VAT and Making Tax Digital

Making Tax Digital

For sports and social clubs Making Tax Digital (MTD) was probably the most important change in the administration of the tax system since the introduction of VAT in 1973. Keeping financial records will become increasing digital and most businesses will need to use software or apps to keep business records – the days of manual record keeping are over!

The essential elements for clubs are:

  • Paper records will no longer be sufficient : It will become mandatory for almost all clubs to use software to keep accounting records. Paper accounting records will cease to meet the requirements of tax law.
  •  Quarterly reporting : There will be a requirement to submit updates to HMRC each quarter directly from accounting software, within one month of the end of the quarter.

The changes are so fundamental that it is necessary to review record keeping systems and to reconsider what work you decide to do yourself and which services the club may wish to outsource.

When did it start?

VAT: If the club is registered for VAT and takings are above the VAT threshold you were required to keep digital accounting records and to file your VAT returns using MTD compliant software from April 2019 (the first VAT quarter starting on or after 1 April 2019). A number of clubs received letters from H M Revenue & Customs postponing the start date until October 2019. There is a new H M Revenue & Customs Gateway for the submission of MTD VAT returns.

Corporation Tax: Clubs pay corporation tax on non mutual income usually rent and interest. MTD for VAT is only the first stage, the timing for corporation tax has yet to be confirmed but it will not become mandatory before at least 2021.

What are the exemptions?

  • digital exclusion (not reasonably practicable to use digital tools…)
  • insolvency
  • religious grounds
  • takings less than the VAT threshold (i.e., those who have registered voluntarily)

If you do not have currently have a digital exclusion exemption for filing VAT online it is unlikely have this exemption will be granted for MTD.

What does the club need to do?

If the club is VAT registered and above the VAT threshold you need to keep digital records for VAT returns:

  • If the club currently uses accounting software, it may need to be upgraded or new increasingly cloud based software acquired.
  • If the club currently maintain VAT records on a spreadsheet you will need to acquire ‘bridging’ software which will allow returns and updates to be made directly from the spreadsheets.
  • The club may have to outsource the bookkeeping and quarterly reporting to their external accountant or book-keeper familiar with the requirements of MTD for clubs.

A final word of warning on scams. We have been advised that fake websites have been set up which promises to submit your VAT return for a small sum. Beware of such sites at best they just take the fee and do nothing but others may take their fee and the club VAT payments leaving the club with an un-submitted return and money owing to HMRC.