As part of Making Tax Digital (MTD), businesses registered for VAT with a taxable turnover above the VAT registration threshold of £85,000 will need to keep VAT records digitally and file their VAT returns using MTD compatible software. This will start from their first VAT period after 1 April 2019.
The vast majority of Dynamics AX or Dynamics 365FO VAT-registered businesses will have a taxable turnover above the VAT threshold (£85,000) and as such will be mandated to keep digital VAT records and send returns using Making Tax Digital (MTD)-compatible software from April 2019. For just about every Microsoft Dynamics AX or Dynamics 365FO Customer this will mean that all these businesses will have to comply.
Are there any exceptions?
The only exception to this is for a small minority of businesses (around 3.5% of mandated customers) for which HMRC are deferring mandation to ensure there is sufficient time for testing the service with them in the pilot before they are obliged to join from 1 October 2019. Other than that the only way out is if a business’s VAT taxable turnover subsequently falls below the VAT registration threshold, when mandation still applies unless the business deregisters from VAT, or it meets one of the other exception criteria, such as insolvency.
What does this mean technically?
From April 2019, software that prepares a VAT return to send to HMRC must be MTD-compatible for those mandated to use MTD from this date. This means that it can integrate with HMRC systems to send VAT returns to HMRC. From April 2020, data must be exchanged digitally between all software used by a business for VAT. The information contained with the MTD VAT return will be generated by pulling information from the digital records. This information will be the 9 boxes required for the VAT return.
What are the Software options?
HMRC is not offering its own software products, but will provide the Application Programming Interfaces (APIs) that commercial software developers, like Microsoft and Annata (ibrl) will use to develop a range of applications. This will enable businesses to keep their records digitally and integrate with HMRC systems.
The benefit of this approach is that commercial software developers can offer a more flexible and tailored range of options, functionality and technical support that can cater not just to the requirements of the general business population, but also specific businesses and sectors like agriculture, construction, landlords and freelancers where specific functionality for tax is in use. HMRC is working closely with software developers, including Microsoft, to enable them to bring new and more sophisticated products to the market. HMRC are stating that they will continue to publish APIs with richer capabilities.
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