How to take the headache out of VAT and Making Tax Digital

VAT and Making Tax Digital, are these a taboo subject in your world? You are not alone, many of the Clerks on our Facebook Group feel the same way. 

Both topics are a tricky one to get your head around, especially if you don’t have a financial background, there are so many different rules and regulations which vary depending on your council size.

...Plus you could be missing out on claiming VAT back.

Our Support Accountant Hannah has put together a quick 5 minute video to run you through the basics, this video will be applicable to all councils regardless if they are registered for VAT.

We hope this helps clear your VAT brain fog and make your headaches a thing of the past! Watch the video below:
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Helpful Principles

1. What is VAT? 

2. How does it affect me? 

3. Making Tax Digital: what you need to know about the new law

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Video Transcript

"Hello, my name is Hannah and I am a Scribe's support accountant. This is my second video in this series. Get ahead of accounting challenges in 2019.

Today we are going to be looking at, Making Tax Digital, Councils not registered for VAT and Complexity of VAT. 

Making Tax Digital: You have probably heard this phrase even if you know nothing else about it. Making Tax Digital is HMRC’s initiative to revolutionise the UK’s tax system. Initially it will begin with VAT and this is what I want to concentrate on today. The idea is it will streamline VAT returns and they must be submitted online via accounts software. This is to improve the accuracy of returns and benefit the business so they have a better understanding of their tax position.

Making Tax Digital does not require any additional records to be held but it means they need to be held digitally. The digital records need to record the business14 name and address and VAT registration number. The records themselves must include a tax point value of both net and VAT and the rate of VAT charged. There is also the requirement for the software to allow for 2 way communication between the organisation and HMRC. Obviously this is to allow for VAT returns to be submitted but also but also so the business can receive a response from HMRC. This is not only in terms of confirmation of the VAT returns being received and processed. But also other important communications with HMRC such as deadlines and any change relevant to the organisation. Making Tax Digital only applies to businesses who are VAT registered this includes local councils. If this does apply to your council you are hopefully also aware that the start date has recently been deferred for local councils to October 2019 from the proposed date at the start of April. Therefore this gives those of you from a VAT registered council a bit more time to make arrangements to meet the requirements however, the option still exists for your Council to join the pilot scheme from 2019.

Local councils not registered for VAT: Even if you are a VAT registered council you can still claim VAT back on business purchases. This is done via form 126 on HMRC website. In case you aren't aware or haven’t made a claim in a while this can now be done completely online providing you have made a claim before. Rather than having to print out the form to sign and send off it can now be submitted online in full by providing a tax listing of the invoices you are claiming the VAT back on. There is also much less restriction on the timing of claims of Form 126 although it would be advisable to claim at the end of the year it can be done broadly speaking whenever suits. This could be following a large purchase as there will be a significant amount to claim back. Each claim must cover at least £1 per month but if you are claiming less than £100 the claim must be at least 12 months. I would suggest it’s best to claim at least annually although claims can be made up to 3 years. 

Complexity of VAT: In general terms VAT can be an incredibly complex area therefore it’s always worth taking independent advice or talking to HMRC if there are any significant changes at your council. This could be in terms of increased revenue as there may be a requirement for the council to become VAT registered. For example I recently spoke to a Clerk whose council had completed a major refurbishment to their sports facilities and were going to start hiring them out. The council would need to become VAT if the amount of VAT they were going to charge was over £1000. Charges are subject to VAT so the accounts would need to be clear on whether or not they were making taxable supplies. As well as this councils need to be clear on what they can claim VAT back on. Another complicated area is buying equipment for or on behalf of local trusts or organisations. If the local organisation requests that the council make a purchase on their behalf using the organisation's funds to allow the VAT to be reclaimed than this would be in breach of regulation however, it is permissible for a council to buy equipment sing council funds, donate that equipment to a local organisation and then claim the VAT back on that purchase.

I hope you found this short video relevant and interesting if you would like any further info or to ask any questions please feel free to contact me hello@scribeaccounts.com"