14 July 2017
Almost ever since its announcement two years ago the Government has been under growing pressure to amend its planned mandatory roll out of the quarterly reporting elements of Making Tax Digital. The already ambitious timetable was cast into uncertainty with the dissolution of Parliament ahead of last month’s general election and, just to add to the disarray, the minister primarily responsible for the policy Jane Ellison managed to lose her Battersea seat to Labour during that process.
We are delighted to learn from those statements that the implementation timetable is being significantly revised.
- It was already planned that businesses (corporate and unincorporated) would be asked to use MTD for VAT with effect from April 2019. This timeframe has been retained, but only where turnover exceeds the VAT registration threshold of £85,000.
- The planned implementation of MTD for income taxes with effect from April 2018 has been abandoned, with the statement that this requirement will not be brought in until at least April 2020.
- It is intended that the pilot project and testing of the MTD system (implicitly that is the Income Tax system, as that’s the only one currently being tested) will continue, and that between now and 2020 there will be introduced a voluntary early adoption period, so those who wish to maintain digital records and make regular reports to HMRC will be able to do so, but without being compelled to do so.
The three combined policies of using VAT registered business (who already make quarterly reports) as the first adopters, deferring mandation to allow a lengthy testing and development period and introducing a voluntary adoption process for those wishing to opt in to the new system are exactly what was needed.
What does it mean for you?
Whilst VAT returns are typically filed quarterly and are required to be filed electronically, the requirements previously announced regarding MTD for VAT were that businesses must maintain their records digitally and that their systems would need to be capable of filing VAT returns seamlessly. In other words there could be no transposing figures from one system to another, and no manual adjustments to the VAT return figures before filing.
There’s nothing in the current announcement to suggest that has changed, and we continue to see even those businesses who maintain digital records running a number of systems in parallel or dragging reports into excel for pre-VAT filing manual adjustment.
These businesses are going to need to review their systems and processes in the coming months, especially once more detail becomes available on the new rules.
And there are still plenty of businesses turning over in excess of the VAT threshold where digital records are not being kept, and these businesses need to give serious thought to changing that.
Throughout our blogging on MTD we’ve always stressed that there are all sorts of benefits to adopting technology regardless of any MTD obligation to do so, and we’re continuing to run our free Xero workshops where business owners (client of ours or not) can spend an hour with my colleague Adam seeing what modern cloud accounting software has to offer and how it can help take control of the business finances.