As predicted, January brought about a revised version of HMRC’s VAT Notice 700/22: Making Tax Digital for VAT. The purpose of the notice is to explain the digital records that businesses will need to keep, and to supply information on what counts as compatible software, and it is important that all businesses begin to familiarise themselves with what is going to be expected, when the MTD process begins in April 2019. This version corrects a number of errors in the original, alters the conditions for applying for the ASA, and further details the soft-landing period. Detailed below are some of the changes to note…
Turnover Test (to check exemption on the grounds of turnover)
As of 1st April 2019, if a company’s taxable turnover is above the VAT registration threshold, they must follow the rules set out in the VAT notice. Should the taxable turnover drop below this threshold at any point, they will still need to continue to keep digital records, and submit VAT returns with compatible software. The original version of this notice suggests that if a company’s turnover had ever breached the VAT threshold, they will need to follow the new MTD rules from April 2019. However this is not correct; the turnover for the 12 month period ending immediately before the date of the turnover test should be considered. The revised VAT notice provides three examples of businesses with different dates for starting MTD.
Example 1 – a business’s quarterly return covers the period of 1st March to 31st May 2019. This business’s taxable turnover exceeds the VAT threshold, so the business will need to comply with MRD rules for the period starting 1st June 2019.
Example 2 – a business that was not previously registered for VAT is required to do so from the 1st of September 2019 as the taxable turnover of the previous 12 month period has exceeded the threshold. This business must follow the MTD rules for the VAT returns they are subsequently required to make (so from the 1st of September).
Example 3 – a business is registered for VAT but has a taxable turnover below the MTD threshold until November 2019. This business will be required to follow the MTD rules for any VAT period that starts on or after the 1st December 2019.
The revised VAT notice 700/22 indicates that the MTD for VAT rules apply from 1st April 2019, so 31 March 2019 is the earliest date on which the annual turnover level can be tested. These three examples offer potentially different times scales by which a business has to prepare for MTD reporting.
HMRC has detailed a period of time, termed ‘The soft landing period’ for businesses to get in place the digital links between all parts of their functional compatible software. During this period the new rules for digital links will not be enforced with penalties. For most the soft landing period is the 1st of April 2019 to the 31st of March 2020. If HMRC has directed a business to start following the MTD rules for VAT periods starting on or after the 1st of October 2019, the period is 1st October 2019 to the 30th September 2020. During this soft landing period, where a digital link has not been established, HMRC will accept the use of cut and paste as being a digital link for these VAT periods. The soft landing period only applies to the enforcement of digital links
between software products, and not penalties issued for non-compliance with the MTD requirement to file VAT returns using MTD compatible software.
Exemptions from MTD
There are some slight changes in this revised version of the notice with regards to the other exemptions from MTD. In a progression from the HMRC’s previous position, this version of the notice acknowledges that someone may not be able to meet all the MTD requirements, even if the business currently manages to submit their VAT return online. In reference to the listed grounds for exemption the notice states “These may apply even if you are not currently exempt from online filing for VAT.” We can expect to see further guidance regarding applying for an exemption soon.
Agent Services Account sign-up
In December 2018, HMRC issued a new set of data which needs to be provided before you can set up an Agent Services Account (ASA) for your business. In addition to your/your firm’s UTR number, you will now be required to enter the details of your company’s money laundering supervisory body including membership number and expiration dates. Most accountants and tax advisers will have a professional body supervising them for the anti-money laundering regulations. Accountants who are not supervised will need to register directly with HMRC for money laundering supervision.
There is a likelihood that more changes and corrections will come to light before MTD for VAT commences in April, so watch this space!