HM Revenue and Customs has published a new VAT notice in relation to Making Tax Digital.
Businesses with a taxable turnover above the VAT registration threshold, which is currently £85,000*, will have to file VAT returns via accounting software rather than using HRMC’s website.
The Making Tax Digital rules will apply from a business’s first VAT period starting on or after April 1, 2019.
The VAT notice, published by HMRC explains the digital records that must be kept by businesses; and what counts as a ‘functional compatible software’.
The notice reads:
‘The following rule has the force of law:
‘If a set of software programs, products or applications are used as functional compatible software there must be a digital link between these pieces of software.
‘This digital link is required where the data to be included in any of the boxes of the VAT Return has been prepared within a software program, product or application, and this data is then transferred to another program, product or application in order to submit the VAT Return data to HMRC via the API platform.
‘For VAT periods starting on or after April 1, 2020, there must be a digital link for any transfer or exchange of data between software programs, products or applications used as functional compatible software.’
It continues:
‘The following rule has the force of law:
‘A digital link is an electronic or digital transfer or exchange of data between software programs, products or applications.
‘The use of ‘cut and paste’ does not constitute a digital link.’
HMRC believe that the ‘tax gap’ is £8bn per year, with VAT accounting for £3.5bn of this, the additional information gained through MTD will enable HMRC to more accurately target businesses underpaying VAT.
For further information about Making Tax Digital and accountancy software contact one of team of experts on 01244 343504.
*Figures from HMRC July, 2018.