Do you have all the information you need to be ready for when Making Tax Digital (MTD) is mandated? Businesses with a turnover exceeding the VAT threshold of £85K will be required to maintain digital records and file their VAT returns using MTD compliant software.
The understanding of MTD amongst financial institutions was addressed at the Tax Congress for Financial Institutions (TCFI) 2018 by HM Revenue & Customs’ Rebecca Hutton, Head of External Stakeholder Engagement on Making Tax Digital for Business, and Andrew Higgins, Strategic Regime Lead for VAT, SDLT and IPT. HMRC’s presentation – ‘Moving into the New Era of Tax – Making Tax Digital’ – left the audience wanting to know more about the policies and where they need to go to get the guidance they need.
So, how prepared is the finance sector and do we know more about the MTD myths than the facts?
Deadlines and Delays
Just to confirm, there are 3 elements to MTD: 1) the digital record keeping, 2) the digital linkage element (where all your systems must communicate with each other without any manual intervention), and 3) the submission via an API.
The British Chambers of Commerce (BCC) has appealed to HMRC to extend the MTD deadline from 1st April 2019 to 1st April 2020, which is due to a general lack of awareness that VAT-registered businesses have demonstrated (including the 3 aforementioned elements) and, of course, the March Brexit decision. The BCC proposed another year would allow both firms and HMRC to deliver a greater degree of compliance in relation to tax digitisation, based on the findings of their recent survey:
- Nearly 1/4 of businesses were unaware of MTD changes
- Almost 1/10 claimed they knew what to expect and that they were ready
It is important to be aware that the digital linkage element of the VAT notice (700-22) actually extends the deadline by another year, providing a ‘soft-landing period’. It is written in the legislation to allow this extra year, which will let business owners get to where they need to be. Technically, there is a deadline and a delay!
A Bit of Help and Support
Whether you fall into the 1/4 or 1/10, there’s a new cartoon character called Dexter the Digital Tax Advisor to help guide and acclimatise us to the new MTD for VAT legislation. Xero has commissioned a series of short educational videos to enable firms to prepare for the next year’s looming transition. Meet Dexter – the animated star brought to life by his Oscar-nominated creators, Alison Snowden, and David Fine.
This colourful answer to make the convoluted clearer is in response to the data gathered from accountants and small business owners soon to be affected by the transformation:
- 29% know of the MTD legislation but don’t understand it
- 36% only know about the MTD for VAT deadline – that’s it!
- 38% are anxious about how complex the digital changes are
- 38% are worried about their lack of knowledge regarding the MTD legislation
- 23% acknowledge that the switch is compulsory
- 29% are aware of the non-compliant penalties
The Myths Surrounding MTD
Along with these shocking statistics are the implausible ideas currently making the rounds. Brexit is one of the top-ranking myths that the MTD legislation won’t follow through. If you think a ‘soft’ or ‘hard’ Brexit agreement will have any effect, you’re sadly mistaken. The MTD ‘soft-landing period’ as previously mentioned does not mean financial institutions can rest on their laurels. This goes for assuming that software providers can solve the MTD transition on your behalf. Even if you have an API link, this isn’t something that lagging firms can fall back on at the last minute. Businesses must ensure that their data is available in an MTD-compliant format, with the ability to digitise any future changes that need to be made.
MTD is happening.
One thing we can guarantee is fact is the complex theory. If your firm is categorised as “complex”, the MTD for VAT deadline won’t be until 1st October 2019. This means some of us get an additional 6 months to get up to speed. If you’re registered as a trust, non-profit organisation, local authority, public corporation, or even an overseas-based trader – you’re complex! Double check with HMRC to find out if you’re complex here.
Expect More to Come from MTD
Making Tax Digital (MTD) in 2019 is the beginning of a digitised future for VAT-registered companies, with even more polices expected to roll out as early as 2020. The focus will eventually shift to include other taxes, such as corporation tax and income tax, with self-assessment pilots already available for the latter. However, it’s important to know that many companies have already been keeping digital records, so MTD is the logical next step.
Find out more tax-related insights in our Tax Congress for Financial Institutions (TCFI) 2018 Post-Event eBook available to download next week.