COVID-19 Update: In response to the current COVID-19 situation, HMRC have formally deferred the implementation of the second phase of MTDfV (“digital links” requirement).
All businesses now have until their first VAT return period starting on or after 1 April 2021 to fully comply with MTD requirements and implement digital links. It is clear that HMRC realises that businesses are juggling MTD compliance with a number of competing priorities, not least the impact of COVID-19.
Please note that the requirements (and timings) to submit VAT returns digitally and to maintain digital records have remained unchanged. For further information please speak to your usual contact or email VAT@geraldedelman.com
Making Tax Digital
Businesses and professional bodies have lobbied the Government, with concerns raised by the Treasury Select Committee being addressed in July 2017, when it was announced that MTD for VAT would be pushed back to April 2019.
That date is now fast approaching.
To recap, HMRC’s aim is to become one of the most digitally advanced tax administrations in the world and MTD is the enabler of this vision.
MTD will bring about fundamental changes to the way that the UK tax systems work, with HMRC’s core aims being:
- A more effective tax system;
- A more efficient tax system;
- Making it easier for taxpayers to get their tax obligations right.
VAT is the first tax to be mandated under MTD and others such as income tax and corporation tax are due to be rolled over the coming years.
The UK is far behind other EU states when considering the implementation of digital services to financial reporting. For example, Lithuania began implementing an automated digital tax reporting mechanism (known as i.MAS) in 2016, which requires information to be submitted digitally and on a regular basis. Spain has not yet taken up such digital techniques; although they still require invoice data to be submitted to the VAT authorities within four days of issuance under their new ‘Immediate supply of information’ scheme. Here in the UK, MTD will not bring an immediate change to the reporting schedule for VAT registered companies. However, this is just the first stage of MTD. We expect these mechanisms to change in the medium term as HMRC first ensure that the digital infrastructure for such reporting is put in place.
That said, MTD is not yet a finished product. HMRC has not released information on how complex VAT arrangements, such as group reporting or retail scheme adjustments, will be handled by the system. Until software is developed to handle these mechanisms, it is unclear as to how the corresponding VAT returns can be made digital.
Here at Gerald Edelman, we have been undergoing significant transformation in terms of how we manage VAT services for those clients for whom we undertake VAT reporting. No longer will we be able to submit VAT returns to HMRC on behalf of our clients, unless the transactional data has been recorded in an approved system. In readiness for these changes, we have been transferring systems of account from paper and/or Excel based environments, into MTD compliant software to ensure adherence to the upcoming requirements. A full list of MTD compliant software can be found here. For those who currently submit their own returns: the online portal that you will be familiar with will no longer be in operation.
The Benefits of MTD
Whilst clearly a disruptive process, the shift to MTD brings about many opportunities for businesses to achieve greater efficiencies by offering the potential for automation within their operating and administrative processes. In terms of reporting, integrated systems will always be more accurate and efficient than relying on human transposition. The requirement for businesses to keep VAT records digitally provides several advantages:
- Integration with bank accounts;
- Integration with core business systems (e.g. CRM, ERP, eCommerce platforms, etc.);
- Security and availability of data;
- Ease of sharing data (with trusted parties and/or regulators).
Who does MTD for VAT affect?
Keeping VAT records in digital format is a requirement that will be imposed onto any of the following parties who are VAT registered with a taxable turnover above the VAT threshold (currently at £85k):
- Sole traders;
- Self-employed individuals;
- VAT registered entities, such as charities, government bodies, and limited companies.
Entities not meeting the above requirements will not be required to keep their accounting records in a digital format. However, as a prudent measure, our advice is to ‘get digital’ before there is a requirement to do so. As mentioned above, MTD is in its infancy; and we expect significant changes to the scheme in future as the migration of accounting data to the cloud is progressed.
HMRC will impose similar penalties as for the existing regime when addressing late filings. However, HMRC has stated that a ‘light touch’ approach will be adopted during the early phases of the project.
MTD for VAT – Key points
- Affected business’ must keep VAT records from 1 April 2019 in a digital format
- VAT returns must be submitted from HMRC-approved MTD-compatible software
- No changes are yet planned to the reporting or payment frequencies
- HMRC will communicate to businesses directly via compliant software
How can Gerald Edelman help?
If you’re already a client of our Business Services Department – we’ve got you covered. If you haven’t already heard from us, we’ll be in touch soon to advise on the migration of data into a compliant platform and the required changes in your reporting processes.
If we don’t currently assist in your VAT compliance, and you would like more information on how MTD for VAT will impact you and your business, then please get in touch with your usual Gerald Edelman contact to arrange a consultation.
MTD for VAT is the first of several digital revolutions planned for the UK tax regime. We predict that, as a result, there will be a fall in the number of VAT inspections, but an increase in the number of specific queries, given that HMRC will soon have access to the transactional data sitting behind the reported totals on a given VAT return.
The move to digital does provide opportunities for the road ahead for those seeking to embrace digital technologies. Stay tuned to our newsletter in which we will be running a series of updates on the development of the MTD project.
This article was written by Tom Hall during his time at Gerald Edelman.
For further information please speak to a VAT advisor at Gerald Edelman.Back to top