More than half a million VAT-registered businesses can now take part in a pilot scheme for the Government's flagship digital tax system - Making Tax Digital (MTD).

Sole traders and companies with annual taxable turnover of more than £85,000 will be required to submit digital accounts for the first time on 1 April 2019.

The testing phase of the pilot began on a small scale in April 2018, with around 250 businesses and tax agents participating.

To participate in the extended pilot scheme, business owners will need to be up-to-date with their VAT reporting and have not incurred a default surcharge in the last two years.

When fully rolled out in less than six months, MTD will require more than a million VAT-registered businesses to complete digital reports on a quarterly basis.

Mel Stride, secretary to the Treasury, said:

"Around half a million businesses will be able to start filing their VAT returns online [through the pilot scheme], making it easier to get their tax right first time.

"More and more businesses use digital tools every day to help them operate - tax shouldn't be different. This is a major step towards bringing VAT into the 21st century."

Initial exclusions from the pilot scheme

The scheme will not be open to those who trade with the EU, are based overseas or newly-registered, submit annual VAT reports, make payments on accounts or use the flat-rate scheme.

HMRC confirmed these businesses will be allowed to access the pilot scheme at a later date in the coming months.

The Revenue also deferred MTD for organisations with more complex requirements in order to give them more "sufficient time for testing the service" before they join the scheme.

Around 3.5% of VAT-registered entities will now be mandated into MTD from 1 October 2019, instead of for VAT periods beginning from 1 April 2019.

Why take part in the pilot scheme?

The tax authority is encouraging VAT-registered businesses or their accountants to use the six months left before MTD for VAT becomes mandatory to familiarise themselves with the process.

If you want to handle this yourself, you can get compatible software and begin submitting your tax returns so you're fully prepared in advance of 1 April 2019.

You will also be helping to test the new way of working under MTD legislation, helping to ensure it is fully functioning before it becomes mandatory.

What software has HMRC approved?

You will need to have compatible software to keep accurate records of sales and purchases for VAT, which can be shared with, viewed, potentially amended and signed off by your accountants.

If you don't already use certain software to maintain your records, HMRC has a list of MTD-approved software suppliers for VAT.

At the time of writing, the Revenue has 23 suppliers on its list including big-hitters like Xero, QuickBooks, and Sage.

However, be aware most software providers will charge a subscription fee.

For those who prefer to use traditional spreadsheets, you will need to download bridging software to enable VAT filing.

Some bookkeeping software will not handle complex VAT issues, such as partial exemption, and the data may need to be exported to a spreadsheet and ‘manipulated' to obtain the figures for filing.

How to participate in the pilot scheme

To take part, you will need to sign up for the pilot online through the Government's website. We can advise on which software would best suit your business.

Get in touch to discuss MTD.

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