In this guest post, tax policy adviser, Brian Palmer, provides an update on Making Tax Digital as a leading authority on the subject.
Back in February, Treasury Minister Mel Stride announced to Parliament that positive progress had been made in delivering Making Tax Digital for VAT (MTDfV) and that in spite of Brexit, the planned April 1st launch was very definitely on.
Stride was emphatic that VAT registered businesses with VAT taxable turnover above the compulsory £85,000 registration threshold will be mandated (legally required) to join the VAT Making Tax Digital for Business regime for all future return periods from this date.
What’s it all about
MTDfV is the first step towards HMRC delivering on its ambition to become one of the most digitally advanced tax administrations in the world.
From April 2019, the mandated will be required to maintain their VAT records digitally and to file MTD-compliant VAT returns using their own software. No longer will they be able to log on to HMRC’s portal to complete and file their VAT returns.
Nothing changes for voluntarily VAT registered businesses – those whose VAT taxable turnover is under the £85,000 compulsory registration threshold – at least not for the foreseeable future. They remain free to file VAT returns using HMRC‘s portal or via non-MTD compliant software. Although they can choose opt-in to MTDfV if they wish.
Business engagement is up
In his address, Mel Stride revealed 80% of businesses in scope have already started preparing to meet the new requirements. Furthermore, he was confident that a good number will be ready by the go-live date and that most were already working in a digitally compliant way and therefore, would face minimal disruption.
With almost a fifth of mandated businesses remaining in the dark, it was reassuring to learn from Stride that HMRC is ramping up its communications and using different channels to reach the remaining businesses, who are inevitably the hardest to communicate with.
3.5% to get a deferral
Approximately 50% of all UK VAT registered businesses, or 1.2 million, will be affected from the start of their first VAT return period from April 1st, but a small cohort of 3.5% (circa 36,000) with the most complex VAT affairs have had their mandated date pushed back by six months to October 1st 2019.
Those affected include:
VAT groups or VAT divisions
Overseas traders registered for VAT
All those to be deferred should by now have received a letter from HMRC confirming the position.
Functional compatible software
HMRC’s guidance refers to a need for functional compatible software in order to achieve compliance.
In essence, functional compatible software is a program or set of software programs, products or applications (including spreadsheets) that must:
Record and preserve digital records
Provide information and returns to HMRC from the data held
Receive information from HMRC via theirapplication programming interface (API) platform
Is my software compliant?
Whether you’re a business filing your own VAT return or a practice or agent doing it on behalf of your clients, you need to establish if the VAT accounting software used will be MTD compliant. This can be done by contacting your software supplier or alternatively via the HMRC web page which features an expanding lists of MTDfV-ready software packages.
Even if a software solution is not yet listed, or might not be ready for the April launch, all is not lost. The recent emergence of bridging software may help to resolve the problem.
Bridging software is a generic term coined by HMRC. It refers to a virtual “plug-in” digital tool that incorporate HMRC’s Making Tax Digital APIs to enable functional compatible software to connect to HMRC’s backend system.
HMRC is confident that the majority will be able to meet their legal obligations, but accept that it may not be possible for all, where it’s not practical for the operators of a VAT registered business to keep digital records or submit VAT Returns because of:
Remoteness of location, or
A business is subject to an insolvency procedure
A business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records
Those who fall into one of the above categories can apply to HMRC for an exemption.
Want more guidance?
If you’re struggling to understand what is needed to meet the new MTDfV regulations HMRC has published, a helpful guide “VAT Notice 700/22: Making Tax Digital for VAT”, is made up of twelve easy-to-follow sections covering most of what is need-to-know.