Making Tax Digital For VAT – What are the next steps?

There are only 4½ months to go before all VAT registered businesses with sales above £85K will need to file their VAT returns digitally under Making Tax Digital (MTD). 

There are 2 key steps which you/we now need to take:

Step 1 – Assess whether you are within MTD or not

This means we need to consider your level of sales – are they above £85K or not?

However, this test is more complex. We also need to know:

     a)    whether your specifically “taxable” sales are above £85K; and

     b)    when these taxable sales exceed £85K

a)    Whether? – “taxable” sales mean only sales where UK VAT applies.

UK VAT applies essentially to:

–       Sales to UK based customers (whether businesses or individuals);

–       Sales of services to individuals (not businesses) who live in the EC

–       Zero rated or reduced rated supplies

Taxable sales do not generally include sales of services to EC businesses, sales of goods or services to customers based outside the EC and “exempt” supplies.

For example, a consultant whose turnover is £150,000 of which £80,000 comes from UK customers and £70,000 from EC based business customers won’t be within MTD from April 2019.

BUT this brings us to the …

b)    When?

The test is based on cumulative monthly “taxable” sales in the 12 months (maximum) on or after 30 April 2019.

Thus, although your taxable sales may be above £85K now, what matters is whether these sales are above this after March 2019.

i.e. you may now need to monitor your cumulative sales at the end of every month going forward from April 2019.

Once you go over taxable sales of £85K, you will be in MTD for good. If sales drop below the VAT threshold you won’t be able to get out of MTD unless you deregister completely from VAT.

Step 2 is to assess whether the way you keep your accounts records will work with MTD.

In the meantime, call us on 01737 844 322 if you’d like to discuss your circumstances further.