HMRC have this month updated their Notice 700/22 relating to Making Tax Digital. The update shows that bookkeeping entries can be made much more simply than was previously described.
For example, previously it was expected that every purchase invoice be entered into the accounts even if a single payment was made based on the amount shown on the statement provided by the supplier. Whilst it is still important to have the invoices and ensure that all the purchases are business expenses, now HMRC will accept the recording of a single payment to the supplier. However if the invoices contain items which have VAT at more than one rate (standard and zero for example) then the payment must show each VAT rate and the relevant amount separately. This will save a considerable amount of time for those businesses who have numerous invoices from a single supplier and don't need to record them separately. Some businesses will still need to record them separately in order to allocate them to different projects or cost codes.
The other change which has been made is that petty cash transactions of small value can be recorded as a total with the total VAT. Small value transactions are considered to be anything below £50. Therefore if you are making monthly petty cash entries you could add together all the similar purchases and record each different type of purchase with its VAT element on a separate line. For example, add together all the office refreshments for the month and record with zero rate VAT, add all the postage purchases for the month together and record with exempt VAT and add all the stationery purchases together with standard rate VAT. You will then have a single total which, as long as it is below £500, meets HMRC requirements.
And the good news is if you are registered to submit your VAT return under the flat rate scheme you do not have to record your purchases digitally unless they are capital expenditure goods. However if you are recording your income in accounts software it makes sense to record your costs too so that you have comparable monthly management reports.
HMRC are continually updating their advice with regard to MTD and it now seems a much simpler process than it was set out to be at the start.
For further information on Making Tax Digital here is a link to HMRC VAT Notice 700/22.
