Making Tax Digital for VAT: Supplier statements now acceptable

In a welcome about turn, HMRC has changed its controversial policy on the recording of purchase invoices under Making Tax Digital for VAT. This will mean a huge time-saving for many businesses using the cash accounting scheme.

Under the cash accounting scheme, input tax is only claimed when payments are made to suppliers, and prior to the recent amendment to VAT Notice 700/22, HMRC’s policy has always been that a business using the cash accounting scheme and spreadsheets to digitally record their expenses, had to record every single purchase invoice in a digital format, even though the business might make a single payment to a supplier, based on a statement covering perhaps 40 or 50 different invoices. It would be sensible for the business to just make a one-line entry based on the payment total.

The update to VAT Notice 700/22 on 5^th May 2019 has relaxed this policy (para 4.3.3.1), and it now means that supplier statements may be used to record expenses for input tax purposes, hence a one-line entry is now acceptable. However, if the statement comprises invoices at more than one rate of VAT, the individual totals relevant to each VAT rate within the payment, must be recorded separately.

For example, Joe the carpenter buys all his wood (standard rated) from the same supplier, but one month he also buys from that supplier a carpentry manual (zero rated). The supplier statement for the month shows a total due of £1,300 consisting of £1,200 of wood and the £100 manual. It is now acceptable to make a digital accounting entry as follows:-

• Wood £1,000
• Manual £100
• VAT £200
• Total Payment £1,300

For more information, contact your local W&P office https://www.whitingsllp.co.uk/about-us/contact-us/

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