• Making Tax Digital update

  • An HM Treasury statement from Paymaster General Mel Stride this morning confirmed that the requirements for digital quarterly reporting were being stripped back to cover only VAT in a revised roadmap for Making Tax Digital (MTD).

    Those above the VAT threshold will have to start filing with MTD-compatible software from April 2019, but small businesses below the threshold “will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020,” the Treasury said.

    Until today, the government’s public stance was that mandatory quarterly reporting under MTD would come into force from April 2018 for businesses over the VAT threshold that paid income tax. The requirement for all unincorporated businesses to join MTD at the same time was delayed by 12 months as part of the Budget announcements in March.

    Introducing MTD under the original timetable was becoming increasingly improbable ever since late April when Theresa May called the general election and sent the civil service into purdah. The MTD clauses were stripped out of the Finance Bill to ensure it could be passed before Parliament dissolved, and the post-election chaos left no time to reintroduce them.

    On the software side of the fence, HMRC has continued to work on the infrastructure and data exchange standards to make digital tax filing possible, but progress has been painfully slow. Reports from specialist accountants working in the sector suggest that significant numbers of freelance computer programmers have stopped working for HMRC because of the public sector IR35 rules that were introduced in April.

    The MTD pilot scheme started with the new tax year, but only a few of the application programming interfaces are available for commercial software to share data with HMRC’s computers. HMRC is now indicating that these may be ready for testing by December 2017, but that would not leave a suitable gap for testing the system before the original deadline.

    As the new financial secretary to the Treasury, Paymaster General Stride inherited responsibility for MTD and has “listened to concerns raised by parliamentarians, in particular the Treasury Select Committee, businesses and professional bodies about the pace of change”, the Treasury said.

    As a result, “All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes,” the Treasury said. Those below the VAT threshold will be able to choose when to move to the new digital system.

    Under the revised timetable:

    • 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
    • Small businesses will be able to file digitally on a voluntary basis for other taxes.

     Business Annual Turnover

     

    Quarterly reporting for taxes

    Old timetable

    New timetable

               

    Over £85,000+ vat registered

    Vat only

       

    01/04/2019

    01/04/2019

               

    Over £85,000; all businesses

    Income tax and NI

     

    06/04/2018

    At least April 2020

    and landlords (not necessarily

           

    vat registered)

             
               

    £10,000 to £85,000 (not

    Income tax and NI

     

    06/04/2019

    At least April 2020

    confirmed)

           

    on a voluntary basis

               

    All companies

    Corporation tax

     

    01/04/2020

    At least April 2020

    The Treasury thinking is that VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly than they do now.

    Making Tax Digital for VAT will go into a public beta test in the spring of 2018 and from April 2019, businesses above the VAT threshold will have to file their VAT returns with MTD-compatible software.