Making Tax Digital

Timetable for Making Tax Digital

MTD will be 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 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.

It was announced on 16 October 2018 that mandation of MTD for VAT will be 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.

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.

All other businesses with taxable turnover above the VAT threshold will continue to be mandated from April 2019.

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’ 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, we understand that 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. 

ATT have pointed out the practical issues of the interaction between start date and accounting periods for other tax purposes here

 

HMRC pilots

MTD for VAT pilot

The MTD for VAT pilot started in early April 2018, initially with a very small number of simple businesses, and has grown from there. 

Currently, the MTD for VAT pilot is open to all businesses who will be mandated to use MTD from 1 April 2019 and VAT groups (who are deferred until 1 October 2019).  

HMRC have indicated that the pilot will be extended to cover all of other businesses deferred until 1 October 2019 at some point in Spring 2019. 

An updated Making Tax Digital for VAT timeline setting out approximately when this might occur can be found here.

More information on signing up to the pilot can be found:

  • here for agents; and
  • here for businesses.

The current list of MTD for VAT compatible software products can be found here on GOV.UK together with information on who the software is for (i.e. businesses and/or agents) and key features.  HMRC have also published a longer list of Software suppliers supporting Making Tax Digital for VAT which sets out those suppliers who are working towards producing suitable MTD for VAT software.  These lists 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. Taxpayers 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 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 assistant 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.  A longer form article in September’s Tax Adviser magazine 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.  This timetable has since evolved but it is helpful to know what services for agents HMRC are looking at and to have an indication of potential timescales. 

 

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.

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

Making Tax Digital – HMRC letter to deferred businesses

HMRC recently announced that a number of businesses who would otherwise need to comply with the requirements of Making Tax Digital from 1 April 2019 would be deferred until 1 October 2019.

HMRC has since undertaken a detailed exercise to identify all customers that fall within this group, and will shortly start issuing letters to every customer affected. A copy of the letter that will be 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.

We understand that those businesses registered for VAT with the Non-Established Taxable Persons Unit (NETPU) – around 5,000 overseas businesses – have not yet been written to.

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

MTD Communications – HMRC letters to businesses affected by MTD for VAT

During the week commencing 5 November 2018, HMRC started to send out their first wave of what they are calling “encouragement letters” to businesses within the scope of MTD for VAT. The letters are being sent to businesses which are currently eligible to join the pilot (see above).  They are not being copied to the businesses’ agents.

The first wave is 20,000 letters and, following a pause to monitor their impact, a further 180,000 letters were issued the following week (commencing 12 November). There are two versions being used, again to enable HMRC to monitor their impact. Both have the same core message but are written in slightly different styles.

Since HMRC will be monitoring how businesses react and respond to the different versions of the letter, we have been asked by HMRC not to publish the full text of the letters.  However, HMRC recognise that it is important that agents are aware of the letters and what they say, so are happy for us to summarise the content.

Version 1 explains to the business that the way they keep VAT records and submit their VAT returns to HMRC is changing, and that the new way of doing things is called Making Tax Digital.  It goes on to explain which businesses are within scope (mandated) from April 2019, and that they will need to keep their records digitally, either using software or a combination of software and spreadsheets, and submit their VAT returns using MTD compatible software.  It says the business can join early if it wants to.  There is then advice on how to join the new service, with links to help and advice on gov.uk.

Version 2 is shorter.  It says that the VAT system is being modernised, and the business needs to get ready for the change now.  It explains which businesses are within scope (mandated) from April 2019, and that they must keep digital records for all VAT transactions and use software to submit their VAT returns to HMRC. This is called Making Tax Digital. There is then advice on how to get the business ready, with links to help and advice on gov.uk.

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

Making Tax Digital webinar - 20 November 2018

This session focussed on how to get ready for MTD for VAT, looking at the more recent developments around the timetable, record-keeping requirements, the pilots, and the Agent Services Account.

The webinar took place on 20 November at 09:30 and featured:

  • Adrian Rudd, Chair of the CIOT / ATT Digitalisation and Agent Strategy Working Group (DASWG)
  • Tina Riches, Vice Chair of the CIOT / ATT Digitalisation and Agent Strategy Working Group (DASWG)
  • Richard Wild, Head of Tax Technical Team, CIOT

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.

HMRC have also published the following MTD updates for agents:

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.