New VAT Rules For Businesses: Making Tax Digital (1st April 2019)

Thu, 14 Feb 2019 by Emily Relph

From 1st April 2019 tax will be going digital. As part of the government’s plans to simplify the way tax records are archived, making tax digital (MTD) will also make it easier for individuals and businesses to get their tax right. The move to digital is expected to commence at the same time that the UK leaves the EU. As a result the changes to VAT transactions between the UK and EU leaves a degree of uncertainty. Therefore, it is imperative that all business owners educate themselves about the tax changes and ensure that their records are dealt with properly.

Making Tax Digital

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. And with this move the UK will be the first country to have a fully digital tax system. One of the key motivations to MTD is to reduce the amount of tax revenue lost through errors on tax returns. HMRC currently estimates that the tax gap stands at £33 billion which is 5.7% of tax liabilities. 41% (£13.7 billion) of the tax gap is attributed to small businesses. This tax gap stems from clerical errors and tax evasion. However by making tax digital:

  • Digital records should eliminate errors with calculations
  • Help is built-in to the software products
  • Information is sent directly to HMRC from the digital records avoiding errors as data is transferred from one system-to-another

It is estimated that MTD will generate an extra £610 million in revenue by 2021. Not only will MTD help eliminate the tax gap it will also be a far more efficient and effective system in handling information. Individuals will no longer have to wait annually to know how much tax is owed, rather tax will be in real time. HMRC’s systems will connect directly to digital record keeping software making it far easier for individuals to be able to check and edit their information as needed. And even more revolutionary, by 2020 individuals will be able to access a single comprehensive document of their accounts for the first time.

Tax Exemptions

The new VAT rules affect all businesses with a taxable turnover above £85,000. Consequently, those affected will be required to keep their records digitally and submit their tax returns quarterly rather than annually. This first digital quarterly VAT return is due for submission by 7th August 2019. However, businesses that do not exceed the VAT registration of the 85k threshold are exempt. Other exemptions approved by HMRC are as follows:

  • society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers);
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason;
  • you are subject to an insolvency procedure.

Registering Tax Online

To register your tax online you will need to use functional compatible software to create the VAT return, as paper-based recording or manually entering information is no longer accepted on the HMRC website. However, paper records can still be kept providing all information from VAT invoices is transferred to the online system. Though it is common that businesses already deal with their records and accounts digitally through applications on computers and smartphones, MTD uses a software that maintains records specified in the regulations, prepares VAT returns using the information maintained in those digital records and communicating with HMRC digitally via our Application Programming Interface (API) platform.

Spreadsheet users, (typically Microsoft Excel) will need to invest in bridging software (a software that transfers data from one place to another) or use API- enabled spreadsheets, as once MTD comes into effect, this software will be the only way to send and receive data on the HMRC website.

Affected businesses will no longer be able to use the Government Gateway website; all VAT returns must be submitted through MTD software. To register your tax online you will need to use functional compatible software to create the VAT return. According to HMRC this software must be able to:

According to HMRC this software must be able to:

  • Record and preserve digital records;
  • Give HMRC information and returns from data held in those digital records using the API platform;
  • Receive information from HMRC via the API platform.

The information that you must include comprises of:

  • your business name
  • the address of your principal place of business
  • your VAT registration number
  • any VAT accounting schemes that you use

Thankfully, there will be no changes to the way VAT is calculated, or to the deadlines for submitting returns online. Businesses will be required to provide the same nine boxes of information- the only difference is it will be maintained and recorded digitally. It is important for any business owners to make themselves aware of these changes and so for full guidance and information visit for the full guide.

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About Emily Relph

Emily is a Freelance Writer for SME Loans, creating engaging and relevant content tailored to topics appropriate for a business audience. You can find her work on SME Loans blog.