Timetable for Making Tax Digital
MTD will be mandatory for VAT purposes from April 2019:
- Businesses with taxable turnover above the VAT threshold (currently £85,000) will have to keep digital records and use software to submit their VAT returns to HMRC
- For now, businesses will 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.
- Business will not have to keep digital records or report quarterly for other taxes (e.g. income tax and corporation tax) until April 2020 at the earliest.
- MTD will be available on a voluntary basis for businesses below the VAT threshold, and for 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.
In response to concerns raised by MPs, businesses and professional bodies such as the ATT, the introduction of Making Tax Digital (MTD) for income tax was delayed last year, and will now not be introduced until April 2020 at the earliest.
HMRC have indicated that they will consult on MTD for Corporation Tax at some point in 2018.
Detailed VAT Timetable
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’ from 1 April 2019. The commencement dates will be a follows:
|Quarterly filing dates||Start of first return subject to MTD|
1 April 2019
|Feb/May/Aug/Nov||1 June 2019|
1 May 2019
Those on the annual accounting scheme will come into MTD on the start of the first annual accounting period starting after 1 April 2019.
ATT have pointed out the practical issues of the interaction between start date and accounting periods for other tax purposes here.
MTD for VAT pilot
The MTD for VAT pilot started in early April 2018, initially with a very small number of simple businesses, and will grow from there.
HMRC have indicated that they intend to open the MTD for VAT pilot more widely from October 2018, when the pilot will be open to sole traders and companies (except those are who are a trust or charity, part of a VAT group or VAT Division) provided they are up to date with their VAT affairs. This is expected to cover over 600,000 businesses in total.
More complex businesses including those who trade with the EU, are based overseas, submit annual VAT returns, or make payments on account, will not be able to join the trial in October 2018, and will have to wait until a later date. HMRC have also indicated that they continue to work on bringing other business types (such as partnerships and those that are not up to date with their VAT affairs) into the VAT pilot, but no date has yet been set for this.
More information on this pilot can be found here.
The current list of MTD for VAT compatible software products can be found on GOV.UK here. HMRC have indicated that over 130 software suppliers have registered an interest in providing software for MTD for VAT, and that this list will be updated as testing progresses.
MTD for Income Tax pilot
MTD for Income Tax trials entered their public beta testing phase on 15 March 2018. You can access the service here. Initially, taxpayers were only eligible for the public beta if they were a sole trader with income from one business. On 31 May eligibility to join the pilot was also extended to taxpayers with income from UK property (excluding furnished holiday lettings).
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.
If you and your clients are already using software to keep records, you should check with your supplier when it will be ready to allow you to send MTD updates to HMRC.
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.
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 delegate access to the account. Many firms may already have created an ASA in order to submit Trust Registration Service returns.
A basic outline of the ASA and how to set one up can be found here.
As part of the development of MTD-enabled services for agents, HMRC have shared with us a document which sets out the latest timetable for the development of:
- MTD for Income Tax services for agents
- MTD for VAT services for agents
- Other services for agents including viewing pay and tax details for self-assessment clients
- Details of services which will be trialled in the future
The latest update, dated April 2018, can be found here. Obviously this timetable is not set in stone and may well change as IT is developed and depending on the outcome of pilots. However, it is still helpful to know what services for agents HMRC are looking at and to have an indication of potential timescales.
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.
The final MTD for VAT Regulations SI 2018/261 were laid before Parliament on 28 February 2018 and will come into force on 1 April 2019. No significant changes were made to the Regulations from the draft version published in December 2017.
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).
Further information and guidance
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 there will eventually be 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 lists of MTD compatible software can be found:
Making Tax Digital webinar – 7 June 2018
On 7 June 2018 the ATT and CIOT ran a webinar on MTD. The slides for this webinar can be found here. We have compiled a list of Q&As from questions that were sent to us before and during the broadcast, and this can be found here. If you have any further questions please email atttechnical [at] att.org.uk.
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.
An article in which the ATT takes a look at the challenges faced by businesses, advisers (and HMRC) with respect to MTD for VAT can be found here.