The Most Important Legislation for VAT
HMRC (Her Majesty’s Revenues and Customs) had a vision to bring all businesses in line with one another in regard to the way VAT returns are submitted. Before April 2019, companies would send VAT returns on Microsoft Excel Spreadsheets, Quick Books, .CSV files, Xero software or the more-popular Sage books.
Information was returning to an overworked department at the HMRC who were tasked with making sense of these varying formats. So, it devised a plan. It envisaged that new software would be created and then sold at low cost to every business in the UK (that is VAT-registered).
It would then mandate all these companies to begin using the same software (known as MTD for VAT) and the regulation would be phased in gradually and made easy to use. MTD stands for Making Tax Digital and that is exactly what HMRC aims to do: make tax returns digital.
MTD for VAT is the first phase of digitalising the way all businesses and establishments return financial information back to HMRC. As far as tax legislation is concerned, using anything such as paper records will no longer be acceptable. In fact, it will actually be unlawful.
Businesses and organisations must use working and approved software when submitting the tax returns to HMRC. The software has been developed by a number of contracted firms who have worked in semblance with HMRC officials, in an attempt to win its direction and approval.
The first stage of implementation of MTD for VAT began in April 2019 (the beginning of the financial year). All companies and business concerns with an annual turnover exceeding £85,000 had to comply.
The MTD for VAT software is generally easy to use and inexpensive to install. It also has the added advantage of having migration techniques made very simply and compatible. This means VAT returns on Microsoft Excel Spreadsheets, Quick Books, .CSV files, Xero software or the more-popular Sage books can be effortlessly loaded into the new MTD for VAT software.
What Comes Next for VAT
The digital revolution for VAT is already well under way. However, from October 1, 2019 around 4 per cent of all companies will be mandated into the digital revolution. Not-for-profit organisations and charities are among the many newcomers who will have to go digital very soon.
MTD for VAT will eventually be panned out to all. Income Tax and Corporation Tax returns will go digital at some time in 2021 (the date has not been announced).