Update: 3 November 2022 by Russell Hughes
From Tuesday 1 November 2022, businesses filing VAT returns in the UK will no longer be able to submit via an existing online VAT account unless HMRC has agreed to an exemption from Making Tax Digital (MTD). Businesses that file annual VAT returns will still be able to use their VAT online account until 15 May 2023.
By law, all VAT-registered businesses must now sign up to Making Tax Digital and use compatible software for keeping VAT records and filing returns. HMRC has advised that from January 2023, any VAT registered businesses that fail to sign up for MTD and file returns through MTD-compatible software will incur .
Making Tax Digital’s aim is to help businesses get tax right first time by reducing errors, making it easier for them to manage their tax affairs by going digital, and consequently helping them to grow. More than 1.8 million businesses are already benefitting from the service, and more than 19 million returns have been successfully submitted through Making Tax Digital compatible software so far.
If a business hasn’t already signed up to Making Tax Digital or started using compatible software, they must follow these steps now:
If your turnover is under the VAT threshold of £85,000 and you haven’t signed up to Making Tax Digital in time to file your next return by 7 November 2022, you can still use your existing VAT online account for that return only.
New businesses not yet registered for VAT will be automatically signed up for Making Tax Digital while registering for VAT through HMRC’s new VAT Registration Service (VRS). Registering on the VRS provides a quicker VAT registration and improved security. It also helps new businesses fully comply with MTD requirements from day one, subject to using the correct software.
Still have questions about Making Tax Digital compliance? Speak to our tax experts.
Update: 17 March 2022 by Andrew Decker
Beginning in April 2022, the requirements for Making Tax Digital (MTD) for VAT will be expanded to all VAT registered businesses. MTD for VAT has been mandatory for all companies with annual turnover above the VAT registration threshold of £85,000 since April 2019. As a result, this year’s expansion is expected to impact smaller businesses whose turnover is below the threshold but who are nonetheless registered for UK VAT.
Update: 3 March 2021 by Andrew Decker
Since April 2019, the UK has required the submission of VAT returns and the storage of VAT records to be completed in accordance with the requirements of its Making Tax Digital (MTD) regulations.
One of these requirements is that data transfer between software programs be achieved through ‘digital links.’ This requirement was initially waived during a ’soft landing’ period which is set to expire on 1 April 2021. As a result, to remain complaint with MTD requirements, businesses must ensure they can meet the digital link requirement.
Under MTD, businesses must digitally file VAT returns using ‘functional compatible software’ which can connect to HMRC’s API. Additionally, businesses must use software to keep digital records of specified VAT related documents.
A digital link is required whenever a business is using multiple pieces of software to store and transmit its VAT records and returns pursuant to MTD requirements. For example, if a business stores its VAT records in its accounting program but then submits its VAT return using an approved piece of bridging software, the data must be transferred between the accounting and bridging software via a digital link.
A digital link occurs when a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications without the need for or involvement of any manual intervention.
The key to this requirement is that once data has been entered into a business’s software there shouldn’t be any manual intervention in transferring it to another program. This means that data cannot be manually transcribed from one program into another. Additionally, using a ‘cut and paste’ feature to transfer data doesn’t constitute a digital link.
For example, manually typing or copying information from one spreadsheet into another doesn’t count as a digital link but connecting the two spreadsheets using a linking formula does.
Additional examples of digital links include:
The digital links requirement will apply to all businesses subject to MTD rules, however businesses that fulfill certain requirements can request an extension to delay the requirement.
For more information on MTD, including details on extension requests and criteria see VAT Notice 700/22: Making Tax Digital for VAT on HMRC’s website.
Important dates to remember regarding MTD for VAT
1 April 2019 –Business with annual turnover of £85,000 and over became liable to follow Making Tax Digital rule for VAT
1 April 2021 –Digital links requirement will be enforced
1 April 2022 – Taxpayers with turnover under £85,000 will be required to comply with making tax digital (MTD)
Sovos’ Advanced Periodic Reporting technology is fully compliant with Making Tax Digital, including digital link.
Making Tax Digital for VAT – Expansion
Beginning in April 2022, the requirements for Making Tax Digital (MTD) for VAT will be expanded to all VAT registered businesses. MTD for VAT has been mandatory for all companies with annual turnover above the VAT registration threshold of £85,000 since April 2019. As a result, this year’s expansion is expected to impact smaller businesses whose turnover is below the threshold but who are nonetheless registered for UK VAT.
What is MTD for VAT – A refresher
Under MTD, businesses must digitally file VAT returns using “functional compatible software” which can connect to HMRC’s API. Companies must also use software to keep digital records of specified VAT-related documents. Stored records must include “designatory data,” such as the business name and VAT number, details on sales and purchases, and summary VAT data for the period. The use of multiple pieces of software is permitted. For example, companies can use accounting software to store digital records. Additionally, “bridging software” can be used to establish the connection with HMRC’s API and to submit the VAT returns.
Since April 2021, businesses must also comply with the digital links requirement. Under this requirement, a digital link is required whenever a business uses multiple pieces of software to store and transmit its VAT records and returns under MTD requirements. A digital link occurs when a transfer or exchange of data can be made electronically between software programs, products, or applications without the need for or involvement of any manual intervention.
Hospitality reduced rate expiration
In 2020, in response to the COVID-19 pandemic, the British government introduced a 5% reduced rate on specified hospitality services. This reduced rate was increased to 12.5% starting 1 October 2021. The reduced rate is currently scheduled to expire at the end of March. As a result, the following services will return to being taxed at the standard rate beginning in April:
The expiration of this reduced rate will impact businesses in both the UK and the Isle of Man.
Get in touch with Sovos’ team of experts about the benefits a managed service provider can offer to help ease your company’s VAT compliance burden.
Intrastat is a reporting regime relating to the intra-community trade of goods within the EU.
Under Regulation (EC) No. 638/2004, VAT taxpayers who are making intra-community sales and purchases of goods are required to complete Intrastat declarations when the reporting threshold is breached.
Intrastat declarations must be completed in both the country of dispatch (by the seller) and the country of arrival (by the purchaser). The format and data elements of Intrastat declarations vary from country to country, though some data elements are required in all Member States. Reporting thresholds also vary by Member State.
In an effort to improve data collection and ease the administrative burden on businesses an ‘Intrastat Modernisation’ project was launched in 2017. As a result of this project Regulation (EU) 2019/2152 (the Regulation on European business statistics) was adopted.
The practical effects of these changes are two-fold:
Currently Member States are required to collect the following information as part of Intrastat:
To ease compliance burdens on small businesses, EU Member States are allowed to set thresholds, under which businesses are relieved of their obligations to complete Intrastat. Thresholds are set annually by Member States, and threshold amounts for arrivals and dispatches are set separately.
Under the current regulations, Member States cannot set thresholds at a level that results in less than 97% of dispatches from the Member State being reported and cannot set thresholds at a level that results in less than 93% of intra-community arrivals to the Member State being reported.
Under current regulations Member States are allowed to let certain small businesses report simplified information, so long as the value of trade subject to simplified reporting does not exceed 6% of total trade.
Under the upcoming new regulation, Member States need only ensure that 95% of dispatches are reported and the exchange of data on intra-community arrivals between Member States is optional.
Need to ensure compliance with the latest Intrastat requirements? Get in touch with our tax experts.
The United Kingdom’s HMRC has issued new guidance on the VAT treatment of cross-border sales of goods and online marketplaces beginning 1 January 2021, following the end of the transition period.
Cross-Border Sales under £135
New rules will apply when a business sells goods for £135 or less to a UK customer and the goods are located outside the UK at the time of the sale. For business to consumer supplies, the seller must collect supply (output) VAT. This means that overseas vendors will be required to register for VAT and will also be required to issue VAT invoices on such supplies. No import VAT will be owed on the sale, but customs declarations will still be required. Please note that for sales from the EU, the HMRC has indicated that it plans to continue to require submission of Intrastat declarations.
The £135 threshold is determined per consignment, and not on individual goods within a consignment. A consignment’s value is based on the VAT exclusive price of the goods in the consignment and does not include separately stated freight charges. The threshold is intended to align with the threshold for customs duty liability.
The £135 threshold rules also apply to business to business supplies. In the case of a supply to a UK business, however, the UK business is liable for the output VAT under the reverse charge mechanism. Import VAT will still be avoided by both parties. For the reverse charge to apply the purchasing business must provide the seller with a UK VAT registration number.
Online Marketplaces
Online marketplaces will also have additional VAT obligations come January 1. For sales of goods, under the £135 threshold, from outside the UK to UK customers, the online marketplace will be required to collect supply (output) VAT in place of the seller, regardless of whether the seller is registered or established in the UK. This means that marketplace sellers are relieved of many of the new obligations described above. Please note that for business to business supplies the reverse charge measure still applies so long as the purchaser provides the marketplace with its VAT registration number.
Online marketplaces will also be liable to collect VAT on a second class of supplies: specifically, the sale of goods, which are located in the UK at the time of sale but which are owned by a seller based outside the UK, through an online marketplace to UK customers.
Other Changes
In addition to the above changes, HMRC has also announced that:
– Importers will be able to utilize postponed VAT accounting for imports over the threshold, to account for import VAT on their VAT returns instead of paying import VAT to Customs at the time of import.
– Low Value Consignment Relief, which exempted imports of £15 or less from import VAT, has been eliminated.
With less than six months until the new rules come into effect it’s important for businesses to continue to prepare for a post-Transition world.
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