MTD: By the pricking of my thumbs…
Making Tax Digital is a government plan “to make it easier for individuals and businesses to get their tax right and keep on top of their affairs - meaning the end of the annual tax return for millions.” Yes, well maybe. But it is going to force you to use third-party software to keep your books and submit your tax and VAT returns. Spreadsheets – no more. Typing numbers into HMRC’s website – no more.
“Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations.” So the pace of introduction has slowed from the original timetable, but HMRC has failed to learn the lessons of the roll out of real time information for PAYE (“RTI”) where it is going to take a full 7 years from the introduction of RTI for all the glitches to be ironed out. For MTD, we get 12 months.
“This will apply to businesses who have a turnover above the VAT threshold - the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.” For now. But the direction of travel is clear, and the smallest of businesses should expect it to arrive soon after 2020.
The four foundations of Making Tax Digital are said to be:
- Better use of information
- Tax in real time
- A single financial account
- Interacting digitally with customers
So each individual customer’s information (don’t you love being a customer rather than a taxpayer?) is in one online place which you can access how and when you like.
For businesses HMRC expects “integrating digital record-keeping to provide a single, seamless process with quarterly updates generated and sent direct from the software the business/agent uses to keep their records.”
And there is more… as HMRC expects “many of these businesses to take the opportunity to provide quarterly updates for other taxes too, but there will be no mandatory requirement to do so.” For now.
“The government has committed that it will not widen the scope of Making Tax Digital for Business beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.” Colour me surprised, but that wasn’t what they did for RTI.
ICAS remains of the view that the timetable for the introduction of mandatory Making Tax Digital for VAT is unrealistic. Larger or more complex businesses (and any repayment traders) will get nothing like 12 months of testing, meaning that many problems risk not being identified, let alone fixed, before mandatory implementation.
It is unreasonable to expect businesses to deal with MTD at the same time as Brexit, particularly when the promised 12-month testing period will not be available for most businesses, particularly larger and more complex ones.
The Public Accounts Committee, in its recent report on HMRC, identified that HMRC is already under considerable pressure. It is undertaking 15 major transformation programmes and with the additional pressures arising from Brexit it is having to consider how to change its priorities. A more gradual approach to MTD would benefit HMRC as well as business.
Customers can join an HMRC pilot in this month. The pilot will initially be restricted to small, simple businesses. However, if you are on their list HMRC will be able to invite you to join later, once more software products become available. And both we and ICAS would be interested to hear how you get on.
None of the major software companies can provide approved software yet. They are all concerned about the target moving, so they are unwilling to finalise their offering. But for now, there are three points to take away here:
- Change is coming. Bear that in mind when reviewing and updating your systems
- Change is coming. It is driven by the software companies, which have sold this digital pup to the Treasury. They have done that because they will make money. That means it will cost you more.
- Change is coming. And don’t blame your accountant for it.
“By the pricking of my thumbs, Something wicked this way comes…”
Second witch, Macbeth.