An insight into what could be termed as ‘digital records’ under MTD.
With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold (currently £85,000), you are required to continue to keep digital records and send HMRC your VAT returns using compatible software. You must follow these rules even if your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019. This obligation does not apply if you either:
- deregister from VAT
- meet other exemption criteria.
VAT taxable turnover is the total value of everything you sell that is not exempt from VAT or outside the scope of VAT.
What you need to do now is future proof your processes for MTDfV.
What are digital records?
All VAT registered businesses must keep and preserve certain records and accounts. Under Making Tax Digital, some of these records must be kept digitally within functional compatible software. Records that are not required to complete your VAT return do not need to be kept in functional compatible software.
You must have a digital record of:
- your business name
- the address of your principal place of business
- your VAT registration number
- any VAT accounting schemes that you use
- time of supply – the tax point
- value of the supply – the net value excluding VAT
- rate of VAT charged
- the total output tax you owe on sales
- the total tax you owe on acquisitions from other EU member states
- the total tax you are required to pay on behalf of your supplier under a reverse charge procedure
- the total input tax you are entitled to claim on business purchases
- the total input tax allowable on acquisitions from other EU member states
- the total tax that needs to be paid or you are entitled to reclaim following a correction or error adjustment, and
- any other adjustment allowed or required by VAT rules.
This only includes supplies recorded as part of your VAT return. Supplies that do not go on the VAT return do not need to be recorded in functional compatible software. For example intra-group supplies for a VAT group are not covered by these rules.
The complete set of digital records to meet the MTD requirements does not all have to be held in one place or in one program. Digital records can be kept in a range of compatible digital formats. Taken together, these form the digital records for the VAT-registered entity.
Use of supplier statements
Where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown.
Petty cash transactions
Where a business uses petty cash to pay for small value items, these do not need to be individually recorded in the digital records. The business can record the total value and the total input tax allowable. This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry. VAT notice 700/21 gives more information on keeping VAT records.
What digital records must be kept for VAT schemes?
1 Flat rate scheme
You do not need to keep:
- a digital record of your purchases unless they are capital expenditure goods on which input tax can be claimed
- a digital record of the relevant goods used to determine if you need to apply the limited cost business rate.
2 Retail schemes
In addition to the records listed above, if you account for VAT using a retail scheme you must keep a digital record of your Daily Gross Takings (DGT). You are not required to keep a separate record of the supplies that make up your DGT within functional compatible software.
3 Margin schemes
If you do keep a digital record and your software does not allow you to record the VAT on the margin, then you will need to record the supply as either one standard rated supply and one zero rated supply. Alternatively, you can record the sale at one rate and correct the VAT through an adjustment at the end of the period, using the same method HMRC will allow you to use to correct the VAT on a mixed supply.
Further MTD deferral for GIANT customers
Due to an ongoing review by the government into VAT simplification in the public sector, HMRC announced on 17 June 2019 a further deferral for GIANT (Government Information and NHS Trust) service users only, who are currently required to submit additional information with their VAT return. HMRC will be writing to the affected businesses later in the summer with a new timetable and with a formal extension.
This specific deferral will not be affect other organisations within the ‘deferred group’, which are going to join MTD for the first VAT period starting on or after 1 October 2019.
All GIANT customers should continue to submit their VAT returns as they do now.
All other elements of the VAT service will continue as planned. MTD was mandated for VAT for the majority of customers from April and will be mandated for deferred customers who do not use the GIANT service from October.
You may find more information about MTD within this FAQ and HMRC VAT Notice 700/22.
Article from ACCA In Practice