Making Tax Digital – New Relaxations

We keep an eye out for any changes to accounting and record-keeping rules and we have noticed some amendments to the record-keeping rules that have been published for Making Tax Digital. HMRC’s VAT Notice 700/22: Making Tax Digital for VAT received an important update in May and now includes some additional digital record-keeping relaxations for affected businesses. The update also further develops guidance in the following areas:

  • The turnover test;
  • Following the rules as an exempt business (i.e. voluntary sign up);
  • Digital links;
  • Supplies made by third party agents; and
  • Charity fundraising events.

The new digital record-keeping relaxations are likely to be of interest to a large number of businesses as they affect fairly routine transactions.

Essentially, the 2 relaxations to record keeping are:

  • Supplier statement totals may be entered into digital records (as opposed to individual invoices). Our reading of this is that a statement total per VAT rate may be used. Further, all items on the statement must relate to the same VAT period.
  • Petty cash transactions may be grouped as long as individual transactions are < £50 (VAT inclusive) and the total of all items on the entry are not greater than £500 (VAT inclusive).

The full relevant extracts from Notice 700/22 are shown below.

Use of supplier statements (4.3.3.1)
“Some businesses record the value of each supply from a supplier statement instead of individual invoices. This may occur particularly where a business receives a large number of invoices from the same source. In HMRC’s view, it is best practice to record digitally the individual supplies as this means less risk of invoices either being missed completely or being entered twice – once as an invoice, and once as part of the statement. There is also less risk of the wrong rate of VAT being applied.
On the other hand, 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.
The following rule has the force of law:
Where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown.”

Petty cash transactions (4.3.3.2)
“Petty cash is traditionally a small amount of cash on hand that covers day to day expenses of a business, such as buying a pint of milk. In some businesses it can be used to describe costs that are not attributable to an individual account in their records. Requiring businesses to record each of these transactions in digital records could be an unreasonable administrative burden for businesses. Therefore, HMRC will accept that a number of petty cash transactions can be recorded as a single purchase in the digital records of the business, subject to a monetary limit.
The following rule has the force of law:
Where a business uses petty cash to pay for small value items, these do not need to be individually recorded in the digital records. The business can record the total value and the total input tax allowable. This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry.”

If you need any assistance in complying with the newly relaxed record-keeping rules, or in any aspect of Making Tax Digital, please get in touch with us and we’d be happy to help.