Update: September 2017
The Finance Bill 2017 proposes HMRC powers to introduce regulations for businesses with turnover above the VAT threshold to keep records digitally (for VAT purposes only) and to submit VAT info to HMRC through MTD compatible software from April 2019.
MTD for VAT will also be available on a voluntary basis for other businesses.
The Finance Bill 2017 is making its way through parliament, but has yet to receive Royal Assent. The proposed legislation includes Clause 62 which:
a) Gives HMRC powers to make regulations requiring the submission of information relating to VAT
b) Gives HMRC powers to make regulations that specify the form in which records are kept and preserved
c) Where regulations are made that require records to be kept and preserved digitally, gives HMRC the powers to specify how digital records are kept and the conditions that must be complied with.
d) Where these powers are used to require records to be kept and preserved in a digital format, provides an exemption for businesses with a turnover below the VAT registration threshold.
e) Ensures that, once a business is required to keep digital records, this requirement remains in place even if that businesses turnover falls below the threshold and that person remains registered for VAT.
f) Gives HMRC the power to vary the exemption provisions, in the case of transfers of a going concern, and add further exemptions in the future.
g) Gives a right of appeal against HMRC decisions about the application of regulations relating to VAT requiring the use of digital communications or digital record-keeping.
h) Ensures that regulations providing for digital record keeping can’t come into force before 1 April 2019.
The Government and HMRC remain committed to the Making Tax Digital project. Although the regulations will not come into force until April 2019, we are encouraging clients to move to digital record keeping at the earliest opportunity. This will ease the transition to complying with HMRC regulations in the future. We can help you with this transition, from providing basic spreadsheet templates to suggesting suitable software or providing a full online bookkeeping service.
Update: July 2017
Responding to concerns about the pace and scale of change, the government has announced that the roll out plans for Making Tax Digital has been amended.
Businesses will not now be mandated to use the making Tax Digital system until April 2017 and then only to meet their VAT obligations.
In an extract from the government’s announcement on 13 July 2017, the Treasury and paymaster General, Mel Stride comments:
“Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.
We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”
The new timetable becomes:
- only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
- they will only need to do so from 2019
- businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020
Importantly, this means that Making Tax Digital will be available on a voluntary basis for the smallest businesses so businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
HMRC has already begun a Making Tax Digital for Business MTDfB live pilot scheme and will continue to expand this pilot.
Update: May 2017
Post election, there may be a short-term delay in proceedings while the Treasury adjusts to new personnel and the impact of a hung parliament, but as the policy is driven by HMRC, we can expect to see it enacted in the long term. Questions continue to be raised about the practicality of the original timetable, the details of the exemption process and the mechanics of the interactions required with HMRC. Rest assured, once clarified, we will keep you advised of what needs to be done and when.
Update: April 2017
The finer details of the Making Tax Digital proposals were still yet to be published, but the key points were:
- Businesses will need to keep digital records.
- Businesses will be required to deliver information to HMRC at least every three months via software that is MTD compliant. Businesses will register for MTD through the Business Tax Account.
- There will be a minimum level of income and expense analysis required.
- There will be an opportunity to make year-end adjustments and capital allowance claims within a certain period after the accounting date.
- Each taxpayer will have a personal tax account (PTA) where details of income from other sources will be entered or checked, which will eventually replace the completion of the annual personal tax return. The last personal tax return is expected to be that for 2018/19.
The timeframe for the introduction of MTD is currently (as at March 2017):-
- Unincorporated businesses and landlords with gross income above the VAT registration threshold of £85,000 to begin reporting for the first accounting period starting after 5 April 2018.
- The remaining unincorporated businesses and landlords with gross income above £10,000 to begin reporting for the first accounting period starting after 5 April 2019.
- From April 2019, VAT registered businesses will need to submit VAT returns through MTD software.
- From April 2020, limited companies will join MTD.
Update: Jan 31 2017
HMRC has today issued a press release " Digital Tax Revolution moves a step closer", in which it suggests that after listening to 3000 businesses and agents it has made several changes to the Making Tax Digital initiative. You can read the full release here.
Craig Simpson, Tax Partner at Bates Weston Tax LLP comments:
“HMRC is pressing ahead with Making Tax Digital but with some concessions. This goes to show HMRCs commitment to getting the job done but there will be teething problems along the way and many questions to answer. HMRC suggest this will only cost on average £280 per business in the transitional period but for those who are not organised, the cost could be far greater. This is a real call to action for micro businesses to modernise and digitise their accounting records as soon as possible so that when quarterly reporting is a reality they are already well prepared.”
Update: Jan 2017
HMRC first published its consultation on plans to reform the tax system in August of 2016. Many expected an update in the Autumn Statement, however such was the level of response, that the government simply announced that it would release its conclusions in January 2017.
In reality, the scope of the planned change is so large and complex, that we have yet to see the consultation documents which will address the needs of complex businesses, including partnerships, corporates and VAT registered businesses. Some of these are expected in January 2017, with others following later in the year.
According to Accountingweb, HMRC is testing MTD software with 1000 businesses and plans to have a wider public beta pilot in place from April 2017.