As from April 2019 all VAT-registered businesses with turnover above the VAT threshold must submit VAT Returns via the MTD system. But very little has been announced about how this will work or how the migration process will be managed. Matt Bailey, founder of Gbooks, peers into the future to look at how the system may operate.
VAT was, until a week ago, a sleepy backwater of the MTD project. The challenges of reporting quarterly self-assessment income, by millions of the least financially sophisticated taxpayers, monopolised the attention of HMRC, accountants and software developers alike.
But with self-assessment postponed, VAT has suddenly found itself as the only part of the MTD masterplan with a firm start date. Given a lack of official guidance, I set out below a best guess for how the MTD-VAT system will work, based both on the information released and HMRC’s approach to other taxes.
When will businesses be required to make the switch?
All we know is that the relevant businesses will be required to submit VAT Returns via the MTD system “from April 2019”.
Based on HMRC’s approach to quarterly MTD-SA submissions, businesses are likely to be required to use MTD for the first VAT Return starting after 5th April 2019. So quarterly VAT Returns ending in April, May and June 2019 should continue to use the old system.
What information will businesses have to report?
MTD-VAT Returns will be the same as those submitted now. No transaction-level data will be required, although (as for MTD in general) there will be a requirement for businesses to keep the underlying records in digital format.
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Will the submission and payment deadlines be the same?
Not quite. In its response to the MTD consultation, the government said the VAT payment deadlines will be unchanged, including the additional seven days for online payment plus an additional three days if paying by direct debit. But it also stated that the deadline for submission will be one month, in line with the deadline for quarterly SA submissions. So the seven-day filing extension for submitting (and paying) VAT online is being dropped.
How will HMRC know if a firm is above the VAT threshold?
Presumably, the onus will be on businesses below the registration threshold to monitor their taxable turnover and inform HMRC if the threshold is breached. It may make sense, from a practical viewpoint, to report any breach when completing a VAT return, and then move to the MTD system the following quarter.
What happens if turnover drops back below the VAT threshold?
HMRC runs a separate system for MTD, and will migrate taxpayer data across to this system as required. Once they’ve undertaken this process, and given that any new data will be added to the MTD system, it’s unlikely HMRC will give businesses the option of switching back if turnover subsequently falls. So moving to MTD will be a one-way street.
What differences will businesses notice?
Businesses mandated to use the MTD system will need to submit VAT returns using MTD-compatible software. They will no longer have the option of filing the VAT returns using HMRC’s online portal.
What differences will accountants notice?
Accountants wishing to submit MTD-VAT returns will also need the appropriate authority from the client. The adviser will need to register for HMRC Agent Services, verify their identity and periodically renew this verification. Any existing VAT authorisations will be transferred across from the current system.
What about accessing previous submissions and other VAT data?
The current online portal contains records of previously submitted VAT returns along with information about payments, refunds, penalties, interest, surcharges etc. This data will be available to software providers via various new APIs.
Based on HMRC’s approach to other taxes, it will continue to make this data available via the entity’s Digital Tax Account. Businesses will need to go through a two-step verification process to access the data, thereby preventing access by third parties such as accountants.
So is there any good news?
HMRC is putting a system in place allowing software to do more and to access more information for the user. Businesses or accountants will be able to register for VAT, enrol for schemes, file returns, view their VAT account and authorise new clients (or their agent) using a single system. While this integration may not set the world on fire, it may one day make VAT compliance a little easier.
About Matt Bailey
Founder of Azura Cloud Systems (Gbooks), the leading cloud-based tax and accounts system.