Making Tax Digital for VAT rules

Who it covers

VAT Notice 700/22 applies Making Tax Digital to all VAT-registered businesses from 1 April 2022, whatever their turnover. A business that registers voluntarily is covered in the same way.

Records to keep digitally

• Designatory data: the business name, the address of its principal place of business, its VAT registration number and any VAT accounting schemes it uses (VAT Notice 700/22).
• For each supply made: the time of supply (tax point), the value excluding VAT, and the rate of VAT charged.
• For each supply received: the time of supply, the value, and the input tax claimable.
• Summary totals for the period: output tax owed, acquisition tax on goods from the EU, tax under the reverse charge, input tax claimable, input tax on EU acquisitions, and each type of adjustment separately.

Where summaries are allowed

• Businesses on a retail scheme can record daily gross takings, without recording each sale (VAT Notice 700/22).
• Several supplies on one invoice, in the same period and at the same rate, can be recorded as one total.
• A summary document from a third-party agent can be treated as one invoice.
• Petty cash purchases under £50 each, including VAT, can be recorded as one entry of up to £500 including VAT.
• Charity fundraising events can record all their supplies as single invoices.

Digital links

Once data is in the software, any further transfer or change of it must be made by digital links (VAT Notice 700/22). A digital link is a transfer or exchange of data made, or that can be made, electronically between software programs, products or applications.

The notice accepts emailing a spreadsheet so the records can be imported into another product, transferring records on a portable device such as a memory stick, XML and CSV import and export, file download and upload, automated data transfer and API transfer.

Cut and paste, or copy and paste, does not count as a digital link. Typing figures by hand from one spreadsheet into another, or into the return, breaks the digital journey.

Spreadsheets and bridging software

A business can keep its records in spreadsheets. VAT Notice 700/22 describes bridging software as a digital tool with the Making Tax Digital APIs needed to connect records to HMRC. The figures on the return must reach the bridging software by a digital link from the spreadsheet records.

For example, a client keeps a sales and purchases list in Excel with a summary sheet that totals the nine boxes by formula. The workbook is uploaded as a file to bridging software, which reads the box figures and sends them to HMRC. File upload is one of the digital links the notice accepts.

What functional compatible software must do

• Record and preserve the digital records (VAT Notice 700/22).
• Provide HMRC with information and returns from those records through HMRC's API platform.
• Receive information from HMRC through the API platform.

Exemptions

VAT Notice 700/22 gives these grounds for exemption: it is not practical to use digital tools because of age, disability, location or another reason; the business is subject to an insolvency procedure; the business is run entirely by practising members of a religious society whose beliefs are incompatible with electronic communications; or the business is already exempt from filing VAT returns online.

To apply, the business contacts VAT general enquiries with its VAT registration number, name, principal place of business and its reasons. HMRC gives a written decision. A business HMRC has told is exempt carries on filing as it does now.

Questions