U.K.-related tax matters are starting the new year off with a bang.
On March 29, Brexit is slated to become a reality, and companies will be scrambling to adapt their tax strategies to the new circumstances. A few days later, the initial phase of the U.K.’s Making Tax Digital (MTD) initiative takes effect. Unlike Brexit’s rampant uncertainties and as-yet-unknown impacts on tax planning, MTD’s process and technology requirements are relatively straightforward. Companies can, and should, start preparing to address these new obligations now – and Vertex can help thanks to our software’s new “MTD-compliant” designation.
MTD requires value added tax (VAT)-registered businesses with taxable revenue above the VAT registration threshold (GBP 85,000) to keep records digitally and use MTD-compatible software to submit their VAT returns beginning April 1. Some VAT-registered companies with more complex requirements – such as local authorities, public corporations, traders based overseas, trusts, “not for profit” organizations that are not set up as a company, VAT divisions and VAT groups – can defer MTD compliance until Oct. 1.
To be sure, MTD does not require companies to provide information to Her Majesty's Revenue and Customs (HMRC) more frequently than they do now. And the U.K. has no immediate plans to adopt a regime like the SAF-T or to implement real-time invoicing.
The only new requirement is that companies will be obliged to use MTD-compliant software that can:
- Preserve digital records;
- Provide to HMRC information and returns from data held in those digital records by using the HMRC’s Application Program Interface (API) platform; and
- Receive information from HMRC via the API platform.
MTD-compliant software must ensure that VAT information is “digitally linked” (i.e., it allows data to be exchanged between programs without the need for manual intervention). Manual data transferred from one source (e.g. spreadsheets) to another will no longer be allowed. It will not be possible to submit a VAT return by manually entering the VAT return figures onto the HMRC portal.
The best way to prepare for MTD is by:
- Getting MTD-compatible software in places as soon as possible; and
- Practice submitting VAT returns to ensure readiness when the MTD requirements take effect on April 1.
We’re pleased to announce Vertex Indirect Tax Returns has been tested by HMRC and is MTD-compliant. The designation can help you address MTD’s new tax-reporting obligations with confidence.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.