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Making Tax Digital for VAT

Since 2015, the government and HMRC have been working to modernise the British tax system with a view to improving the efficiency of tax collection. The 'Making Tax Digital' initiative was created to target the accuracy and frequency of business tax reporting by requiring businesses to maintain 'Digital Records' and to make digital tax declarations directly to the HMRC back-end systems.

The original vision was that businesses, the self-employed and landords would move towards digital record-keeping and making quarterly updates for Income Tax Self-Assessment (ITSA), Value Added Tax (VAT) and Corporation Tax (CT) from April 2018. As a consequence of representations about the scope and speed of the changes, in 2017 the schedule was loosened such that only VAT registered businesses with turnover greater than the VAT threshold (currently £85,000) will be required by law to adopt 'Making Tax Digital' starting April 2019.

"From 1 April 2019 all VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) are required to keep their VAT business records digitally and send their VAT returns using MTD-compatible software."
- HMRC Making Tax Digital for Business - Stakeholder Communications Pack

Though a lot of the discussion has focused on the requirement for businesses to move to using MTD-compatible software to make their VAT declarations, the requirement for Digital Records should not be discounted. The spirit of the legislation is that mandated businesses are required to store their accounting records in a digital form and that the subsequent VAT return calculation and submission should occur digitally without manual manipulation or copying of the data.

Digital Record-keeping

HMRC provides a detailed definition of what records should be kept to meet the Digital Record-keeping requirements of Making Tax Digital in VAT Notice 700/22 Section 3. Bridge SQ meets these requirements. For Making Tax Digital, the key data required includes:

Designatory data

  • Business name
  • Principal business address
  • VAT registration number
  • VAT accounting schemes

Supplies made (outputs)

  • Time of supply (tax point)
  • Value of the supply (net value exc. VAT)
  • Rate of VAT charged

Supplies received (inputs)

  • Time of supply (tax point)
  • Value of the supply
  • Amount of input tax that you will claim

Digital Linking

"Once data has been entered into software used to keep and maintain digital records, any further transfer, recapture or modification of that data must be done using digital links. Each piece of software must be digitally linked to other pieces of software to create the digital journey."

Within a single software system, as long as it is responsible for maintaining the digital records, and communicating directly with HMRC, these criteria would be met. If you use one system for maintaining the digital records and a second for submitting the return to HMRC, then the connection between the two systems must be digital as opposed to manual.

As a system for both Digital Record-keeping and Digital Submission, Bridge SQ meets the Making Tax Digital requirements fully.

Photography by: Raw Pixel