MTD4VAT: What does HMRC say about recording your transactions?
Updated: Jul 23
HMRC’s Notice on Making Tax Digital 700/22, sets out the digital record-keeping requirements in section 4.3.
The HMRC recordkeeping requirements for Making Tax Digital for VAT (MTD4VAT) are as follows:
For supplies made (sales): The time of supply (the VAT tax point) The value of the supply (the net value excluding VAT) The rate of VAT charged
For supplies received (purchases): The time of supply The value of the supply including any VAT that is not claimable by the business The amount of input VAT to be claimed
If there is more than one supply on an invoice the business can record the totals from the invoice.
The Institute of Chartered Accountants in England and Wales have made a written statement, as follow.
“The cash accounting scheme which allows businesses to account for VAT on the basis of payments made and [income] received rather than on invoices [issued/received] continues. Such businesses are, however, required to record individual supplies made and received and creating digital records from bank statements alone will not satisfy the requirements.”
It is apparent to me that many, many small businesses will be finding that MTD4VAT will increase the time they spend on their VAT recordkeeping.
On 3 May 2019, HMRC updated the MTD VAT Notice 700/22, including a new paragraph 184.108.40.206. Part of this section is reproduced below.
‘HMRC accepts there may be additional work for a business in capturing individual supplies digitally and this in itself could lead to data entry errors. Therefore, HMRC can accept the recording of totals from a supplier statement where all the supplies on the statement relate to the same VAT period and the total VAT charged at each rate is shown. If you choose to do this, you must also cross reference all supplies on the supplier statement to invoices received, but this can be done outside of your digital records’.
In other words, you do not have to record every supply [invoice] within your digital records, but you must maintain records of all supplies behind each payment or receipt. The latter can be maintained outside of your digital records. Businesses therefore may find it helpful to record all transactions in their digital records to avoid keeping the two sets of records. Alternatively, businesses must keep a separate detailed record of all invoices behind each payment recorded in their digital records. This could be by maintaining paper supplier statements and attaching batches of the paper invoices to it.