HMRC forces many categories of businesses in the UK to adopt a new digital standard of VAT return. That will fundamentally change the VAT return system. The new system will touch:
- ‘not for profit’ organisations that are not set up as a company
- VAT divisions
- VAT groups
- those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
- local authorities
- public corporations
- traders based overseas
- those required to make payments on account, and
- annual accounting scheme users.
Mandatory changes come into effect on 1 April 2019 with extension to 1 October 2019. You will no longer be able to submit returns through the government gateway and instead must use software that will allow for digital submission to HMRC. The changes will mean that VAT returns starting on or after 1 April will be subject to the new rules.
The changes are referred to as “Making Tax Digital”. It is a change designed to reduce tax errors and produce additional revenue of £1bn by 2020 for the Treasury. You can read more about it at HMRC explanatory document.
The MTD software must be able to:
- Record and preserve digital records
- Provide HMRC with information and returns from data held in those digital records, and
- Receive information from HMRC via their Application Programming Interface (API) platform.
The software must have digital links so that there is a record of the “digital journey” of the data. HMRC are allowing a “soft landing” on digital links with full requirements needed to be met by 31 March 2020. This is a legal obligation.
This is one of the most significant changes to the VAT return system. It requires allocation of both time and work resources to ensure that organisations are complying with the new rules.
There will be penalties
Late submission and payment are subject to penalties. These are based on a flat percentage of the tax due with unfortunately no concept of proportionality. A recent case saw a penalty of £300k confirmed because the taxpayer paid one day late.
Every VAT registration needs to be working to this standard and be able to evidence appropriate care.
“For our clients subscribed to the full bookkeeping services, Oracle Capital Group offers a standards-compliant technical solution from April 2019. We always update our business-processes in time to comply with emerging HMRC requirements.”
Director of Accounting
Oracle Capital Group