Over a month after some organisations began their first making tax digital (MTD) compliant VAT return period, HMRC made a series of changes to its guidance on this reform. While there are a number of welcome changes, affected organisations should take note to ensure that their implementation takes account of them. The changes clarify the requirement to comply with certain digital link requirements immediately and provide more detail on the exemptions some VAT registered taxpayers may take advantage of and on the digital records requirements generally.
Before setting out how the requirements have changed, it is worth touching on HMRC’s expanded guidance on the exemptions that are available for VAT registered taxpayers whose taxable turnover exceeds £85,000, and that would ordinarily be obliged to comply with the MTD rules. Exemptions are available if HMRC is satisfied that it is not practical to keep records digitally:
- because you cannot access the internet at your home or business premises and it is not reasonable to obtain such access elsewhere;
- because you have a disability that prevents you using an electronic device as often and for long enough to maintain digital business records; or
- for any other reason including, in limited cases, your age.
If you think you may be entitled to take advantage of an exemption, details of the application process are now available.
The removal of manual interventions in the VAT return process, to be replaced by digital links, represented one of the most problematic features of the new regime for some organisations. These challenges led HMRC to introduce a soft landing period of 12 months after an organisation is obliged to comply with MTD before these links have to be in place. This was so important that the section of the guidance dealing with the soft landing period was given the force of law.
The section of the updated guidance on digital links that has the force of law has changed to slightly narrow the scope of the soft landing period. It still applies to those links which usually bring information from the accounting software’s digital records to software that consolidates this data. However, the link between the consolidating software and the HMRC’s application program interface (API) platform must be a digital link, whether the business is obliged to apply MTD for periods commencing on or after 1 April 2019 or, for complex organisations, 1 October 2019.
Digital records: petty cash, supplier statements and fundraising events
By default, the MTD rules demand that affected taxpayers’ digital records must contain transaction level data. However, taxpayers continue to identify circumstances in which this creates insurmountable issues. HMRC has therefore introduced a number of simplifications, again with the force of law, to try to avoid wide-scale non-compliance.
HMRC will allow aggregated data (with a single entry recording several transactions) for supplier statements, petty cash transactions and charity fundraising events run by volunteers. There are inevitably some qualifications to these rules. In particular, for petty cash transactions a £50 limit applies for individual purchases and a £500 overall limit per entry.