Are you VAT registered and using the cash accounting scheme? Do you use a manual cashbook and are a little concerned that you can't continue to use your cashbook system with a spreadsheet and comply with Making Tax Digital Guidelines?

Bringing your business into line with the new Making Tax Digital guidelines can feel quite daunting. If you're not used to using an electronic accounting system on a day to day basis, then you may be concerned about switching to a digital system and whether you can also use those tried and trusted spreadsheets.

You can read about the guidelines and the implications direct here on the government site, and here's some more information to help make it a little clearer. Essentially the guideline states that for both supplies made and supplies received a digital record should be kept of:

  • the time of supply – the tax point;
  • the value of the supply – the net value excluding VAT, and
  • the rate of VAT charged for sales or the amount of input tax that you will claim for purchases.

To clarify, the time of supply, if you are cash accounting, is the date you receive payment or pay for the supply.

More importantly, what is not made entirely clear on the government notice is that the records don't just need to be digital, they also need to cross-reference to payments and receipts, which can indeed be done in the cashbook and effectively the cash book will become your digital record.

Businesses using the cash accounting system have always been required to cross-reference entries to their corresponding sales and purchase invoices so this isn't particularly new and MTD has not changed this. Simply recording a payment which covers several invoices, or part-pays a single invoice is not enough. The cross-referencing and date is important too.

You also need to be aware that statements from your suppliers that show multiple transactions cannot be posted as one entry. All invoices must be recorded individually and, as usual, retained for input tax deduction. There is one exception, which is described in the notice 700/22 and applies to HMRC’s definition of third-party agents: “where the information is received as a summary document you can treat this document as one invoice received by you for the purpose of creating your digital record”.

In most cases, Making Tax Digital should not change the type of records you need to keep but does require those records to be entered in digital format. The advantage of Making Tax Digital is that record keeping should be a little easier in the long run, especially as more of your suppliers will communicate with you digitally, hopefully keeping paper filing to a minimum.
Q. My client is a limited company, which also has a pension fund and both the company and the trustees of the pension fund are registered for VAT as separate entities.  Recently the company and the pension fund jointly have purchased a commercial property and the company has placed an option to tax on the property.  How do they deal with the VAT returns for each entity?

A. When a property is in joint ownership, the owners are treated by HMRC as a partnership for VAT purposes.  In your client’s case, each of the trustees of the pension fund and the limited company, as a corporate entity, are the ‘partners’ in a new VAT partnership and need to apply for VAT registration as that partnership entity. It is worth mentioning that where a partnership registration is required in this way for VAT, it does not necessarily follow that the partners in the VAT partnership will be viewed as a partnership for the Partnership Act 1890.

If the company and pension fund want the rentals of the property to be taxable supplies then the VAT partnership would need to make an option to tax for the property, irrespective of the limited company having its own option to tax in place.    The output tax on the rent would then be declared on the partnership’s VAT return.  Neither the company’s nor the pension fund’s, own VAT registration would deal with the VAT aspects of the jointly owned property.

If the company and the pension fund are not treating themselves as a partnership for accounting purposes in recording the income for the property, then care will need to be taken to ensure that rent transactions and any costs relating to the property can clearly be identified to enable the VAT return for the partnership to be completed.
Certax St Albans District are proud to announce the launch of our new website.

We have designed the website to be clear and easy to navigate, as well as providing information about the range of services we offer we have also included a number of resources including:

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