Latest developments on MTD for VAT

By Jan Garioch, CA

4 January 2018

Main Points

Four new documents were published on 18 December 2018; the draft legislation, an explanatory memorandum, the draft notice on MTD for VAT, an addendum to the notice.
Businesses which calculate their VAT returns from software which is not API enabled, and currently transfer data manually to a spreadsheet to assemble their return figures, are to be offered extra time to become fully compliant. HMRC propose a ‘soft landing’ with no record keeping penalties to be applied before April 2020, thus giving relief for the first 12 months after implementation in April 2019.
Where an adjustment is required to complete a VAT return, for instance a partial exemption adjustment, it is not necessary for its calculation to be done in software. However, the total for each type of adjustment must be digitally recorded.

Jan Garioch CA discusses the key points in the MTD for VAT draft legislation issued in December 2017 and suggests that members contribute their comments and views to ICAS. ICAS will be putting forward representations to HMRC concerning the draft legislation by 9 February.

HMRC state that the introduction of MTD for VAT is intended to reduce the risk of errors in VAT returns and to provide a modern digital experience.

Whilst the direction of travel towards digitising VAT returns has been broadly accepted, HMRC acknowledge that in earlier consultations respondents raised concerns about the burden of adjusting to the change within a tight timescale, particularly with it coinciding with Brexit. Therefore, HMRC is proposing a ‘soft landing’ period from implementation on April 2019 until the end of the first year in April 2020 when it will not be mandatory to have a digital link between non-compatible software and the spreadsheet which calculates the VAT return.

However, this relief does not affect the submission of the VAT return figures to HMRC which must be done digitally.

The draft guidance states that submissions to HMRC can be either through software including linking/bridging software or via Application Program Interface (API) enabling the spreadsheets to access HMRC APIs and report data to HMRC’s systems.

The complexity of calculating some of the adjustments required under VAT law has been recognised.

For example, a partial exemption adjustment can be calculated outside the digital records and transferred either manually or digitally into the software or API enabled spreadsheet with the final return figures which are then digitally submitted to HMRC.

There is also recognition that the complete set of digital records required to meet MTD for VAT do not have to be kept all in one place or all in one format. This reflects the reality for large groups and large organisations operating multiple systems.

VAT invoices do not have to be kept in digital format, and businesses can select whether to keep them in paper or electronic form.

An agent can still be authorised to submit a VAT return, but the agent must have access to the functional compatible software which holds the mandatory records and it is mandatory that there is no manual intervention in the export of data from the client’s digital records to the agent’s API enabled software which makes the final digital submission of the return.

Any correction of mistakes by the agent to the client’s digital records must be made back into the client’s original records.

The draft VAT regulations were published on 18 December, together with a draft explanatory memorandum and draft VAT notice, for public comment by 9 February.

ICAS will be responding to the call for comment and if you have views to contribute please forward these to tax@icas.com.