Making Tax Digital

Please use the menu below to access the latest information on MTD.

The technical team are always interested in receiving feedback from members on MTD and hearing about their practical experiences.  Please email this to atttechnical [at] att.org.uk using the subject title ‘Making Tax Digital’.

Timetable for Making Tax Digital

MTD for VAT

MTD became mandatory for VAT purposes from April 2019 for the majority of businesses with taxable turnover above the VAT threshold (currently £85,000):

  • Businesses in MTD have to keep digital records and use software to submit their VAT returns to HMRC.
  • For now, businesses only have to submit the same data to HMRC under MTD as they currently do (i.e. the summary nine boxes from the VAT return), and not underlying transactional details or the contents of their digital records.
  • MTD is available on a voluntary basis for businesses below the VAT threshold.

Mandation of MTD for VAT is delayed by six months for a small number of businesses with more complex requirements.  MTD for VAT will now not be mandatory until 1 October 2019 for businesses that fall into any of the following categories:

  • trusts;
  • not for profit organisations that are not set up as a company;
  • VAT divisions;
  • VAT groups;
  • public sector entities required to provide additional information on their VAT return (such as Government departments and NHS Trusts)
  • local authorities;
  • public corporations;
  • traders based overseas;
  • those required to make payments on account; and
  • annual accounting scheme users.

In order to be deferred until 1 October 2019, affected businesses need to have received a letter from HMRC confirming that this is the case (see ‘Making Tax Digital – HMRC letter to deferred businesses’ below for more details).

All other businesses with taxable turnover above the VAT threshold were mandated from April 2019.

Other taxes

The Government have stated that they will not widen the mandatory scope of MTD beyond VAT before the system has been shown to work. 

At the Spring Statement 2019 it was confirmed that MTD will not be further extended until at least April 2021, either to bring income tax within the scope of MTD, or businesses who are voluntarily registered for VAT.

HMRC have indicated that they will consult on Corporation Tax prior to making any decision as to whether or not to bring it into MTD.

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Detailed VAT Timetable

Commencement of MTD for VAT

The exact date that businesses who will be subject to MTD for VAT from 1 April 2019 will come into the new rules will depend on their quarterly return date.  The rules will apply to the first ‘prescribed accounting period’ starting on or after 1 April 2019.  The commencement dates will be a follows:

VAT quarter ends Start of first return subject to MTD
March/June/Sept/Dec

1 April 2019

Jan/April/July/Oct

1 May 2019

Feb/May/Aug/Nov 1 June 2019



For those businesses subject to the six month deferral set out above, MTD will apply to the first ‘prescribed accounting period’ starting on or after 1 October 2019, meaning commencement dates will be as follows:

VAT quarter ends

Start of first return subject to MTD

March/June/Sept/Dec

1 October 2019

Jan/April/July/Oct 1 November 2019
Feb/May/Aug/Nov 1 December 2019



Those on the annual accounting scheme will come into MTD on the start of the first annual accounting period starting after 1 October 2019. 

Enrolling into MTD for VAT – timetable

When enrolling yourself or clients into MTD for VAT it is vital that you get the timing right. Once signed up, HMRC will expect all future VAT returns to be filed through MTD software – including those for current / previous periods which have not yet been submitted. Further, there are additional restrictions on the sign up periods, particularly for businesses who pay by Direct Debit.

The CIOT have prepared an illustration to show the sign up periods for businesses on staggers 1, 2 and 3, as well as those on monthly returns. If a business signs up at the wrong time, a number of problems can arise, and using this guide should help ensure that such problems are avoided.

More information on the steps agents need to take to sign clients up for MTD for VAT can be found here

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HMRC pilots

MTD for Income Tax pilot

MTD for Income Tax trials entered their public beta testing phase on 15 March 2018. Taxpayers can access the service here

To take part in the pilot, businesses will need to record their income and expenses in an MTD compliant software package which lets them send quarterly income tax updates to HMRC.  At the end of the accounting period, they will need to send a final report to confirm their income and expenses for the year. If they need to claim allowances and reliefs, they can do this within that final report. They will then be able to see a tax calculation for the year in their business tax account as well as through their software.

Likewise, agents that sign clients up to the pilot (including clients whose digital records are being kept by the agent and clients that keep their own digital records) will need a software package that lets them send the updates to HMRC on their clients’ behalf.

The current list of MTD for Income Tax compatible software products is set out on GOV.UK here. We understand that there are a number of other products at various stages of development and HMRC have said that they will continue to add to this page as new products become available.

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Agent Services Account (ASA) and Services for Agents

In order to access the new MTD services and to supply updates on behalf of clients, agents will need a new Agent Services Account (ASA).  This is in effect a new Government Gateway to access the new service.  Each agency will have just one account per firm, and will be able to set up staff with administrator or assistant access to the account.  Many firms may already have created an ASA in order to submit Trust Registration Service returns.  

When you first set up your ASA account you will be given a new set of credentials.  It is very important that you keep these safe, as HMRC have said they are unable to advise agents of the credentials they were given on set up.  Instead, if an agent loses their ASA credentials they will have to contact the VAT helpline, who will delete their ASA account.  They will then be required to set up a new ASA account from scratch. 

A basic outline of the ASA and how to set one up can be found here.  A longer form article in September’s Tax Adviser magazine can be found here.  Further information on the ASA can also be found in the HMRC guidance Making Tax Digital for VAT as an agent: step by step.

HMRC have also released:

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Legislation

Enabling primary legislation for MTD for businesses for both Income Tax and VAT is included in Sections 60 to 62 and Schedule 14 of Finance (No.2) Act 2017 which received Royal Assent on 16 November 2017.  The explanatory notes to the original Bill can be found here.

In September 2017, the Government launched a consultation on draft secondary and tertiary legislation for MTD for Income Tax. The response submitted by the ATT can be found here. This legislation has not yet been finalised.

The final MTD for VAT Regulations SI 2018/261 were laid before Parliament on 28 February 2018 and came into force on 1 April 2019. 

The final VAT Notice 700/22: Making Tax Digital for VAT was published on 13 July 2018.  This Notice sets out the detailed requirements of MTD for VAT, including record keeping and digital links.  It also confirms that there will be a soft landing period for certain aspects of the MTD for VAT process during the first year.  For VAT periods commencing between 1 April 2019 and 31 March 2020, businesses or groups who use more than one software programme to keep their VAT records and prepare and file returns will not be required to have digital links between those software programmes.  However, the exception to this is where data is transferred to another product solely for the purpose of submitting the VAT return data to HMRC – this transfer must be digital even during the soft landing period.  This may be relevant for those using a spreadsheet together with bridging software (see below for further discussion of software options including spreadsheets).  

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Further information and guidance

New guidance in the MTD for VAT Notice 700/22

The VAT notice for MTD was updated in early May 2019, and now includes new information/rules on:

  • use of supplier statements – can be used instead of individual invoices if bearing the correct information
  • petty cash transactions – for individual purchases with a VAT-inclusive value below £50, these can be batched and the entry may not exceed a VAT-inclusive value of £500 per entry
  • charity fundraising events – single entry for sales and single entry for costs

Further explanation of these relaxations can be found on taxadvisermagazine.com

The guidance on the turnover test, following the rules when you're exempt, digital links, and supplies made by third party agents and supplies received has also been updated.

Penalties

It is important to note that there is no blanket soft landing with regards to MTD penalties. The only real soft landing in MTD is a limited relaxation on the requirement for digital links between software in the first year (see section 4.2.1.1 of VAT Notice 700/22).  

HMRC have said they will apply a light touch approach to record keeping penalties in the first year of MTD where businesses have made a genuine effort to comply with their obligations.  However, there is no equivalent light touch for late payment or filing penalties.

More information on HMRC’s approach to MTD penalties can be found in the article MTD penalties – soft landings, light touches and hard lines written by ATT Technical Officer Emma Rawson for AccountancyAge.

Exemption from Making Tax Digital

Businesses do not have to follow the MTD for VAT rules if any of the following apply:

  • It’s not reasonably practicable for them to use digital tools to keep their business records or submit VAT returns due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’).
  • They are subject to an insolvency procedure.
  • The 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.

Where any of the above apply the business has to apply to HMRC to claim an exemption. 

Businesses currently exempt from online filing, or whose taxable turnover is below the VAT registration threshold, are automatically exempt from MTD, and do not need to apply to HMRC.

Further information on when exemption may be available and how to apply can be found in Section 3 of VAT Notice 700/22. If you are making claims for exemption on behalf of your clients, we would like to hear your experiences. Please email us at atttechnical [at] att.org.uk.

Making Tax Digital – HMRC letter to deferred businesses

As set out above a number of businesses who would otherwise need to comply with the requirements of Making Tax Digital from 1 April 2019 will be deferred until 1 October 2019.

HMRC has since undertaken a detailed exercise to identify all customers that fall within this group, and has issued letters to every customer affected. A copy of the letter sent to these businesses can be found here for information.

The letter is a specific:

  • direction under Regulation 25A SI 1995/2518 to continue using existing methods to file VAT returns for all periods starting before 1 October 2019 (unless businesses choose to join Making Tax Digital for VAT before then)
  • notification of exemption under Regulation 32B SI 2018/261 from the requirement to keep an electronic account (digital VAT records)

Any business that has a taxable turnover of, or above, the UK registration VAT threshold (currently £85,000) and does not receive a letter (and who does not otherwise qualify for exemption) must comply with MTD from 1 April 2019.

If you or your client are expecting to qualify for deferral, but have not received a letter, you should contact HMRC on the VAT Helpline – 0300 200 3700.

Software

Businesses within MTD are required to use software to keep their records and submit returns to HMRC via their Application Programming Interface (API). 

Our understanding is that are essentially three different types of MTD compliant software:

  • Software packages that can be used to keep digital records and file returns via HMRC’s API.
  • API enabled spreadsheets – spreadsheets with an inbuilt function allowing them to file returns via HMRC’s API.
  • Bridging software which can take return information from an existing spreadsheet and submit this to HMRC via their API.

Where a spreadsheet is used, the relevant data must be digitally transmitted from the spreadsheet or other source where the digital records are kept, directly to HMRC. The summary information for completion of the VAT return must not be physically re-typed into another software package.

The current list of MTD compatible software for VAT can be found here and for income tax here.

Making Tax Digital webinars

The ATT and CIOT have hosted several successful webinars on MTD.

The most recent of these was held on the morning of 21 February 2019 and the recording and slides can be found here.

Previous ATT/CIOT webinars on MTD for VAT were held on:

  • 20 November 2018 (see here for a recording, slides and Q&As)
  • 7 June 2018 (see here for slides and here for Q&As)

Other information and guidance

HMRC have produced a Making Tax Digital for Business – stakeholder communications pack which contains a variety of information for both Income Tax and VAT, including some frequently asked questions.

HMRC have also published the following MTD updates for agents:

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