UK VAT Compliance: New HMRC Guidelines for Accurate Reporting & MTD

The UK's Her Majesty Revenue and Customs (HMRC) is known for its efforts to provide precise and valuable guidelines, comments, and recommendations concerning VAT compliance. This information is helpful for both domestic and foreign taxable persons who fall within the scope of the VAT rules and regulations.

To reduce the pressure and stress of reaching VAT compliance, the HMRC published a range of Guidelines for Compliance (GfC) explaining good VAT-related practices.

Purpose and the Scope of Guidelines

The GfCs are primarily intended for UK VAT-registered businesses that account for VAT at the moment of issuance or acceptance of an invoice. These guidelines are designed to assist those businesses in understanding what their obligations are and which steps should be taken to ensure that VAT is correctly calculated, collected, and paid.

Apart from collecting and remitting VAT, the GfC provides valuable information for businesses regarding the VAT audit process, including recommendations for stakeholders involved in filing VAT returns.

Furthermore, these guidelines contain information on risk management, explaining which business-related events might require risk management evaluation. In addition, large VAT-registered businesses will find a list of documents to comply with record-keeping requirements and establish a well-documented VAT system.

Moreover, the GfC also provides examples and suggestions on how to set up an IT infrastructure to store and manage all VAT data more efficiently.

Generally, the GfC explains several processes, such as order to cash, procure to pay, employee expenses, VAT reporting and manual adjustments, and practical steps for correcting errors.

Conclusion

These GfCs are part of the UK government's Tax Administration Strategy implementation plan, published in 2020. One of the main points of that strategy is to extend the Making Tax Digital (MTD) initiative to digitalize the UK tax system. 

The MTD is important for VAT-registered businesses as it requires digital record-keeping and VAT return filing using compatible software. All advice and recommendations provided in the GfC aim to help companies reduce VAT errors and comply with MTD more successfully.

Source: HMRC - Help with VAT compliance controls, HMRC - General approach to VAT compliance controls, HMRC -  Purpose, scope and audience, HMRC - Tax Administration Strategy, HMRC - Overview of Making Tax Digital