Value Added Tax, or VAT for short, has been a part of the UK tax system since 1973 and is the third largest revenue raiser for the Treasury, but the basis for recording and reporting this indirect tax is now about to enter the digital age.
From April 2019, all VAT-registered businesses over the VAT threshold (£85,000) will be required to report their affairs digitally on a quarterly basis, using software that is compliant with HM Revenue & Customs systems.
How are things changing?
While more than 70 per cent businesses already report their VAT online, Making Tax Digital (MTD), as the initiative is known, will lay down stricter rules and requirements that businesses will have to abide by.
Under the new system, the information reported to HMRC will essentially remain the same, but the requirement for maintaining recordings will differ under the new rules.
This will mean that a business must maintain digital records and create VAT returns from digital records. They can keep their manual records if they wish.
They must then use ‘functional compatible software’, or an API enabled spreadsheet or a traditional spreadsheet and a bridging software to link with HMRC digitally.
Are there any exemptions?
Most businesses that fall within the threshold must start following the MTD rules from the first day of their first VAT period that starts on or after 1st April 2019.
However, those with complex matters may be able to delay their start date to later in October 2019. This delay is only applicable to:

• Trusts and unincorporated charities
• Local authorities and some public sector entities, including Government departments and NHS Trusts
• Public corporations
• Overseas businesses which are UK VAT-registered but do not have an establishment in the UK
• Businesses with one or more of the following VAT profiles:
  • VAT group registration
  • Divisional VAT registration
  • those required to make payments on account
  • those who use the annual accounting scheme.

The Government has promised a grace period during which copy and paste or manual input is allowed to certain extent when it comes to digital linking. However, if businesses do not join MTD, they will be penalised.
Some exemptions may also be offered to businesses on the grounds of religion, insolvency, or because it is not reasonably practicable to use digital tools.
Exempt companies will have to contact the general VAT helpline to ask HMRC to approve the exemption or seek “digital assistance”.
Voluntarily VAT-registered businesses looking to get to grips with the system earlier, but who do not meet the VAT threshold, can apply to take part in the implementation of Making Tax Digital for VAT if they wish.
How can businesses prepare?
Those businesses who meet the criteria and are not afforded any exemption must begin to prepare immediately as there are less than six months left to implement the systems required.
For the majority of businesses, the most straightforward way to record and report their VAT digitally is to incorporate cloud-based accounting systems into their business.
There are a number of software packages available on the market, but not all may be compliant with Making Tax Digital.
A list with authorised software packages is available on the Government website. More Software suppliers are added to the list almost on a daily basis so businesses need to check if their software supplier is MTD compliant or consider the options above.
At Grunberg & Co, we have experience of working with a number of online accounting systems and can accommodate most packages and we are a Platinum partner of Xero – one of the world’s market leaders in this area.
We can help you to migrate your accounts online in time for your first reporting period next year.
Should you choose to forgo an online accounting package, we can also assist with the preparation of returns and records so that they are compliant with HMRC’s API system.
Don’t delay – speak to our team today to find out how you can prepare for MTD.