Our new publication on Making Tax Digital for VAT simplifies some of the language and gives examples of businesses you may be able to relate to.
In general the requirements will place different pressures on businesses depending on how complex their VAT position is. For simple VAT structures there are software solutions available that will quickly make you compliant. For more complex VAT profiles and group companies life may not be so straight forward.
HMRC released its latest Making Tax Digital for Business (MTDfB) update on Friday 13th (of July). However, it was not the horror show you might expect and the release has narrowed the level of uncertainty facing businesses in the run up to April 2019.
Key information on Making Tax Digital for VAT
The new process
Some important phrases
FUNCTIONAL COMPATIBLE SOFTWARE
This is a software program, or set of programs, that can record and preserve digital records and communicate directly with HMRC. Packages like Sage (v 24 or later), Xero and Quickbooks for example, are classed as functional compatible software. If you are already using them to file your VAT return direct to HMRC then you are MTDfB compliant as long as you adhere to the rules of processing and retaining data.
These are software programs that are capable of recording and preserving digital information but do not have all the attributes of functional compatible software like communicating directly to HMRC. For many businesses this may be a combination of bespoke accounting ledgers, legacy accounting systems and spreadsheets. To be MTDfB compliant, the information stored in these digital records needs to be shared using Digital Links.
API (APPLICATION PROGRAMMING INTERFACE)
This is like a pipe between two software solutions that allows data to pass between them both without human intervention. It is via this ‘pipe’ that HMRC require you to share your VAT information with them from April 19 onwards. If your accounting system is not API compatible you can use Bridging Software.