2020 Innovation – Making Tax Digital for VAT

Date Added | July 31, 2018

The MTD Action Pack has been updated to include a summary and link to the HMRC VAT Notice 700/22 – “Making tax Digital for VAT”

Following the publication of the draft VAT notice back in December 2017 and detailed consultations with the professional bodies and interested parties HMRC have now published VAT Notice 700/22 setting out their guidance on making tax digital for VAT. The notice is not a standalone document and should be read in conjunction with other VAT notices. Certain sections of the notice have the force of law.

The Notice was published alongside a Making Tax Digital for Business – Stakeholder Communications Pack and a list of software suppliers HMRC is currently working with on Making Tax Digital (MTD) for VAT  https://www.gov.uk/government/publications/self-assessment-commercial-software-suppliers/self-assessment-online-commercial-software-suppliers

Notice 700/22 sets out:

  • the digital records businesses must keep, and 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 is used.

HMRC has power to issue MTD legislation by way of notice which includes boxes prefixed by “The following rule has the force of law”.

The Notice clarifies that “a digital link is an electronic or digital transfer or exchange of data between software programs, products or applications”, but that using a cut (or copy) and paste function will not qualify.  Examples of digital links include:

  • linked cells in spreadsheets, eg, a formula in one spreadsheet that mirrors the source’s value in another cell, then those cells are linked
  • emailing a spreadsheet containing digital records to an agent, so the agent can continue to work on the figures to use to file the VAT return
  • transferring records onto a USB memory stick and passing it to the agent
  • XML, CSV import and export, and download and upload of files.

The Notice clarifies that it will be acceptable for MTD for VAT software to comprise more than one software program as long as there is a digital link between the programs. This will be essential for more complex entities using several different accounting systems.

The notice also confirms a “soft landing” period during which digital links will not be mandatory for VAT return periods beginning between 1 April 2019 and 31 March 2020 – see “soft landing” at paragraph 3.2.1.1

The VAT notice includes a number of useful examples in section 7 illustrating different accounting systems and the digital links required to comply with MTD for VAT. The VAT notice is essential reading for all VAT registered business and accountants advising on MTD for VAT.

A link to the full document is set out below:

https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat

 

Please see the MTD Action Pack for a summary of the key sections.

Ian Fletcher