Where more than one sale is recorded on an invoice and those sales are within the same VAT period and are charged at the same rate of VAT, they can be recorded as a single entry.
How will the new VAT record keeping requirements work in practice?
The following examples illustrate how business owners should record transactions in the future:
Example 1
A business receives an invoice and types selected data contained in the invoice into functional compatible software. Even though they have logged the invoice, they must still keep the invoice in its original form as the data in the functional compatible software is not a copy of the invoice.
Example 2
Where the business has functional compatible software that scans the invoices received and puts the information in its ledger, the image is retained and contains all the detail required for VAT purposes then the business does not need to keep the original invoice unless it is required for another purpose.
What is HMRC’s definition of ‘functional compatible software’?
Functional compatible software in this instance is a software program, or set of software programs, products or applications, that must be able to:
• record and preserve digital records;
• provide to HMRC information and returns from data held in those digital records by using the application programming interface (API) platform; and
• receive information from HMRC via the API platform.
In some cases, software programs will not be able to perform all of these functions by themselves. For example, a spreadsheet capable of recording and preserving digital records may not be able to perform the other two functions listed above, but can still be a component of functional compatible software if it is used in conjunction with one or more programs that do perform those functions. Importantly, the complete set of digital records to meet Making Tax Digital requirements do not all have to be held in one place or in one program and can be kept in a range of compatible digital formats.
What happens if multiple software systems are used?
Where multiple software systems are used, they need to be digitally linked together and detailed guidance has also been issued about what this means. HMRC have clarified that “a digital link is an electronic or digital transfer or exchange of data between software programs, products or applications”. Using a cut (or copy) and paste function, for example, will not qualify.
Examples of acceptable digital links include:
• linked cells in spreadsheets; • emailing a spreadsheet containing digital records to an agent, so the agent can continue to work on the figures to use to file the VAT return;
• transferring records onto a USB memory stick and passing it to the agent; and
• XML, CSV import and export, and download and upload of files.
When do these new changes take effect from and when should business owners comply?
Although these new regulations become effective from 1 April 2019, HMRC will allow a period of time for businesses to have in place digital links between all parts of their functional compatible software.
For the first year following implementation (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. The one exception to this is where data is transferred, following preparation of the information required for the VAT Return, to another product that is API-enabled solely for the purpose of submitting the 9 Box VAT Return data to HMRC. The transfer of data to this product must be digital.
Also for the first year following implementation (VAT periods commencing between 1 April 2019 and 31 March 2020), where a digital link has not been established between software programs, HMRC will accept the use of cut and paste as being a digital link for these VAT periods.
The Report • March 2019 • Issue 87 | 63
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