adcock

MTD is starting to take shape – at least for VAT registered businesses.

MTD is starting to take shape – at least for VAT registered businesses.  HMRC have released yet another consultation document which focuses on the two main parts of MTD in respect to VAT:

  1. Electronic record keeping requirements; and
  2. VAT return information

As regular readers will know, following HMRC long hoped for acceptance that the original start date for MTD for all unincorporated businesses (including landlords) of April 2018 was never going to happen, HMRC announced that its release will be delayed until April 2019 but that it will only apply for VAT registered businesses whose taxable turnover is in excess of the VAT threshold (where their turnover falls below they will remain within MTD unless they de-register).  All other businesses (including landlords) will likely be brought within MTD for income tax in 2020 (although there is some doubt about this as well).  There are a small number of exemptions concerning religion, insolvency or where the commissioners are satisfied that it is unpracticable because of age, disability or remoteness of location.

The consultation document defines what HMRC will require businesses to do so as to comply with maintaining their business records electronically.

  • Businesses must use functional compatible software that can do the following:
    • Keep records in a digital form
    • Preserve those digital records in a digital form for at least 6 years
    • Create a VAT return from those digital records and submit it digitally to HMRC
    • Be able to provide HMRC with further data on a voluntary basis
    • Receive information from HMRC electronically in respect to compliance with MTD
  • Digital records are defined to include:
    • Details about the business such as its name, place of business and VAT registration number;
    • A VAT account including information on output tax (VAT payable), input tax (VAT allowable) and adjustments
    • Information about supplies made and received (including the date, amount on the invoice broken down where there are different rates of VAT and VAT charged)

In regard what HMRC want to see, in addition to the figures within the standard 9 box UK VAT return, HMRC will require the business to be able to submit the information stored within the VAT account along with all of the information listed above concerning supplies made and received.   HMRC have also clarified within the consultation a number of other factors that have been the topic of conversation between them and the profession:

  • Those that are within retail schemes will be permitted to report daily takings.  A similar restriction for VAT flat rate scheme users will apply so that they keep records for all sales but in respect to purchases, they need only keep records for capital goods with a VAT inclusive value of £2,000 or more.
  • Those on monthly or annual returns will be able to continue with them
  • There are provisions to allow for voluntary periodic updates outside of the VAT return and for supplementary data to be provided to support the information included within the VAT return so as to – in HMRC mind – improve compliance.

HMRC have also released very draft guidance on what they will expect from business that will fall within MTD from April 2020 (assuming that date is not pushed back).  In short, they are considering requiring all businesses to provide a detailed breakdown of their income and expenditure on a quarterly basis having complied with similar digital record keeping requirements as described above.  Broadly it looks like they will want something like what is currently provided within the annual tax return as a P&L of the business with defined headings.  However, this is very draft indeed and so we have chosen not to delve into the detail of the proposals here.

We expect more news in the coming months and will do our best to update you.  But the most important thing of you to do is to make sure that you know whether you will fall within MTD from April 2019 and that you are going to be compliant with what will be required from then.  As always, if you would like to discuss this with us, please do not hesitate to get in touch.

About the Author

Thomas Adcock

Tax Partner +44 (0)20 7309 3856