Month: February 2022

The MTD for VAT regime started in April 2019 when businesses with a turnover above the VAT threshold of £85,000 became mandated to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software.

From April 2022, MTD for VAT will be extended to all VAT registered businesses with turnover below the VAT threshold of £85,000. Many businesses with turnover below the VAT threshold have already voluntarily chosen to use MTD for VAT.

If you are using MTD for VAT or will soon begin to do so, here is a reminder of the records you must keep digitally:

• your business name, address and VAT registration number
• any VAT accounting schemes you use
• the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
• the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
• any adjustments you make to a return
• the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
• the rate of VAT charged on goods and services you supply
• reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
• your total daily gross takings if you use a retail scheme
• items you can reclaim VAT on if you use the Flat Rate Scheme
• your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme

You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:

• volunteers for charity fundraising
• a third-party business
• employees for expenses in petty cash

There are special VAT rules that allow businesses to standard rate the supply of most non-residential and commercial land and buildings (known as the option to tax). This means that subsequent supplies by the person making the option to tax will be subject to VAT at the standard rate.

The ability to convert the treatment of VAT exempt land and buildings to taxable can have many benefits. The main benefit is that the person making the option to tax will be able to recover VAT on costs (subject to the usual rules) associated with the property including the purchase and refurbishment of the property.

One interesting aspect of the rules concerns what happens if you make changes to a building after you have opted to tax. HMRC’s guidance sets out the following basic principles that apply to the most changes made:

Extensions. If you have opted to tax a building and you extend it at a later date, upwards, downwards or sideways, your option to tax will apply to the whole of the extended building.

Linked buildings. If prior to their completion buildings are linked by an internal access or covered walkway they are treated as a single building and an option to tax will apply to both parts. If a link is created after both buildings are completed, the option to tax will not flow through with the link.

Forming a complex. If you have a group of units that have been treated as separate buildings for the option to tax and you later decide to enclose them so as to form a complex, and which meets the description of what constitutes a building, then the option to tax will not spread to the un-opted units.