AltosMTD

Since April 2019, most VAT-registered businesses with a taxable turnover above £85,000 must comply with MTD for VAT. This involves:

• Keeping digital VAT records
• Signing up for MTD for VAT
• Using MTD-compatible software to submit VAT returns.

Some businesses might not be able to follow these rules, and there are exemptions and deferred start dates for more complex businesses. Here’s a breakdown of who is affected and who might be exempt.

Exemptions are detailed in VAT notice 700/22 ‘Making Tax Digital for VAT.’ Businesses and individuals may be exempt if they are "digitally excluded." You may be exempt if:

• It’s not practical for you to use digital tools to keep records or submit VAT returns due to reasons like age, disability, remote location, or other factors.
• Your business is under insolvency procedures.
• Your business is run by members of a religious group that is against using electronic communications.

You’ll be exempt if:

• Your location makes it impossible to access the internet, and it’s unreasonable to do so elsewhere.
• You have a disability that prevents you from using digital devices long enough to maintain records.

HMRC may not grant an exemption if:

• You simply find it difficult to use digital tools due to age or unfamiliarity with the software.
• You belong to a religious group opposed to using digital tools, but you already use electronic devices for personal or business purposes.

HMRC will not grant exemptions solely based on the effort, time, or cost of switching to MTD.

If you believe your business is exempt, you must contact HMRC via phone or mail. HMRC will review your request and provide a written decision. The letter will explain if you are exempt and outline your obligations. If you’re not exempt, it will explain why. You should continue filing VAT returns as usual until you receive a decision.

Yes, if you disagree with HMRC’s decision, you can appeal. Details will be included in the decision letter.

Certain businesses have a deferred start date of 1 October 2019. These include:

• VAT groups or divisions
• Overseas businesses
• Trusts
• Not-for-profit organizations not set up as companies
• Businesses submitting annual returns
• Local authorities and public corporations
• Those using the VAT GIANT service.

HMRC provides an updated list of compatible software. This list shows which software is a full package and which is just bridging software for submitting VAT returns.

For most businesses above the VAT threshold, the old system will no longer be available after 1 April 2019. Check the exemption section for details.

You must keep the following records in digital form:

• For each supply you make: Record the time of supply, value (excluding VAT), and VAT rate charged.
• For each supply you receive: Record the time of supply, value, and amount of input tax claimed.

Only transactions that are part of your VAT return need to be recorded digitally. For example, wages paid to employees do not need to be included.

If you use cash accounting, the time of supply is when you pay for the supply, but you must keep evidence for claiming input tax.

Example: If you pay an invoice over three months and two of those months are in the same VAT period, they can be recorded together. The third month must be recorded separately.

If you use the flat rate scheme, you don’t need to keep digital records of purchases unless they involve capital expenditure goods on which input tax can be claimed.

Yes, spreadsheets are allowed, but they must have a digital link to the software used to send data to HMRC. Bridging software adds this digital link.

Bridging software is a digital tool that connects your spreadsheet to HMRC’s system, allowing you to submit your VAT return electronically. The software usually includes an add-in sheet that mirrors a VAT return, allowing you to link and submit data directly from your spreadsheet.

For the first year after MTD becomes mandatory, businesses don’t need to have digital links between software programs. This soft landing period extends until the first VAT return period starting on or after 1 October 2020 for businesses with deferred start dates.

A digital link is an electronic transfer or exchange of data between software programs. During the soft landing period, you can use ‘cut and paste’ as a temporary digital link, but this won’t be allowed after the period ends.

It’s important to choose software that meets your business needs and is compliant with MTD requirements. If you use spreadsheets, ensure they can be linked digitally by the time the soft landing period ends.

Yes, as long as you establish the necessary digital links between your spreadsheets and the VAT return software.

This is software that can record and preserve digital records, submit returns to HMRC, and receive information from HMRC. Your digital records can be kept in various compatible digital formats and do not all need to be in one program.