Making VAT Digital (MVD) Update - Consultation Period ends 9th Feb 2018
With the draft legislation out for consultation now seems a good time to catch up on what Making VAT Digital is starting to look like in terms of reporting requirements. At our VAT Update session on the 30th January there was a broad range of businesses, charities and public bodies such as Universities in attendance, all taking a proactive stance on starting to consider how their accounting systems will need to change in order to ensure the accurate submission of their VAT data from April 2019.
The draft legislation states that the required records must be preserved in functional compatible software (FCS) - Any form or means subject to conditions agreed in writing by HMRC. FCS means a software program or set of compatible software programs capable of holding and communicating the required digital data that HMRC are now to request. This includes the preservation of an Electronic VAT Account.
Who’s caught immediately in the requirements?
Any business with taxable income over the VAT registration threshold. This will mean that VAT registered businesses with taxable income below the VAT registration threshold will not automatically be in the MVD initial cohort.
There will be “Exceptions” from MVD for religious reasons, insolvency, or impractical by reasons of disability, age, geographic remoteness – with the wealth of Broadband “Not-Spots” in Wales – this might be a reasonable claim for a number of businesses!
You could also “Elect” not to be “Excepted” from MVD. Perhaps your turnover is under the VAT threshold, but you are VAT registered and already have compatible accounting software. You have the choice therefore to “opt in~, as it were, from day one in April 2019.
It should be noted that once in MVD, unless through the means of an “Opt In” election; the draft legislation suggests that you do not leave until you deregister from VAT - even if your taxable turnover drops below the current VAT threshold in force at the time.
What are HMRC trying to achieve?
The desire of HMRC is to reduce the amount of Tax lost through the failure of people to take “reasonable care”. Across all taxes there is a Tax Gap of £34bn of which:
- £9.4bn is lost every year from “mistakes”
- VAT accounts for £12.6bn tax lost within the total figure
- SME’s account for £15.5bn of overall lost tax figure
It’s unsurprising therefore to see that it’s VAT that is leading the way on the Making Tax Digital Plan nor that by linking it with the VAT registration threshold it’ll be a change that impacts on a significant number of smaller businesses.
Key Feature – Digital interaction
The key feature of MVD is that outside of the requirement to keep mandatory information in a digital format the express intention of the process is to transfer that VAT data in a digital format and not manually into an online VAT return form. This does not mean that you cannot use a spreadsheet to bring together your VAT Return data, BUT it does mean that the transfer of that data from the spreadsheet to HMRC MUST be through an application programming interface (API). This API is the software that will enable electronic communication with HMRC.
Digital Records Required:
- Designatory Data: the business name, principal place of business, VAT registration number, information about VAT accounting schemes used
- The VAT Account: totals of output tax and input tax and any adjustments (only the total adjustment figure not the calculations below that)
- Transactional Data: line by line entry of income and expenditure.
– Date; Invoice Total; VAT charged.
Output data will also need to be split by type: Standard, Reduced, Zero, Exempt and Outside the Scope.
We will be submitting a number of comments to HMRC prior to the close of the consultation period on the 9th February 2018 and should you wish to add any comments into our submission then do please let us know – call on 01633 415390 or email them to firstname.lastname@example.org
Two issues we will be raising are:
– Will there be a requirement to split Purchase data into the various VAT liabilities as well as the current requirement noted for Sales income
– For Charities how are they to approach the reporting of “Outside the Scope” funding such as grants which previously would not have been a requirement to include in the VAT Return data.
There is little information available currently on the availability of software programs to address the digital information interface issues between accounting software and HMRC. Certainly, there is no offer from HMRC on freely available software “fixes”.
As VAT people our key objective will be to ensure organisations can confidently rely on the accuracy of their accounting systems. You should ensure that the right accounting data is collected across all areas within the organisation and that it will be included in the digital VAT Account. The accuracy of your VAT submission hinges on that data capture from April 2019.