If HMRC Can’t Say, Who Can? – Records Required for ‘Cash Accounting for VAT’ Under MTD

Reference to VAT Notices 700/21, 700/22 and 731 suggests that a business using Cash Accounting for VAT under Making Tax Digital will be required to:-

1. Maintain digital accounting records at transaction level:
2. Keep a digital VAT account using Accrual accounting;
3. Cross reference Monies Received and Paid against individual Sales and Purchase invoices within their digital Sales and Purchase Ledgers;
4. Using their digital connected software, accurately calculate VAT Inputs and Outputs within Monies Received and Paid in the VAT period, for submission in the VAT Return.

It seems that it will not be acceptable to not maintain a VAT Account using Accrual accounting or to use a digital Cashbook which records Monies Received and Paid without cross referencing to primary transactions, being Sales and Purchase invoices.

This seems unnecessarily burdensome and so on 12 September we wrote to HMRC for technical clarification regarding the records required. On 4 October came their reply.  They said ‘At the moment, we are still in a phase where we are testing the process and how it works with a limited number of invited businesses. The number of invited businesses will increase as we approach April 2019.  This is the only information we have and are unable to confirm any of your comments at this time’.

We are pressing HMRC for more detailed information and will post further updates here when we have news. In the meantime  users of the cash accounting scheme should note what currently HMRC require, as detailed in the appropriate VAT Notices.

Disclaimer - All information in this post was correct at time of writing.