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Making Tax Digital – New HMRC Consultation

carolineheath 20 December 2017 No comments

HMRC has launched a consultation on the proposed rules for VAT reporting under Making Tax Digital.  The new regulations are due to take effect from April 2019 for most VAT registered businesses.

HMRC has published draft regulations, together with a draft explanatory memorandum and draft VAT Notice, for public comment. Full details of the consultation and the draft documents are available here.

What are the changes? 

The proposed legislation introduces the requirement for most VAT registered businesses to keep digital records and file their VAT returns via functional compatible software.

The new rules will apply to businesses with a VAT taxable turnover above the VAT registration threshold, currently £85,000, for VAT Periods starting on or after 1 April 2019.

Once a business is caught by these regulations, even if its VAT taxable turnover subsequently falls below the exemption threshold, it will still be obliged to keep and preserve digital records and provide VAT returns using functional compatible software, unless and until it deregisters from VAT.

Exemptions from the new rules 

A business will not have to follow the MTD rules if HMRC are satisfied that any of the following apply:

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

Businesses that fall into the above categories are advised to contact HMRC to discuss alternative arrangements.

What is functional compatible software?

Functional compatible software is a software program or set of compatible software programs that must be able to:

  • record and preserve electronic records in an electronic form;
  • provide to HMRC information and returns from the electronic records in an electronic form and by using the API platform; and
  • receive information from HMRC.

HMRC will not be providing businesses with any VAT software but has been working with software developers to help them design compliant functional compatible software.  A list of software products that can be used to meet the requirements is to be included in the Notice.

The draft legislation and Notice include full details of the specific records that businesses will be required to keep in digital format.

Businesses that have concerns about the Making Tax Digital requirements are encouraged to review the documents and contribute to the consultation.  Businesses that currently keep manual records need to start planning how they will transition to digital record keeping by April 2019.

The consultation closes on 9 February 2018.  Comments should be sent to