HM Revenue & Customs (HMRC) has finally issued a new notice on Making Tax Digital for VAT in which it has clarified many of the questions that businesses had.
VAT notice 700/22: Making Tax Digital for VAT has been created to act as a point-by-point guide to the new regime and includes new advice from HMRC to help fill the gaps where the policy has previously been unclear.
Within the document, HMRC confirms that VAT-registered businesses with annual VATable turnover under the VAT registration threshold (currently £85,000) do not have to comply with MTD, but can voluntarily sign up by informing the tax authority in writing.
Exemptions will also be offered to businesses on the grounds of religion, insolvency, or because it is not reasonably practicable to use digital tools.
Exempt companies will have to contact the general VAT helpline to ask HMRC to approve the exemption or seek “digital assistance”.
HMRC has also confirmed the information that each business will need to submit in regards to each VATable supply made by the business, this includes:
- time of supply (tax point)
- value of the supply (net value excluding VAT)
- rate of VAT charged.
Partially exempt businesses or those that use a VAT scheme may not be able to report how much VAT they can reclaim on each individual invoice. In this instance they can record:
all the VAT paid; or
none of the VAT; or
the estimated amount of the recoverable VAT.
Once the partial exemption or other scheme calculation is completed, an adjustment will be made to the digital VAT records.
Some permanent information about the business must also be recorded digitally, such as the name, address, VAT number and any VAT accounting scheme used.
However, businesses will not have to keep a digital image of each purchase invoice.
HMRC has also announced that it has seen demonstrations of various MTD software and tested online accounting products within the HMRC test environment. It has produced a list of tested software, although it is likely that additional providers will be added to this list at a later date.
The VAT notice confirms that the full MTD service won’t be available from HMRC when MTD for VAT goes live in April 2019.
This will mean that businesses won’t be able to submit voluntary updates or supplementary data to support their VAT return initially, although these will be added at a later date.