New Digital VAT requirements add to business burden from April

Apr 01, 2019

Chartered Accountants Ireland is warning businesses that they are facing a collision course of VAT changes which begin today, 1 April 2019, and which could result in unexpected penalties for those who are not prepared for the digitisation of VAT, the first phase of HMRC’s overall ‘Making Tax Digital’ programme.

Director of Public Policy and Taxation at Chartered Accountants Ireland, Brian Keegan said: “HMRC’s digital transformation fits with the modern world and the 21st century. ‘Making Tax Digital’ for VAT is the first step in that programme.

“From 1 April 2019, it applies to any VAT-registered business with a turnover exceeding the current VAT registration threshold of £85,000 which has not received confirmation from HMRC they have either a deferral to 1 October 2019, or an exemption.

“Essentially the first VAT return period beginning on or after commencement (either 1 April 2019 or 1 October 2019) must be made in accordance with Making Tax Digital.

“At the heart of ‘Making Tax Digital’ for VAT are two core digital requirements:-

•          Digital record keeping – businesses are required to keep and preserve digital records for the first time; and

•          Electronic filing of VAT returns – to submit a VAT return, businesses must use information stored in their digital records which, for the first time, must be combined with “functional compatible software” to submit VAT returns directly to HMRC.”

Alan Gourley, Chairman of Chartered Accountants Ireland’s NI Tax Committee commented: “Coupled with potential changes to the UK VAT rules this month as a result of Brexit, some businesses are facing significant change.

“The start date of ‘Making Tax Digital’ for VAT has been known for some time but its introduction also coincides with Brexit which could mean businesses are also facing changes to well-established and long understood VAT rules.”

“HMRC have announced details of the ‘soft landing’ which will apply for the first year of ‘Making Tax Digital’ for VAT. But that doesn’t mean that businesses are not facing penalties or surcharges if they get their VAT calculation wrong or file late.

“The ‘light touch’ approach recently announced by HMRC only applies if a business does their best to comply with the two core requirements of ‘Making Tax Digital’ for VAT; in that instance only will no filing or record keeping penalties be issued.

“Businesses will really notice the change when their first VAT return under ‘Making Tax Digital’ is due, and so we are encouraging them to sign-up for Making Tax Digital for VAT as soon as possible, as registration can take up to 7 days.”