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Making Tax Digital: VAT

Despite delays to various staging post dates, the government’s digital agenda juggernaut is rolling on…

January 2018

Making Tax Digital for VAT will come into effect from April 2019. From that date, businesses with a turnover above the VAT threshold (currently £85,000) will have to:
• Keep their records digitally (for VAT purposes only).
• Provide their VAT return information to HMRC through Making Tax Digital (MTD) functional compatible software.
The Finance Bill 2017, published in September, included legislation allowing the introduction of MTD for VAT.
Clause 62 updates the powers contained in Schedule 11, VAT Act 1994 (administration, collection and enforcement). This clause covers how records are kept and preserved, the keeping of accounts, and making of returns. But it introduces new powers to make regulations about the submission of information from VAT registered businesses. It also allows commissioners of HMRC to make regulations that require a business to keep and preserve certain records digitally.
Accountants will need to use commercial software that can connect to HMRC systems via an Application Programming Interface (API). The functions of the compatible software must include:
• Keeping records in a digital form as required by the regulations.
• Preserving digital records in a digital form as required by the regulations.
• Creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally.
• Providing HMRC with VAT data on a voluntary basis.
• Receiving information from HMRC via the API platform in relation to a relevant entity’s compliance with obligations under the regulations.
Businesses will need to preserve digital records in functional compatible software for up to six years.
The government has promised to publish and consult on draft VAT regulations by no later than April 2018, giving businesses and software developers at least 12 months to prepare before the requirements fully come into force.

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