Making Tax Digital Part 3

Making Tax Digital report 2021

VAT Record-Keeping and MTD

Making Tax Digital for Business is a Government initiative also known as MTD.  This is a legal requirement implemented and monitored by HMRC – Her Majesty’s Revenue and Customs.

Now that we know the meaning of understanding Making Tax Digital – MTD in Part 1, and Part 2, this is Part 3 of the series which explains VAT record-keeping and MTD.

Businesses that are registered for VAT or with a turnover of more than £85,000 must comply with these rules:

  • Your business name, address and VAT registration number
  • Any VAT accounting schemes you use
  • The VAT on goods and services you supply, for example, everything you sell, lease, transfer or hire out (supplies made)
  • The VAT on goods and services you receive, for example, everything you buy, lease, rent or hire (supplies received)
  • Any adjustments you make to a return
  • The ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
  • The rate of VAT charged on goods and services you supply
  • Reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
  • Your total daily gross takings if you use a retail scheme
  • Items you can reclaim VAT on if you use the Flat Rate Scheme
  • Your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
  • You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:
  • Volunteers for charity fundraising
  • A third-party business
  • Employees for expenses in petty cash
  • All these records must be kept in “digital format”
  • Name, address and VAT number of any self-billing suppliers
  • Debit or credit notes
  • Import and export records
  • Records of items you cannot reclaim VAT on – for example, business entertainment
  • Records of any goods you give away or take from stock for your private use
  • Records of all the zero-rated, reduced or VAT exempt items you buy or sell
  • You must also keep general business records such as bank statements, cash books, cheque stubs, paying-in slips and till rolls.

How to keep digital records

  • You need to use a compatible software package or other software (like spreadsheets) that connect to HMRC systems.
  • If you use more than one software package to keep records and submit returns, you need to link them.
    Some ways you can link your software include:
  • Using formulas to link cells in spreadsheets
  • Emailing records
  • Putting records on a portable device to give to your agent
  • Importing and exporting XML and CSV files
  • Downloading and uploading files

For more detailed information, please download the full report from this link.

Making Tax Digital Report

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