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29th November, 2018
Making Tax Digital for VAT – Understanding Compatible Software
Making Tax Digital for VAT is nearly here. From 1 April 2019, the vast majority of affected businesses will have to meet new digital recordkeeping and digital VAT filing requirements. A small number of businesses, such as those with complex VAT requirements, won’t have to comply until 1 October 2019.
Part of the requirements of Making Tax Digital for VAT is that digital VAT returns will have to be filed using software that is compatible with the Making Tax Digital platform. Find out more below.
I already file my business’ VAT return online, so what’s different?
Although the vast majority of VAT returns are filed online, according to the Chartered Institute of Taxation (CIOT) “only around 13% of VAT returns are currently filed direct from software”. As a result, most VAT returns are actually filed online using some form of manual data entry.
Under Making Tax Digital for VAT, it will no longer be possible to manually enter VAT return information into the government gateway when filing a VAT return with HMRC. Instead, VAT returns will need to be filed online using information taken directly from digital records.
What types of software are available for Making Tax Digital for VAT?
HMRC has said that free software will not be available for Making Tax Digital for VAT.
This means that businesses will need to find alternative means to digitally record and store their VAT records and submit their VAT returns to HMRC. When it comes to selecting software, there are a few options that a business can choose from.
Firstly, there is Making Tax Digital compatible software, which is offered by commercial, third-party accounting software providers, such as Xero. Businesses that use compatible online accounting software will be able to keep their VAT records digitally while also filing their VAT return digitally to HMRC through the accounting software itself.
Alternatively, if your business is reliant on spreadsheets when it comes to preparing VAT returns, there is the option of using Application Programming Interface (API) enabled spreadsheets, which communicate digitally with HMRC. Alternatively, bridging software could be used, which is able to extract the contents of a spreadsheet and upload this information to the government gateway and HMRC.
Will any transitional arrangements be in place?
A business might keep its digital records in a number of different places, for example in a number of different spreadsheets. Under Making Tax Digital for VAT, there will need to be a digital link in place between these programmes, not least to ensure there is a full audit trail available in respect of a business’ VAT records.
Thankfully, for the first year of Making Tax Digital for VAT (i.e. from 1 April 2019 to 31 March 2020) a soft landing period will be in effect, meaning that digital links will not have to be in place between software programmes during this time.
However, digital links will have to be in place after 31 March 2020, so businesses will still need to make sure that they have adequate processes prepared to remain compliant with Making Tax Digital for VAT after this date.
Which compatible software is right for my business?
In our next Making Tax Digital article, we’ll outline which software option would be the best choice for your business to meet the new Making Tax Digital for VAT requirements.
In the meantime, if you have any questions about the new digital recordkeeping or digital filing requirements under Making Tax Digital for VAT, reach out to a member of the team at Advantage Accountancy & Advisory on 029 22 331169 for further advice.