Making Tax Digital regulation for VAT will take effect from 1 April 2019 and will require VAT-registered persons with turnover above the VAT registration threshold (currently £85,000) to keep digital records and provide regular digital updates to HMRC.

The VAT regulations will specify the information a business needs to preserve digitally and will include:

• business name, principle place of business and VAT registration number - this ‘designatory data’ will also include information about which VAT accounting schemes they use;
• the VAT account that each VAT registered business must keep, by law - the VAT account is the link – the audit trail – between primary records and the VAT return; and
• information about supplies made and received.

Those reporting under the VAT flat rate scheme do not have to report under Making Tax Digital except for purchases relating to capital goods with a VAT inclusive value of £2,000 or more. Draft legislation said: ‘Digital record keeping requirements for flat rate scheme users will mirror current record keeping requirements.’

HMRC has made available for comment draft secondary and tertiary legislation on VAT affecting Making Tax Digital for businesses. The deadline for comment is Friday 10 November, 10 days before the Autumn Budget on 22 November which leaves little time for feedback.

From 2019, businesses within the scope of Making Tax Digital will have to file their VAT returns using compatible software.

The information contained with the VAT return will be generated by pulling information from the digital records. This information will contain as a minimum the 9 boxes required for the VAT return, but can also contain a specific data set of supplementary information - all of which will be pulled from the digital records.

The boxes are as follows:

Outputs

• Box 1 - VAT due in the period on sales and other outputs
• Box 2 - VAT due in the period on acquisitions from other EU member states
• Box 3 - Total VAT due (Box 1 + Box 2)

Inputs

• Box 4 - VAT reclaimed in the period on purchases and other inputs (including acquisitions from the EU)
• Box 5 - net VAT to be paid to HMRC or reclaimed (difference between Box 3 and Box 4)
• Box 6 - total value of sales and all other outputs excluding any VAT
• Box 7 - the total value of purchases and all other inputs excluding any VAT
• Box 8 - total value of all supplies of goods and related costs, excluding any VAT, to other EU member states
• Box 9 - total value of all acquisitions of goods and related costs, excluding any VAT, from other EU member states

In the Making tax Digital consultation response which was published on 31 January 2017, the government aimed to align the deadline for the submissions of information on income tax and VAT however due to limited timing it is now not able to be aligned. The draft legislation states: ‘We will reconsider the position if and when Making Tax Digital for Income Tax becomes mandatory.’

Clause 62 of the Making Tax Digital draft VAT legislation, which was included in Finance Bill (no.2), amends the existing powers to make regulations about the administration and enforcement of VAT. This will enable HMRC’ to make regulations requiring businesses to keep digital records and report digitally for VAT purposes (in addition to existing powers to make regulations requiring returns to be rendered digitally)’.

It also amends the existing legislation to make provision for a right of appeal to the Tribunal against decisions of the HMRC Commissioners (including decisions relating to the imposition of penalties) relating to the keeping of digital records and reporting digitally for VAT purposes.

Comments should be sent to makingtaxdigital.consultations@hmrc.gsi.gov.uk

The deadline for responses is midday on Friday 10 November 2017.

Making Tax Digital for VAT: legislation overview is available here. 

Report by Amy Austin