VAT

MTD and Record Keeping
With the advent of MTD and mandatory digital record keeping we need to consider what changes are needed with regard to VAT records –

• Sales invoices and tax supply points – no changes.
• Retail sales where the total transactions for the day are recorded – there is no change here either.
• Export Sales – depends on the outcome of Brexit – we will advise in due course.
• Expense claims – you do not have to analyse every single receipt – you can still post just the totals – no change here.

Purchase invoices – scenario – A small business receives over 40 invoices for small amounts from one supplier. Can they post just the totals for the month from a statement? According to HMRC’s website, pre-MTD the answer is probably yes – the extract from the website says –

“You can keep VAT records on paper, electronically or as part of a software program (e.g. bookkeeping software). Records must be accurate, complete and readable. If you’ve lost a VAT invoice or it is damaged and no longer readable, ask the supplier for a duplicate (marked ‘duplicate’). HMRC can visit your business to inspect your record keeping and charge you a penalty if your records aren’t in order. You can hire a professional (e.g. an accountant) if you need help with your VAT.”

It would appear that, as long as all the invoices are included in the statements and the total net plus total VAT from the invoices agree with the statement total, and all are filed together, this is allowable.

However, post-MTD, things will probably be different.

VAT Notice 700/22 – Making tax digital para 3.3.3 Supplies received states:

“For each supply you receive you must record the:

• time of supply (tax point)
• value of the supply
• amount of input tax that you will claim.“

But later in same paragraph it states:

“Where an invoice includes supplies with different times of supply that are within the same VAT period, you may record all supplies on the invoice as being at the same date.”

Therefore, in the scenario above, it may be possible to ask the supplier to provide one invoice per month at the end of the month or, if he must produce individual invoices, to then also produce a ‘Total Invoice’ for the month’s transactions and an associated ‘Total Credit Note’. The business can then match the Total Credit Note to the individual invoices and file them together, then post just the ‘Total Invoice’ in their accounting software. Of course, this is asking the supplier to do more work in order to make the business’s life easier, which might not get a positive response from the supplier.

We are aware of large business groups that require their suppliers to provide them with only one invoice per month, driven by this reason. Depending on your circumstances and influence over your suppliers, it may be easier to bite the bullet and post every invoice. We would welcome feedback and insights from businesses and accountants on this issue.

According to one VAT expert:*

“It is not acceptable to make one digital entry for purchases and sales based on a statement amount or payment total.

Many users of the cash accounting scheme post a single cash book entry when a supplier is paid, which might encompass 10 or 20 different purchase invoices, and the input tax claimed might be totalled on a calculator. From 1 April 2019, each invoice within the payment must be separately entered digitally, showing the net and total input tax figures (VAT Notice 700/22, para 3.3.3). HMRC claim this has always been necessary, although it has not happened in practice. The same outcome applies with sales, i.e. a digital entry must be made for each sales invoice.”

• Sales and purchase invoices with more than one VAT rate do not have to be split – no change here.
• Imports – this may well change depending on the outcome of Brexit – we will advise in due course.

There is an extra digital process for group registrations, namely that there must be a digital link between the VAT totals for each company to the consolidated VAT return that is prepared and submitted digitally by the representative member to HMRC. This might be done by linking the VAT totals to a consolidated spreadsheet.

However, to quote from Example 6, VAT Notice 700/22, section 7: “During the soft-landing period between 1 April 2019 and 31 March 2020, HMRC will not require a digital link to exist between each group member’s software and the spreadsheet. However, the links between the pieces of software must be digital from 1 April 2020 for the set of software to be considered functional compatible software for Making Tax Digital purposes.”

We would like to hear from any accountants with knowledge of the above and other MTD-related issues.

*Thanks to Neil Warren. Neil is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.

This article can be viewed on our website.