We recently covered the fundamentals of Making Tax Digital (MTD): whom it will affect, when it will come into effect, and the first steps to being MTD-ready. So now it’s time to get into the intricacies of this upcoming legislation. In this article, we’ll be talking about Making Tax Digital for VAT – the first step in HMRC’s move to digitalise the tax system.


Who will Making Tax Digital for VAT apply to?

Making Tax Digital for VAT will apply to registered businesses and organisations whose taxable turnover is above the VAT threshold at £85,000. This includes:

  • Unincorporated businesses
  • Partnerships
  • Companies
  • LLPs
  • Trusts
  • Non-UK businesses registered for UK VAT
  • Charities

To determine whether your business or organisation falls under the requirements for Making Tax Digital for VAT, you should assess the same rolling 12 months used to consider whether a business must register for VAT.


What about businesses that don’t fall under the MTD for VAT requirements?

For businesses and organisations that have a turnover below the VAT threshold, filing your VAT returns using MTD-compatible software is not compulsory. However, you can voluntarily opt-in to do so, if you wish.

Though, for businesses who do not voluntarily opt-in to MTD for VAT, you will need to continue monitoring your turnover to determine whether you now fit the requirements for Making Tax Digital for VAT.

It’s also important to note that once a business is obliged to comply with MTD for VAT, even if in future their turnover drops below the VAT threshold, they will need to continue with the requirements for MTD for VAT.


When do you need to be ready for this?

For those who establish that they will need to adhere to Making Tax Digital for VAT, they will need to keep digital records and file their VAT returns using an MTD-compatible software from their first VAT return period, beginning on or after 1st April 2019.


What are the requirements for digital record keeping for VAT?

So you’ve determined that MTD for VAT is compulsory for you. What next? What records must be kept digitally? Each individual transaction will have to be recorded and stored digitally. What’s more, while it is possible to create digital records at quarterly intervals, HMRC encourages businesses and organisations to keep their records as near to real-time as possible.

Below we’ve listed what will need to be recorded and stored digitally.

Designatory data:

  • The name of the business or organisation.
  • The address of the principle place of business.
  • The VAT registration number.
  • Details of any VAT accounting schemes used.

For supplies made: 

  • The time of supply.
  • The value of the supply.
  • The rate of VAT charged.

For supplies received:

  • The time of supply.
  • The value of the supply including any VAT that is not claimable by the business.
  • The amount of input tax to be claimed.

VAT account – output tax:

  • The output tax it owes on sales.
  • The output tax it owes on acquisitions from other EU member states.
  • The tax it is required to pay on behalf of its suppliers under the reverse charge procedure.
  • The tax that needs to be paid following a correction or error adjustment.
  • Any other adjustment required by VAT rules.

VAT account – input tax:

  • The input tax it is entitled to claim from business purchases.
  • The input tax allowable on acquisitions from other EU member states.
  • The tax that it is entitled to reclaim following a correction or error adjustment.
  • Any other necessary adjustment.

Flat rate schemes:

The flat rate scheme will continue. Digital records of supplies will not be required unless they relate to capital items, which cost more than £2,000 including VAT.


Click below to learn more about Making Tax Digital: 

Making Tax Digital: what you need to know so far

Making Tax Digital for Income Tax

What is MTD-compatible software?


Want support with the upcoming MTD legislation? K&B Accountancy Group offers the cloud accounting software, FreeAgent in all our monthly packages. FreeAgent is currently working with HMRC to provide MTD-compatible software ready for April 2019. What’s more, our contractor accountants have vast expertise in online accounting and using this software, so join us today and we can guide you through these changes and ensure a stress-free experience.