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Making Tax Digital for VAT

15 May 2018

HMRC has recently confirmed that Making Tax Digital (MTD) for VAT remains on schedule for implementation on 1 April 2019 and software trials are now underway. All businesses should start preparing now for the major systems changes this may entail.


What is Making Tax Digital for VAT?

MTD will introduce the requirement for VAT registered businesses to keep digital records and file their VAT returns via ‘functional compatible software’.

The software envisaged for the digital upload will not be provided free of charge by HMRC – instead it will be developed and sold to taxpayers by third parties and will not be specifically endorsed or approved by HMRC. Software trials are currently underway and HMRC expects that a good range of software products will be available to businesses from day one.

HMRC’s draft guidance also introduces new VAT record keeping rules and the requirement that all applicable VAT return data is digitally linked so that transactions can be traced from source data (ie purchase/sales ledger) to VAT return completion and upload.

This is an area of concern for many businesses who extract data from core systems and make further calculations in Excel spreadsheets as part of their VAT return process.


Are you MTD Ready?

Businesses should review their current systems to map the VAT audit trail and identify areas where linkage will be required. While the latest draft of HMRC guidance suggests that some digital links, such as transfers from non API enabled systems to a spreadsheet will not be compulsory until 1 April 2020, businesses should be preparing their systems for full MTD compliance now. 

While the current focus of most businesses has been on identifying how they can share their data with HMRC in a manner that complies with the new rules, businesses should also consider precisely what data will be shared with HMRC as a consequence of MTD, and its quality.


How can BDO help?

BDO’s approach involves meeting you to assess your business’s readiness for MTD, identifying any breaks in the digital journey and working with your IT department to implement the changes necessary to comply with the rules. As implementation approaches, we can also help you to identify the most suitable independent software package for making the digital upload to HMRC’s system and, if any aspect of MTD proves impractical or unduly onerous for your organisation, help you negotiate alternatives with HMRC.

BDO is also participating in a number of HMRC stakeholder groups on Making Tax Digital and can keep you up to date with the latest developments.