The British government will launch the first stage of its Making Tax Digital (“MTD”) project in April 2019. For the first year it will apply only to VAT and will not be extended to other taxes until 2020 at the earliest. Most VAT registered businesses with a taxable annual turnover above £85,000 (other than the deferral group listed below) will have to follow MTD rules with effect from their first VAT return period commencing on or after 1 April 2019. This means they will need to:

  • keep digital VAT records;
  • sign up for Making Tax Digital for VAT;
  • use software compatible with Making Tax Digital to submit VAT Returns.

Many businesses already keep digital records, but special software will generally be needed to enable returns to be submitted to HMRC and to make spreadsheets MTD-compatible. Businesses will be permitted to cut and paste information between software products until 31 March 2020 but thereafter must ensure that there are digital links between software products. The HMRC publications listed below contain information on compatible software.

The deferral group

However, certain businesses with more complex VAT arrangements will have an extra six months to prepare for MTD. They will not become subject to MTD until their first VAT return period starting on or after 1 October 2019. A business will be in this deferral group if it:

  • is part of a VAT group or VAT Division
  • is based overseas
  • is a trust
  • is a not-for-profit organisation that is not set up as a company
  • submits annual returns
  • is a local authority
  • is a public corporation
  • makes payments on account

Detailed guidance

You can find further information in the following HMRC publications: