Plans from HMRC to have businesses moved over to digital VAT records are set to apply to almost all dairy farms, and a significant proportion of businesses in other farming sectors, from April next year.

The next phase of the Making Tax Digital (MTD) process will be extended to all VAT-registered businesses in the UK with a taxable turnover (sales) above £85,000 from 1 April 2019.

Digital VAT records is the first major step in the MTD process with the long-term aim within HMRC being to have businesses filing tax returns digitally each quarter.

“MTD will not be mandated for other taxes until at least April 2020, but businesses can get involved in the income tax pilot now on a voluntary basis,” HMRC guidance reads.

However, with less than six months to go until digital VAT records become compulsory for some businesses, there is still significant confusion about how the new system will work.

The main issue making the new process unclear is that computer programmes for uploading information from VAT records to HMRC are still being developed by software companies.

HMRC has not developed its own MTD software and has instead allowed third parties to design suitable computer programmes which will be compatible with MTD.

The most popular type of programme is likely to be one which transfers summary information directly from a standard excel spreadsheet to HMRC. This is known as bridging software and some programmes will be available free of charge for users.

The standard nine-box VAT return summary will still be the only information required to be submitted to HMRC under MTD.

With the VAT return process already online, the main change from next April will be that records of business transactions will have to be stored digitally, even though these records will still not have to be submitted to HMRC.

Software

The idea of bridging software is that the nine-box summary information for a VAT return is uploaded to HMRC’s system automatically from a business’ own digital VAT records.

“The summary information must not be physically re-typed,” HMRC guidance reads.

However, HMRC has said that for the first year of MTD, “copying and pasting” summary information from digital VAT records to an online VAT return will be allowed. After March 2020, a business’ own digital records must link automatically to HRMC’s VAT return system.

As things stand, the plans will mean a significant change in how VAT records are kept, particularly for farmers who are not experienced in using computers. Initial advice from accountants to farmers is to check the most recent set of financial accounts to see if sales exceed the £85,000 threshold.

Several options will be offered by accountants and agents across NI to assist farmers who are not confident in using MTD software.

One is that VAT records are kept on a standard excel spreadsheet by the farmer and are sent to an accountant or agent to allow the VAT return to be submitted on the farmer’s behalf through bridging software.

A farmer could also give an accountant or agent all invoices for the VAT period and allow them to complete both the digital records and the VAT return on their behalf, although this option will invariably come at a cost to farmers.

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