Digital VAT reporting

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Making Tax Digital (MTD) is one of the key strategic objectives of HMRC with the aim of modernising how tax is reported and managed. The first step of MTD is to bring VAT into the digital system. The implementation by HMRC of MTD is that every UK VAT registered business with a taxable turnover in excess of £85,000 will be subject to VAT digital requirements.

For VAT periods commencing after 1 April 2019, VAT Returns are required to be filed using MTD compliant software; it will no longer be possible to submit VAT Returns through the HMRC Portal for VAT periods commencing after 1 April 2019.

Farm businesses have three options: use the services of an accountant or Bookkeeper who is using VAT compatible software; if you are using spreadsheets, purchase bridging software; purchase a software package. The preferred option depends on the skills within the farm business; all purchases and sales invoices must be maintained as normal; it is the reporting of the information to HMRC that is required to be done digitally. For those farm businesses currently using a spreadsheet, bridging software will be the digital tool used to send the figures from the VAT Return (boxes 1-9) within a spreadsheet to HMRC’s government gateway. In most cases, the software will consist of an add in ‘front sheet’ which will have the appearance of a VAT Return with a submission button. The integration therefore will consist of linking boxes 1-9 on the add-in front sheet to the calculations sheet.

If the farm business purchases an accounting package, the farm business will be able to complete, and file VAT Returns digitally but also prepare management accounts for the business. These accounts will produce trading results for each enterprise on the farm. The availability of year to date trading results facilitates tax planning; for example, farm businesses with an accounting year end of 31 March 2019, could now be reviewing the year to date. If that review indicates a level of profit leading to a significant tax liability, business decisions could be made before the 31 March 2019 to minimize the tax liability. In addition, an accounting package will produce the figures to enable bench-marking to be carried out and the monitoring of cost.

A successful transition to Making Tax Digital for VAT will undoubtedly encourage HMRC to bring in MTD for income tax. MTD provides farm businesses with the opportunity to review their accounting system to avail of the benefits of benchmarking, tax planning and cost monitoring.

For further information, telephone (028) 8224 1515.