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UK extension on MTD 7th November 2022 deadline

Extension for last group of VAT registered businesses to switch to MTD VAT return submission

The final group of UK VAT registered business not yet using the MTD for VAT return reporting path are due to register and switch for their next VAT return by 7th November 2022.

However, HMRC has contacted VAT agents this month stating: “If your client’s turnover is under the VAT threshold of £85,000 and they haven’t signed up to MTD in time to file their next return by 7‌‌‌‌‌ ‌‌‌November 2022, they can still use their existing VAT online account for that return only.”  This means businesses could have between one and three months’ extension.

7th November is the filing deadline for the first complete 3-month filing period that falls after 1 April 2022. The April date was when phase III of MTD for VAT was implemented. This obliges all VAT registered business with a turnover below the UK VAT registration threshold of £85,000 to register and use the HMRC MTD filing portal to submit return and observe digital record-keeping requirements.

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UK extends MTD digital record-keeping and filing obligations to 1.1 million taxpayers from 1 April 2022; builds on phase II, April 2021

The requirements around digital VAT record keeping and submissions through MTD-compatible software to HMRC are to be extended to around 1.1 million small taxpayers from 1 April 2022. These are businesses below the UK VAT registration threshold of £85,000, but have elected to VAT register for commercial reasons. Whilst VAT-registered, they have been exempt from the two-phase introduction of MTD for VAT that started in 2019. They make-up one-quarter of UK VAT-registered businesses.

It is forecast this extension will raise £400 million per annum by 2025. The UK’s MTD aims to tackle that part of the tax gap caused by error and failure to take reasonable care, by removing opportunities to make certain types of mistakes in preparing and submitting tax returns. This now includes filing UK VAT returns via HMRC’s Application Programming Interface (API) platform.

MTD Phase II – April 2021

The UK’s second phase of Making Tax Digital came into effect on 1 April 2021. This followed a 1-year delay, adding to the already provided 1-year ‘soft landing’ due to COVID-19. Phase 1 of MTD for VAT, using the API link to file a VAT return, came in on 1 April 2019.

MTD for VAT rules

Under the UK Making Tax Digital (MTD) VAT rules, updated for 1st April 2021 penalty regime, ‘Functional Compatible Software’ is a single program or set of programs, products or software applications that are able to:

  • Record and store VAT digital records;
  • Transfer data between accounting software and HMRC filing without manual intervention or cutting and pasting in spreadsheets.
  • Submit to HMRC data for the completion of VAT returns via HMRC’s API platform; and
  • Receive data and information in return from HMRC via the API platform.

If you need to complete UK MTD returns, our VAT Filer can accurately populate any country submission with verified VAT or GST data from our VAT Calculator or VAT Auditor services

Making Tax Digital – digital record-keeping since 1 April 2021

UK VAT registered businesses over the VAT registration threshold under the Making Tax Digital (MTD) rules must now keep and maintain relevant VAT records digitally within ‘functional compatible software’. This digital record keeping requirement was mandated on 1 April 2021, following the ending of ‘soft-landing’ first year phase of MTD.   This includes sales and purchase invoices with VAT. Accounting records not specific to VAT return requirements are not included in this.

What are Digital Links for data transfer?

A digital link is an electronic or digital transfer or exchange of data between software programs, products and applications.

Since 1 April 2021, where there is a transfer of VAT data between accounting packages, ERP’s, invoice systems or electronic spreadsheets  in the completion of the return, this must be done digitally without manual intervention. There must be digital links between the programs, apps etc., where there is any transfer, copy and pasting, recapture or modification of the data. Each piece of software must be digitally linked to create the digital journey.

Digital links may include:

  • A digital link may include linked cells on spreadsheets
  • Emailing spreadsheet, CVC or similar data where it is then uploaded into other software for the return preparation
  • Transfers via memory sticks or similar portable device
  • XML and CSV imports or exports
  • API transfers
  • But excludes ‘cut and paste’ manual process to move data
  • Excludes manual adjustments and consolidations of group returns in spreadsheets.

Forbidden – manual adjustments within spreadsheets

Since 1 April 2021, taxpayers may still complete adjustments outside of their software, for example partial exemption, fuel scale charge.

These types of adjustments are allowed under MTD; however, taxpayers must post a journal into their software to reflect the adjustments before submitting their return through the software.  The calculation does not need to be completed in the software, only the recording of the adjustment.

Penalty regime

The UK has introduced a penalty system from 1 April 2021 for MTD for VAT. This will apply to the first complete VAT return on or after this date. The regime is as follows:

  • A default is recorded for failure to observe the MTD rules or missing a filing.
  • Taxpayers then enter a surcharge period, lasting 12 months,
  • if the taxpayers faults again. Surcharges are % penalties of the VAT due on the latest return.
  • An accumulated points system then applies for further faults if they happen within twelve months. (The twelve month surcharge period is reset each time there is a new fault.)
  • The points translate into increases % surcharges for each accumulated default. They start at 2%, and scale up to 15%.

Europe e-invoicing and live reporting

Country Date Comments (click for details)
EU e-invoice proposals 2028 Digital reporting and e-invoicing harmonisation
Albania Jan 2021 Authorised e-invoice software and pre-clearance
Belgium 2024-25 Phased introduction of B2B e-invoices
Bulgaria 2023 Public consultation on pre-clearance model e-invoice
Denmark 2024 Digital record keeping obligations
Finland Apr 2020 Customer option to require B2B e-invoices
France Jul 2024 E-invoicing and e-reporting for B2B and B2C
Germany 2024 (?) New government e-invoice 'as soon as possible' to fight fraud
Greece Oct 2021 myData summary invoice and ledger reporting
Hungary Jul 2018 RTIR live invoice reporting. No govt pre-clearance required
Italy Jan 2019 Pre-clearance SdI e-invoicing
Ireland TBC Public consultation underway
Latvia Jan 2025 B2B e-invoices based on PEPPOL
Lithuania ? E-invoicing platform being scoped
Poland Jul 2024 B2B mandated e-invoicing
Portugal Jan 2024 Certified invoicing software for non-residents
Jan 2024 ATCUD digital invoice signature for non-residents
Romania Jul 2022 RO e-invoicing implementation
Russia TBC Extension of Traceability Model to B2B on hold
Serbia Jan 2023 B2B e-invoicing
Slovakia 2024 B2B and B2C e-invoice rollout
Slovenia 2023 ? e-SLOG B2B proposal stalled
Spain 1 Jul 2017 SII live invoice and book reporting
Spain 2 2024 Pre-clearance B2B e-invoices; supplement to SII
Sweden 2024? PEPPOL based mandatory e-invoicing
Turkey Jan 2014 e-invoice e-Fatura and e-Arşiv
UK Apr 2022 MTD for VAT extended to 1.1million taxpayers

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