As you are probably already aware, there will be no further new taxes introduced, or changes to the threshold for VAT in 2020, so the next major change in MTD will not be until 2021 at the earliest.
However, there are a couple of points in relation to the VAT process of which businesses should be aware.
New entrants to the MTD regime for VAT
New entrants to the MTD regime for VAT will be either businesses that are:
- Not registered and then breach the VAT threshold, requiring registration for VAT, or alternatively;
- Businesses which are voluntarily registered but which at some point exceed the VAT limit. Because this group are already registered it has not been necessary to monitor their value of taxable supplies each month. Since April 2019 this is now a requirement. If at the end of any month their value of taxable supplies during the previous 12 months exceeds £85,000 they will be mandated into MTD for VAT from the start of their next VAT accounting period.
This latter group will not need to carry out the check on a monthly basis (for quarterly filers) because the change will only apply in the next VAT quarter, but it is important to remember that if you are checking the annual value of supplies on a quarterly basis that you check each month individually, and not just the quarter end, as you may miss an exceptional blip in the values which then disappears the following month.
An example of this in action is the business that is voluntarily registered but below the VAT threshold that sells an asset. Because the sale of the asset is VATable it takes the business over the £85,000 limit.
While there is an arrangement under which a business can ask for exception from registering due to an unusual transaction causing the turnover to exceed the limit, this does not apply, as this business is already registered for VAT. The upshot is that the business will come within MTD for VAT and will remain within MTD until it deregisters for VAT – irrespective of the value of his supplies in the future.
Data must be moved by digital link
The next change, coming in April 2020, will require all data moving within and between digital records systems on computer to be done by digital link rather than by keying in or journal entries.
For example a business raises sales invoices on a software system on which it runs the business. The system allows invoicing and credit control to operate alongside records of goods sold. The remainder of the accounting records are kept on a cloud accounting package.
In order to complete the MTD returns at the moment, it is acceptable to make a journal entry in the accounting software for the total of the invoices raised – using a single entry for the entire VAT period. This is fine because the digital record relating to outputs is on the business software package so there is no need to replicate this in his accounting software.
However, from April 2020 the journal entry will not meet the requirement for digital links, so the transfer of data must be by another method – most likely to be by download from the business software and upload into the accounting software.
It is still not necessary to upload all of the sales invoices into the accounting package – only the total amounts and the VAT element is needed. This is particularly useful if there is a very high volume of transactions.
It’s also worth remembering that “adjustments” to the return figures coming out of the software such as partial exemption of margin scheme adjustments are fine to be keyed in after they have been calculated offline.
We are likely to get an announcement about the start date for MTD for income tax at some point in the next six months. I’ll keep you posted.