Making Tax Digital – Public Notice 700/22
On 13 July 2018, HMRC published its much anticipated VAT Notice 700/22 which explains the rules for Making Tax Digital (MTD) for VAT. The Notice explains the digital records businesses must keep, ways to record transactions digitally in certain special circumstances, what counts as ‘functional compatible software’ and when software programs do and do not need to be digitally linked where a combination of programs are used.
Alongside the VAT Notice HMRC also published:
- Making Tax Digital for Business – stakeholder communications pack which provides stakeholders with information to support businesses that need to make the transition to digital VAT business record keeping and submission of VAT returns using MTD-compatible software from 1 April 2019
- Information about suppliers who have tested their MTD API software products in HMRC's test environment and demonstrated a prototype to HMRC. This list will be updated regularly. We understand that a list of developers who have completed live MTD submissions and a full list of software choices will follow
All VAT registered businesses with taxable turnover above the VAT registration threshold (currently £85,000) will be compulsorily required to meet the MTD requirements for their VAT obligations from April 2019. Other taxes will follow at a later date but not before April 2020 at the earliest.
The MTD requirements mean that businesses will need to make sure that they store VAT records digitally, are able to submit VAT returns electronically via an interface (API) with HMRC software and that they can demonstrate a clear electronic audit trail and digital link from source systems to VAT return submission.
The Notice provides some clarity around issues which many businesses face including the MTD requirements, exemptions, records, functional compatible software, digital links, VAT calculations outside of software, adjustments, correcting errors and application of special VAT accounting schemes.There remains, however, some uncertainty in terms of how to make MTD work in practice – particularly where adjustments are needed to VAT return figures prior to submission. There are also some significant points which may impact partially exempt organisations, namely that:
- HMRC has specified that the value of exempt supplies are reportable (particularly difficult in respect of some financial services)
- Partial exemption calculations fall outside of the functional compatible software requirement as an ‘adjustment’
Given the long lead time to make systems changes, many businesses are already undertaking readiness assessments with a view to meeting the new requirements.
Go To Market and Knowledge Lead, Indirect Tax
+44 (0)7917 000 028