MTD for VAT: legislation overview
Third party software HMRC stipulates that businesses within the scope of MTD must use functional compatible software to meet the new requirements. Functional compatible software means a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). The functions of the compatible software must include: • keeping records in a digital form • preserving digital records in a digital form • creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally • providing HMRC with VAT data on a voluntary basis • receiving information from HMRC via the API platform that the business has complied.
Keeping digital records Businesses will be required to submit summary totals of their digital records to HMRC at least every three months. In addition, with their first quarterly update they must provide certain ‘designatory data’, and any subsequent changes to this data must be included in their next quarterly update. The regulations will specify the information a business needs to keep and preserve digitally. The digital records must include: • ‘designatory data’ including the business name, principal place of business and VAT registration number together with information about which VAT accounting schemes they use; • the VAT account, explained further below; and • information about supplies made and received. Businesses will also need to maintain digital records for the VAT account (the audit trail between primary accounting records and the VAT return). This should include details of the VAT payable portion and the VAT allowable portion.
Following the publication of the Finance Bill in September 2017, which includes primary legislation allowing the introduction of MTD for VAT and income tax, HMRC published an open consultation on the draft VAT regulations. The law will retain the current rules regarding keeping and preserving records, the keeping of accounts and the making of returns, but provide new powers to allow HMRC to introduce regulations governing the digital submission of information from VAT-registered businesses. Here we consider some of the key areas outlined in the draft legislation. Exemptions The MTD requirements for VAT will take effect from 1 April 2019 and will apply to any VAT-registered business with a taxable turnover over the VAT registration threshold. Exemptions will be available where HMRC is satisfied the business is run by a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, or a business to which a qualifying insolvency procedure is applied, or for which HMRC is satisfied that it is not reasonably practicable to make a return using an electronic return system for reasons of disability, age, remoteness of location or any other reason. There will be a right of appeal against the refusal of an exemption by HMRC.
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