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Watch out for new software rules when preparing digital VAT returns

Businesses preparing to supply their VAT information digitally have been advised to ensure that their software complies with new HMRC rules.

The Government’s Making Tax Digital (MTD) for VAT scheme is set to start in April 2019, and to comply with the new system, businesses must use “functional compatible software” to record and preserve VAT related data.

Chris Hutton, partner with Mountsorrel-based Charnwood Accountants, said: “A business can use more than one piece of software to keep its digital records, but those separate software programs must be digitally linked. HMRC provides examples of what it means by digitally linked in the draft notice.

“For instance, a business can use one piece of accounting software to record all sales and purchases, calculate its return and submit it to HMRC. In addition, it may use a spreadsheet to keep track of its fleet of cars and to calculate its road fuel charges.”

Chris said, in such a case, the draft guidance suggests that the business can type the adjustment into its accounting software.

Making Tax Digital will not be mandatory for any operation with a turnover below the current £85,000 VAT registration limit.

Chris urged businesses to seek sound professional advice if they are unsure whether their systems comply with the new rules.

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