Your Making Tax Digital for VAT questions answered!
With Making Tax Digital (MTD) for VAT now in full swing since its introduction in April, it’s essential that you get to grips with your new responsibilities. To help you out, we’ve answered the most common Making Tax Digital (MTD) for VAT questions that accountants have asked over the last few months. FreeAgent is proud to sponsor Professional Accountancy 2019 - come along and see us at Stand D61!
1. What is MTD for VAT?
MTD for VAT is the first phase in the Making Tax Digital initiative, the government’s plan to make tax administration more efficient for taxpayers through a fully digital tax system. VAT-registered businesses with VATable sales above the VAT threshold are required to digitally record their bookkeeping and submit VAT returns using MTD-compatible accounting software. All VAT returns have to be filed through HMRC’s new MTD APIs (interfaces that enable accounting systems to communicate with HMRC’s systems) instead of through the existing portal.
2. When did MTD for VAT begin?
Businesses under the scope of MTD for VAT have to make their first MTD-compatible submission for the first VAT period starting after 1st April 2019. If a business has a VAT accounting period that spanned the 1st April 2019 start date, the return for the following VAT accounting period will be the first that has to be completed using MTD-compatible software.
3. Is FreeAgent ready for MTD?
Yes! HMRC lists FreeAgent as one of the software suppliers supporting Making Tax Digital for VAT and our experienced engineers are working closely with HMRC to ensure the transition is as smooth as possible. Our support team are trained specifically on MTD for VAT to ensure that they can provide you with the best advice.
4. What should I be doing to prepare?
We’re working hard to ensure that the switch to MTD is as painless as possible, but there are a few things that you need to do:
- Determine which clients fall under the scope of MTD for VAT – if you’re using FreeAgent, you can use our dashboard reporting functionality to run turnover reports across your whole client base.
- Ensure all clients who fall under the scope of MTD for VAT are using MTD-compatible software.
- Communicate with affected clients about their new obligations.
- Set up an agent services account* with HMRC.
- Add all clients who fall under the scope of MTD for VAT to your agent services account and subscribe them to MTD when you are ready to file.
*The agent services account is different to your current Government Gateway account and is the account you’ll use to access the majority of HMRC online services.
5. Who can file an MTD VAT return?
Both you and your clients will be able to submit VAT returns under MTD. If your client has already authorised you to file their VAT returns, their authorisation will be passed on to your agent services account. In order to file VAT returns for new clients, or clients who have not yet authorised you to do so, you’ll have to seek their authorisation.
6. What about VAT special schemes?
Eligibility for VAT special schemes, such as the flat rate scheme, will remain the same. Businesses that are currently eligible to submit annual VAT returns will still be able to do so under MTD.
7. What information needs to be submitted?
While businesses will need to keep a record of all their transactions in MTD-compatible software, HMRC only requires summary data in each VAT submission. This takes the form of the familiar nine boxes on the VAT return:
- VAT due on sales and other outputs
- VAT due on acquisitions from other EC member states
- Total VAT due (the sum of boxes 1 and 2)
- VAT reclaimed on purchases and other inputs (including acquisitions from the EC)
- Net VAT to be paid to Customs or reclaimed by you (Difference between boxes 3 and 4)
- Total value of sales and all other outputs excluding any VAT
- Total value of purchases and all other inputs excluding any VAT
- Total value of all supplies of goods and related costs, excluding any VAT, to other EC member states
- Total value of acquisitions of goods and related costs, excluding any VAT, from other EC member states
8. What information needs to be stored?
Remember that the above is the information that has to be submitted for VAT; under MTD your clients will also be required to store certain information digitally. This should include, for each supply:
- the time of supply (tax point)
- the value of the supply (net excluding VAT)
- the rate of VAT charged
Records should also include your clients’ business name, business address, VAT registration number and details of any VAT accounting schemes they use.
9. What about VAT-registered businesses with VATable sales below the threshold?
Businesses with VATable sales below the VAT threshold can voluntarily join MTD for VAT if they wish. If VATable sales for a business that’s subscribed to MTD for VAT fall below the VAT registration threshold, the business must continue to follow the rules for MTD until it de-registers for VAT.
At the end of each month you should continue to check each client’s VATable sales for the
previous 12 months to check if the figure exceeds the threshold. If it does, MTD for VAT will apply from the first day of the following month.