Making Tax Digital for VAT - Frequently Asked Questions

The legislation applies from the 1 April 2019.  However, your first submission will be for the first “whole” VAT period beginning on or after the 1 April 2019.  For example, for a quarterly VAT return and the VAT Quarter finishes on the 28 February 2019, then the next quarter will start on the 1 March 2019 and run to 31 May  2019.  This will be submitted and paid using the existing system.  The next quarter which runs from 1 June 2019 to 31 August 2019 will need to be submitted using the new MTD VAT API.

Yes, there are a few exemptions to this rule.  The first group are those that already are exempt from filing VAT Returns.  

• Those who have religious beliefs that prevent them from using computers

• Those who live in a location that is so remote that they cannot access the internet.

The second group that account for about 3.5% of HMRC’s mandated customers are the ones with more complex requirements.  So, to ensure they have sufficient time to test the service, HMRC have setup a pilot scheme, before they are mandated to join.  

These customers are mandated to join the MTD regime, from the 1 October 2019, and include;

• Trusts

• ‘Not for profit’ organisations that are not set up as a company

• VAT Divisions and VAT Groups

• Government Departments

• NHS Trusts

• Local Authorities

• Public Corporations

• Traders based overseas

• Those required to make payment on account

• Users that are on an Annual Accounting Scheme.

This was announced in the March 2015 Budget and is part of the Government’s plan to implement a digital tax system.

HMRC believes that MTD is making fundamental changes to the way the tax system works and transforms tax administration so that it is:

• more effective

• more efficient

• easier for taxpayers to get their tax right.

This will help eliminate many of the existing paper-based processes.

VAT registered businesses with a taxable turnover above the VAT threshold are mandated to keep digital VAT records and to send VAT Returns using 'MTD compatible' software from 1 April 2019.

No, you cannot manually adjust the VAT Return once MTD comes into force because there would be no digital record of that adjustment. Digital records of adjustments must be recorded.

The regulations state that businesses that fall into the scope of MTD must use functional compatible software to meet these new requirements.

The functions of the compatible software must include:

• Keeping records in a digital form as required by the regulations - the information you record when you issue sales invoices and received purchase invoices.

• Preserving records in a digital form as required by the regulations - you need to keep these records for 6 years.

All businesses using our Pegasus software financial ledgers are already maintaining digital records as required by this new legislation.

That digital format has been defined by HMRC and this is used to digitally communicate with the HMRC website.  A high percentage of VAT Returns are already submitted using HMRC software but is mainly via the HMRC online legacy system that allows users to log on and manually enter their VAT figures.

With MTD, you will not be able to manually enter your VAT figures. You will have to use software that creates a digital record of the VAT Return values that can be submitted to HMRC using the MTD VAT API.

That digital format has been defined by HMRC and this is used to digitally communicate with the HMRC website.  A high percentage of VAT Returns are already submitted using HMRC software but is mainly via the HMRC online legacy system that allows users to log on and manually enter their VAT figures.

With MTD, you will not be able to manually enter your VAT figures. You will have to use software that creates a digital record of the VAT Return values that can be submitted to HMRC using the MTD VAT API.

You will still need to follow all the MTD VAT rules.  So, once you have made an MTD VAT submission, then you will continue to make those submissions irrespective of your turnover.  The only way to fall outside these rules is if you de-register from VAT.

According to the regulations you need to keep these records for at least 6 years.

Example 1;

Currently, you could simply amend the figures on the VAT Online form, but under MTD this is not allowed.  However, by using the new VAT Adjustment screen, you could amend the EC Member State boxes as required.  This provides a digital record of those adjustments.

For example, you might want to amend Box 2 (VAT Due on Acquisitions from EC Member States) and Box 9 (Total Value of Acquisitions from EC Member States).

Example 2;

If you have a product that you believed to be zero rated for VAT but it should be invoiced at the standard 20% rate. You will need to update your next VAT Return with the value of that VAT. In which case you could credit and re-invoice but if you have been paid, then you may decide to simply accept the VAT cost and adjust the VAT Return accordingly.

With the new VAT Adjustment VAT Rates, once you have calculated that VAT value, you can simply adjust the VAT value in Box 1 (Tax Value on Sales) and in parallel with that, you could post a non-VATable Nominal Journal to the VAT Output Control account to bring it into balance.

This is mainly for larger, more complex businesses that have different data locations that they need to bring together.  

HMRC recognises that even though a company may have the software to submit the VAT Return via the MTD VAT API, they may not have all the digital links in place between all parts of their functional compatible software.

HMRC will allow a period of time, called the “soft landing period”, for businesses to get these digital links in place.  For the first year of mandation, that is from 1 April 2019 to 31 March 2020**, businesses will not be required to have digital links between software programs.  Where a digital link has not been established, then HMRC will accept the use of cut and paste as being a digital link.

There is one exception, data prepared in the VAT Return must be digitally available to the MTD VAT API.  This cannot simply be entered manually.

**if the business has been directed by HMRC’s letter that it has a deferred start date for MTD filing to the first VAT period beginning on or after 1 October 2019, the soft-landing for that business will run from 1 October 2019 to 30 September 2020.

MTD for VAT doesn’t change how often businesses have to send information to HMRC. It is all about how that information is being handled, that is the business transactions must be kept digitally and the VAT Return sent through MTD-compatible software.

The VAT Return periods and the date by which you have to pay HMRC remain the same.

No, the VAT Return has to be paid within 1 calendar month and 7 Days after the end of a VAT accounting period.  For example; a VAT quarter runs from 1 June to 31 August.  The latest submission would be 7 October with a cleared payment on the same date.

The legislation applies from the 1 April 2019.  However, your first submission will be for the first complete VAT period beginning on or after the 1 April 2019.  For example, for a quarterly VAT return and the VAT Quarter finishes on the 28 February 2019, then the next quarter will start on the 1 March 2019 and run to 31May 2019.  This will be submitted and paid using the existing system.  The next quarter which runs from 1 June 2019 to 31 August 2019 will need to be submitted using the new MTD VAT API.

From the 1st April 2019, HMRC has mandated that all VAT registered businesses with a turnover above the VAT threshold must use software to make these submissions.  

So, the way it will affect you is that you must use a different method for submitting your VAT Return in line with legislative requirements, whilst continuing to submit at the same frequency.

Yes, a spreadsheet is a digital record. You can capture the date, invoice number, transaction type, customer details, Net/VAT/Gross and so on. You are keeping your records in a digital form as required by the regulations, however, from a Capital Gold perspective, you already have all of your digital records held in Capital Gold so there is usually no need to use a spreadsheet.

The reason you may want to use a spreadsheet is because the VAT calculation can be very complex.  You may need to do complex calculations outside your accounting system. HMRC explicitly states “There may be points during preparation of your VAT Return when calculations will have to be made outside of any software you use to keep the digital records”. Therefore, you may need to do calculations in a spreadsheet and enter the results back into Capital Gold using a VAT adjustment posting.

Some examples of where you may want to do this:

• Partial Exemptions – Where some of the supplies are exempt and where some of the supplies are taxable

• Flat Rate Scheme – Where VAT payable to HMRC is less than the usual rate, but where you do not normally reclaim VAT on purchases

• Cash Accounting – Where VAT is payable to HMRC when your sales and purchase invoices are paid

• Retail Scheme – Where you do not account for VAT on each sale, but at the point of creating the VAT Return and so on.

If you use VAT Cash Accounting in Capital Gold there should be no need to use a spreadsheet to calculate VAT outside of Capital Gold.

Further information may be found on the HMRC VAT Notice 700/22 – MTD for VAT, Published in July 2018.

Capital Gold records all sales, purchases and expenses in a digital format and Capital Gold is able to prepare the VAT Return at the end of the VAT quarter.  However, the business wants to use a spreadsheet to calculate adjustments such as a Partial Exemption calculation or working out road fuel scale charges and so on.

Information from Capital Gold such as inputs, outputs and totals, are transferred to the spreadsheet via a digital link transfer (or could be manual).

Once you are happy with the calculation the Adjustment Value in that spreadsheet can be manually entered into Capital Gold. This means that your VAT Return will now be correct and that there is a digital record of that adjustment posting. The key point here is that there is a digital record of that adjustment so you can then use the 'MTD VAT API' to submit that return digitally back to HMRC.

The reason this is allowed is because the calculations in the spreadsheet are not required to be kept digitally in the functional compatible software, in other words they do not need to be stored in Capital Gold. Therefore the adjusted figures can be posted into its functional compatible accounting software. However HMRC does encourage that transfer be made using a digital link for these processes rather than a manual input, because that reduces the risk of errors. But it’s not a mandatory HMRC requirement.

Even though Making Tax Digital for VAT comes into force on 1 April 2019, Pegasus Capital Gold (3.80) does not have to be installed on that date. It can be installed straight away but it does not have to be - but it must be installed to allow enough time for the first MTD VAT Return to be filed. For example, if the first VAT period under MTD rules is the end of June, that VAT Return must be filed and paid by one month and seven days after the end of June, which is 7 August. So, in this example, Pegasus Capital Gold (3.80) would need to be installed to allow time before 7 August to switch on MTD for VAT in Capital Gold, authorise Pegasus Capital Gold with HMRC, and file the first MTD VAT Return.

Special consideration and care is needed when doing data back-ups and restores, in particular when to do them. We recommend a back-up is taken immediately after a submission.

If you are restoring data where the submission has already been processed, note this data can only be used for reference purposes.

If you have adjusted the VAT value boxes 1, 2 or 4, you should also consider whether a Nominal journal should be posted to the Sales VAT Outputs or Purchase VAT Inputs accounts.

If you have adjusted the goods value boxes 6, 7, 8 or 9, you should also consider whether a Nominal journal should be posted to the Debtors Control or Creditors Control accounts.

Yes, you need to sign up with HMRC to use MTD.  You can do this when you use the Calculate button on the VAT Return screen in Capital Gold after switching MTD on, or use your web browser to navigate to the Sign-Up page on HMRC website for using software to submit VAT Returns and follow the instructions.

You must wait until you've submitted your final pre-MTD VAT Return (and paid it) before signing up for MTD.

The reason is, once you've signed up, you will not be able to submit a pre-MTD VAT Return - your next VAT Return will be your first MTD VAT Return.

You need to have MTD compatible software to digitally hold the VAT records and submit the VAT Return to HMRC using the new HMRC MTD VAT 'API'.

Capital Gold (3.80.00) uses the new HMRC MTD VAT 'API'.

Computers that will be used to calculate and commit VAT Returns for Making Tax Digital for VAT must have the following installed;

• Microsoft .NET Framework 4.7.2+

• Capital Gold (3.80.00)+

• Internet Explorer 11+.

HMRC has implemented version 1.1 of Microsoft’s Transport Layer Security (TLS) and advised the developer community to implement it in MTD for VAT compliant software when communicating with HMRC.

This recommendation requires Pegasus to embrace the Microsoft .NET Framework version 4.7.2. This will future-proof further upgrades of TLS versions without the need for further software changes in Capital Gold.

No. Only those computers that will be used to calculate and commit VAT Returns for Making Tax Digital for VAT.

After installing Microsoft .NET Framework (4.7.2), to be sure that it has installed correctly, check the following key on the Windows registry on the computer: HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\NET Framework Setup\NDP\v4\Full.

More details can be found at: docs.microsoft.com/en-us/dotnet/framework/migration-guide/how-to-determine-which-versions-are-installed.

No.  Currently you will be merely submitting the figures in the 9 boxes on the VAT Return (and information that identifies your business).