Making Tax Digital for VAT

Latest Update – October 2018

Recently HMRC have announced a deferral in Making Tax Digital for VAT, but only for what they are calling ‘complex customers’. The chances are that this does not affect your business and April 2019 is still the deadline. The ‘complex customer’ bracket only covers a small minority of UK businesses.

The following kinds of businesses are included within the deferral…

  • Trusts
  • ‘Not for profit’ organisations that are not set up as a company
  • VAT divisions and VAT groups
  • Public sector entities
  • Local authorities
  • Public corporations
  • Traders based overseas
  • Those required to make payments on account
  • Annual accounting scheme users.

The deferral itself is not mandatory and businesses within these categories may start using the MTD API in April 2019 if they choose to. If you want clarification, need to get your business MTD ready, or think you may be able to defer MTD then contact us today.

MTDfB Latest Update

The latest update from HMRC has clarified some details and responsibilities for business owners. The most important being that Making Tax Digital for VAT comes into effect on 1st April 2019 for VAT-registered businesses above the threshold of £85k.

Countdown To Making Tax Digital

Are You Ready? Call us on 02920 624 230

2019/04/01 00:00:00

So for now, Making Tax Digitial is wholly concerned with VAT and nothing else. Because of this, you may see it referred to as MTDfV (Making Tax Digital for VAT). As the program expands into 2020 it’s our expectation that other accounting elements will join Making Tax Digital.

However, the core requirements are unchanged. The governments expectation is that being ready for VAT will also mean businesses will be ready for the future developments. The key component being the move away from traditional accounting methods, and over to the new Digital Accounting practices such as the ones provided by us at Llewellyns Accountants.

Why Llewellyns Are The Best Choice For Digital Accounting

At Llewellyns we have long understood the important of Digital Accounts, and have already helped many businesses update their systems and processes in order to be prepared for Making Tax Digital. To do this, we employ I.T. experts and process management experts alongside our qualified accountancy staff.

As a customer of Llewellyns, we encourage you to draw upon this expertise. We understand that it can be difficult moving from paper based processes to computer bases processes, especially within small to medium businesses. Our support is here to help guide you through this process and provide the exact tools you need.

As a Quickbooks platinum partner, we consider Quickbooks the ideal solution for those wanting to become MTD ready, and we are able to offer excellent discounts on this software. With that said, we understand that your business may have found a different solution (e.g. Xero, Sage etc), and have made sure we are fully trained to deal with all of these systems.

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If your current accountant is a ‘traditional’ accountant, they may not be able to provide the support you need. Contact us today and we can help. We will be happy to have a ‘no obligation’ discussion to get you prepared for MTD. The deadlines are getting close and it’s important that you are ready as soon as possible for April 2019.

Once the deadline has passed there will be no other method to fulfill your filing duties. You must use software compatible with the Making Tax Digital API.

How The API For Making Tax Digital Works.

In the simplest terms, and API can be considered very similar in operation to using email. However rather than you writing the email, the software bookkeeping system (e.g. Quickbooks) writes the data in a strict form that HMRC will accept. Once the data has been compiled into this form, the data is sent via a secure connection to HMRC server. The server then checks the data and sends a response. The full process is detailed below…

  • Software Compiles VAT Return Data

    Although your software has the detail of every invoice and expenses that impact your VAT liabilities, the HMRC do not want to receive the information in this much detail. Your software should be able to compile this data into the correct format ready to be sent to HMRC. The HMRC will be expecting to receive…

    • Business Details – incl. Name, VAT Reg Number, VAT Accounting scheme
    • VAT Payable Totals – Total Output Tax Due
    • VAT Allowable Totals – Input Tax Allowable for VAT period
    • Other VAT details from any EU states
    • Adjustments

    The software will be able to compile this data into a format that the HMRC are expecting ready to be digitally filed.

  • Software Establishes Secure Connection to HMRC

    The information is sent to the HMRC via the internet. However, it’s important that your data is protected from any interception by unwanted third parties, therefore the data connection has to be secure. To achieve this, the connection uses SSL encryption… the same technology used to keep your credit card details secure when you shop online. This encryption means that the data that leaves your computer can only be decrypted and understood once it reaches the HMRC server.

  • VAT Data Is Sent To HMRC

    The VAT return data is sent over the secure channel to the HMRC server. The server at the HMRC will immediately analyse the data and check that all the expected information is complete and in the correct format. It the prepares a response which is immediately returned across the same secure channel and then the secure channel is closed.

  • Software Receives HMRC Response

    At this point, if all has gone well, the HMRC systems will respond confirming the submitted data has been accepted. There may be circumstances where the data sent was not what the HMRC was expecting, or there was some other sort of error in the process. In this case the HMRC system will return an error message and your software will interpret this message and alert the user accordingly. Extra steps may need to be taken to get the correct data sent.

MTDfV Flow Diagram

Making Tax Digital for Business