What is Making Tax Digital for VAT?

Making Tax Digital (MTD) for VAT is an overhaul of HMRC’s VAT reporting process that comes into effect for VAT returns starting after 1st April 2019. These changes aim to force businesses to stop using outdated/manual record keeping processes by requiring them to digitise their records and submit their VAT returns through approved software.

If you are an online business then the majority of the new rules will not affect you as you should already have both digitised records and be submitting your returns through approved software.

Aren’t our VAT returns already submitted online?

If you are used to submitting your VAT returns online via Government Gateway then you may be wondering what all the fuss is about and why it’s such a big deal? Well, it’s huge.

In the original VAT system you were only providing HMRC with a summary of your transactions each quarter (e.g. boxes 1-9). Now, in Making Tax Digital, you will be required to provide HMRC with a breakdown of each of the transactions that form each of the boxes.

Essentially, if they want to look into your return, they will be able to drill down into your calculations, not only to check that they are correct, but to that check each of the transactions that are being included are allowable/valid.

Now HMRC have not explicitly said what they intend to do with this additional data, however, we can only imagine how much more powerful their compliance checks will be once they develop suitable algorithms.

What are the new rules?

The two main changes are as follows:

1. VAT Returns must be submitting through “functional compatible software” (Government Gateway will not function for returns due after the switch to MTD) and filed using an API.
2. Certain records must now be “kept, maintained and preserved in digital form” (see: para 4.3 Digital record-keeping)

Who needs to follow the new MTD rules?

All businesses with taxable turnover over the VAT registration threshold need to submit VAT returns for their VAT reporting periods that start on or after 1st April 2019.

Are there exemptions from MTD?

There are some exemptions for MTD (see: para 3.1 of VAT Notice 700/22), however, we believe that if you are an ecommerce business then the only criteria that could arguably apply to you is if your business has voluntarily registered for VAT and is below the VAT registration threshold.

How does MTD apply to Amazon Sellers?

If your business makes taxable supplies through a third party agent, such as Amazon, then HMRC understands that sometimes it is impractical to have a record of every single supply made. HMRC have stated that in these circumstances, supplies made by third-party agents may be recorded digitally as a single invoice (see: para 4.3.2.1 Supplies made by third-party agents).

15/02/2019: We have written to HMRC for further clarification on this so will update this blog post accordingly.

Accountants for Ecommerce

Many accountants have been dreading the introduction of MTD (read the comments in this forum) since it was originally announced, however, as Accountants for Amazon and Ecommerce we pride ourselves on our efficiency and our online systems. We find it funny, but we essentially had our clients MTD compliant before MTD was even announced!

Now that is has been introduced we are proud to say that before our clients even reach the VAT registration threshold, their systems are already fully compliant with Making Tax Digital for VAT from Day 1.

Questions about VAT?

Find out more here:

• VAT for Amazon Sellers
• How to find your VAT certificate online