The latest Making Tax Digital policy update from HMRC means that supplier statements can now be used to record expenses for input tax purposes, that’s a big time saving for the many businesses which use spreadsheet accounting.
MTD for VAT was introduced for all UK businesses making annual taxable supplies of more than £85,000 for VAT periods beginning on or after 1 April 2019.
But a controversial policy of HMRC has been that a business using, for example, the cash accounting scheme and spreadsheets to digitally record their expenses, had to record every single purchase invoice in a digital format. Even though the business might make a single payment to a supplier based on a statement which covers perhaps 40 or 50 different invoices.
It would be sensible for the business to just make a one-line entry on the spreadsheet based on the payment total. With the cash accounting scheme, input tax is only claimed when payments are made to suppliers. That policy has now changed.
Updated public notice
VAT Notice 700/22 has already been updated several times this year as HMRC’s policy on MTD has evolved, but the latest update on 5th May 2019 is very welcome because it means that supplier statements can now be used to record expenses for input tax purposes. This will mean a big time saving for the many businesses which adopt spreadsheet accounting.
However, if the statement comprises of invoices at more than one rate of VAT, the individual totals relevant to each VAT rate within the payment must be recorded separately.
Petty cash expenses
The updated notice has also confirmed that petty cash expenses can be posted as a single total as long as no individual receipt within the posting exceeds £50 and the total of all receipts does not exceed £500 per entry.
We have been getting feedback about early MTD return submissions and it seems that some businesses have had their initial submissions rejected by HMRC, with a comment such as it “failed HMRC data checks” but then persistence has paid off with the return eventually being accepted.
Hopefully, by the time that the first compulsory returns are due by 7th August (for businesses on quarterly returns and covering the June 2019 quarter), that these teething problems will be in the past. But we would encourage you to submit your returns a few days before the August deadline to avoid any last-minute problems. And if it does go wrong, you should still make sure the VAT is paid on time to avoid any default surcharges.
The special VAT schemes which were introduced by the Government a long time ago, were designed specifically to reduce the amount of book-keeping required by people in business, and for many years, that has been the effect. But it is an obvious anomaly that MTD for VAT imposed much more onerous book-keeping requirements on people using such schemes, and made these schemes a nonsense, so it is not surprising that HMRC are making a U-turn in this situation.
There are still anomalies in the system and there will potentially be more back-peddling to follow. Making Tax Digital is nothing like the grand plans that were originally conceived by HMRC but on a more practical note, we should all welcome this concession.