June 28th, 2019

MTD and the different VAT Schemes


MTD for VAT is now up and running.  It commenced from 1st April 2019 for all VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000).  A quarterly return filling in the same 9 boxes will need to be filed using compatible software which can communicate to HMRC.

This all seems fairly straight forward, and it will be for the majority of businesses who use the Standard VAT scheme.  However what if you don’t?

VAT adjustments

Adjustments are often required prior to submission of the VAT return, for example for fuel scale charges, partial exemption and so on.  Under MTD there are 2 ways these adjustments can be made:

  1. Calculate the adjustment outside of software and then journal the effect of the calculation back into the software.  The VAT return can then be submitted directly from the compatible software.
  2. Export the data from the software into a spreadsheet ( a digital link is needed because the dta represents that which must be kept digitally).  The adjustments and VAT return calculation are undertaken in the spreadsheet.  The business then uses bridging software or an API enabled spreadsheet to extract the VAT return figures and submit them to HMRC.

Annual Accounting Scheme

Under this scheme businesses can submit just one VAT return a year, and make advance VAT payments on the last return submitted.  It is expected the current conditions will be retained.  However, the MTD digital record keeping must be maintained, and the annual return must be filed digitally.

Flat Rate Scheme

If you account for VAT using the Flat Rate Scheme you don’t need to keep a digital record of your purchases unless they are capital expenditure goods on which input tax can be claimed.  You also don’t need to keep a digital record of the relevant goods used to determine if you need to apply the limited cost business rate.

Retail Schemes

In addition to the mandatory digital record keeping for the standard scheme, if you account for VAT using a retail scheme you must keep a digital record of your Daily Gross Takings (DGT). You are not required to keep a separate record of the supplies that make up your DGT within functional compatible software.  You must continue to follow guidance supplied in the VAT notice 727 retail schemes.

Margin Schemes

You are not required to keep the additional records required for these schemes (ie the stock book) in digital form, nor are you required to keep the calculation of the marginal VAT charged in digital form.   If you do keep a digital record and your software does not allow you to record the VAT on the margin, then you will need to record the supply as either one standard rated supply and one zero rated supply. Alternatively, you can record the sale at one rate and correct the VAT through an adjustment at the end of the period, using the same method HMRC will allow you to use to correct the VAT on a mixed supply.

If you need help with MTD and finding compatible accounting software please get in touch and we will be happy to help

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Alison obtained a First class degree in Accountancy and Management at UCLAN University. She then went on to qualify as a certified accountant in 2006 and became a founder member in 2011.

Alison trained at a practice in Liverpool and, within her 10 years there, she developed as an accounts manager and obtained a varied portfolio of clients which has provided her with a range of experience in accounts, audit, VAT and taxation.
Alison specialises in giving sound jargon-free advice to a range of small and medium sized businesses.

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