The government’s landmark Making Tax Digital (MTD) for business initiative is set to take effect from 1 April 2019, beginning with MTD for VAT. Here, we take a look at the latest position, and consider the recent delay to some of HMRC’s new digital services.
MTD for business: an overview
The MTD for business initiative was originally set to be implemented between 2018 and 2020 – however, concerns were raised in regard to the pace and the scale of the changes, and a revised timetable for the introduction of the initiative was put forward.
Under this timetable, beginning from 1 April 2019 businesses with a turnover above the VAT registration threshold (currently £85,000) will be required to keep digital records for VAT purposes and submit VAT returns to HMRC using MTD functional compatible software. If a business’s turnover subsequently falls below the VAT registration threshold, the MTD requirement will remain.
VAT returns must be calculated and submitted to HMRC using an Application Programming Interface (API), and submission can be from software, bridging software or API-enabled spreadsheets.
Keeping digital records and making quarterly updates will not be compulsory for taxes other than VAT before April 2020. Since April 2018, HMRC has been live piloting MTD for VAT.
HMRC anticipates that there will be a one-year ‘soft-landing’ period when penalties for incorrect bookkeeping under the initiative will not apply.
A business can choose to submit VAT information more frequently than the VAT return obligations require.
Delays to aspects of MTD
HMRC recently announced that it would be redefining its ‘priorities’, in order to increase its resources for dealing with Brexit. Consequently, the roll-out of some aspects of MTD has been delayed.
Personal Tax Accounts
Personal Tax Accounts (PTAs) – digital tax accounts (DTAs) for individuals – have already been created by HMRC. PTAs have been pre-populated with existing information by HMRC, and allow individuals to update their financial details, communicate with HMRC, and use real-time technology to review their tax affairs. Those wishing to register for a PTA can do so by visiting: www.gov.uk/personal-tax-account.
However, further planned developments to PTAs will now not be made, with HMRC revealing that additional digital services in this area will only be developed where they ‘reduce phone or postal contact’, or otherwise deliver ‘significant savings’.
Under Simple Assessment, the government has the power to make an ‘assessment of income tax or capital gains tax (CGT) liability’ for certain taxpayers, without the individual being required to complete a self assessment tax return. HMRC will be able to assess an individual’s tax liability on the basis of the information it holds on that person.
There are currently only two groups of taxpayers to which Simple Assessment applies and HMRC has confirmed that there will now be ‘halted progress’ in this area.
Real-time tax code changes
In April 2017, HMRC began to use PAYE information in order to make in-year changes to tax codes in real-time. However, the Revenue has confirmed that progress in this area will be ‘halted for the time being’.
Is MTD for VAT affected?
HMRC has emphasised that MTD for VAT remains ‘on track’ to commence in April 2019. The creation of a single digital account for all business customers will now happen ‘at a slower pace’ than previously intended, but the delays will not affect the delivery of MTD for VAT.
MTD represents a fundamental change to the way in which businesses keep their records. As your accountants, we can keep you updated on the requirements.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.