With the draft legislation out for consultation Liz Maher, director of Newport-based Centurian VAT Specialists, looks at what Making VAT Digital is starting to look like in terms of reporting requirements...

At our recent VAT update session there was a broad range of businesses, charities and public bodies such as universities in attendance, all taking a proactive stance on starting to consider how their accounting systems will need to change in order to ensure the accurate submission of their VAT data from April 2019.

The draft legislation states that the required records must be preserved in functional compatible software (FCS), subject to conditions agreed in writing by HMRC. FCS means a software programme or set of compatible software programmes capable of holding and communicating the required digital data which HMRC are now to request. This includes the preservation of an electronic VAT account.

Who’s caught immediately in the requirements? Any business with taxable income over the VAT registration threshold. This will mean that VAT registered businesses with taxable income below the VAT registration threshold will not automatically be in the MVD initial cohort.

There will be 'exceptions' from MVD for religious reasons, insolvency, or impractical by reasons of disability, age, geographic remoteness – with the wealth of broadband 'notspots' in Wales – this might be a reasonable claim for a number of businesses!

You could also 'elect' not to be 'excepted' from MVD. Perhaps your turnover is under the VAT threshold, but you are VAT registered and already have compatible accounting software. You have the choice therefore to 'opt in' from day one in April 2019.

It should be noted that once in MVD, unless through the means of an 'opt in' election, the draft legislation suggests that you do not leave until you deregister from VAT - even if your taxable turnover drops below the current VAT threshold in force at the time.

The desire of HMRC is to reduce the amount of tax lost through the failure of people to take 'reasonable care'. Across all taxes there is a tax gap of £34bn of which:

• £9.4bn is lost every year from 'mistakes'

• VAT accounts for £12.6bn tax lost within the total figure

• SME’s account for £15.5bn of overall lost tax figure

It’s unsurprising therefore to see that it’s VAT that is leading the way on the Making Tax Digital Plan nor that by linking it with the VAT registration threshold it’ll be a change that impacts on a significant number of smaller businesses.

The key feature of MVD is that outside of the requirement to keep mandatory information in a digital format the express intention of the process is to transfer that VAT data in a digital format and not manually into an online VAT return form. This does not mean that you cannot use a spreadsheet to bring together your VAT return data, but it does mean that the transfer of that data from the spreadsheet to HMRC must be through an application programming interface. This API is the software that will enable electronic communication with HMRC.

Our next 'Prepare for MVD' session is in Newport on March 20 from 9.30am to 11.30am. For details call Merle on 01633 415390 or emailus@centurionvat.com.