Making Tax Digital for Business – Government announces deferred timetable
The government has announced a deferred timetable for the introduction of its Making Tax Digital (MTD) legislation. The government says that it has taken into account the points raised by all concerned and stated that although MTD will still go ahead, the timetable for introduction has been deferred and also that the legislation will be altered to release certain businesses and individuals entirely from the requirement to report under MTD for the foreseeable future, although these may join the scheme voluntarily. The revised legislation will appear in the Finance Bill to be discussed after the summer recess.
Under the amended proposals only those business that have a turnover above the VAT threshold will now need to report their income and expenditure under MTD in the foreseeable future – in one swoop this removes a large proportion of small businesses (and private landlords) entirely from the need to become completely digital in the way they keep their financial accounts.
This is likely therefore to have implications for self assessment tax returns as these will now have to remain for a large percentage of self-employed persons for a much longer period of time whilst those who are eventually due to report under MTD will be using a different system. Watch this space on that one.
There are also planned changes to the order in which the figures for different tax calculations (VAT and Income Tax) are be reported under MTD.
Under the new timetable VAT is now the first tax to come onboard. Changes to VAT reporting will come into effect from April 2019. From that date, businesses above the VAT threshold have to provide their VAT information to HMRC through Making Tax Digital software. Those businesses whose turnover is below the threshold but who voluntarily register will still be able to report their VAT returns as they do now and will not be required to report via the MTD system. The reporting of income and expenditure figures for income tax purposes will not now commence until at least April 2020.
So the new proposals are:
• only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes and 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. The amended timings give at least a two year deferment for income tax reporting, (and an indefinite deferment for non-VAT registered businesses).
Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes. This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
However it is important to note that VAT comes online under MTD at the same time as previously identified – April 2019. As most business already have to report their VAT quarterly, no business will need to provide information to HMRC more regularly during this initial phase than they do now. They will however have to keep the information digitally rather than manually. No longer will we be able to log onto the Government Gateway to enter the VAT figures manually for these clients – these will have to be uploaded directly from approved software. Important note – businesses who report under the annual VAT scheme will still be able to upload just their end of year return but must keep their records digitally. Business will be able to use spreadsheets provided the information can be uploaded directly to the MTD system.
MTD will be piloted for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, public pilot scheme starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system. A number of ICB members are being included in the pilot
The surprise General Election caused the removal of the relevant legislation from the Finance Bill earlier this summer, since which we have all been waiting for confirmation of what would happen to the much heralded introduction of Making Tax Digital for Businesses which set out the proposed very important changes to the way that businesses and certain individuals would be expected to report their income and expenditure for taxation purposes and hence the way that ICB members would need to operate and manage their clients’ accounts.
With certain exceptions, the original timetable for implementation was:
Commencing April 2018 – all sole traders, partnerships and private landlords with a turnover above the VAT threshold would start to report under MTD requirements.
Commencing April 2019 – VAT for all business (including incorporated) would need to be reported under MTD and all non VAT registered businesses and landlords would join the system.
Commencing April 2020 – all incorporated business would commence reporting under MTD
Over the past year, although everyone agreed in principal about the need to modernise and digitalise the way businesses report their accounts, individual taxpayers, businesses, professional bodies and even some parliamentarians, had voiced serious concerns about the speed of introduction of the scheme. There were serious concerns raised that problems might arise as software companies were still in the development and testing stage of the entire project and that the initial pilot, which commenced with a small number of businesses in April this year, would not be completed and fully analysed before the bulk of VAT Registered businesses came on board in April 2018.
ICB strongly supports the move towards MTD and remains very active in the development of the proposals through participation in the various thought leader groups within HMRC, which cover all aspects of MTD for both businesses and individuals. By members responding last year to ICB’s call for responses to the government white papers, ICB was able to create a robust submission that outlined the very practical part that ICB members will play in the introduction of MTD. ICB will continue to involve members in formative discussions and will engage with members as new information becomes available.
It is vitally important that ICB members understand MTD and are ready to assist clients in the transformation to digital submissions. MTD will be a leading topic at the ICB Bookkeepers Summit in London on 16/17 October and will feature heavily at Branch meetings throughout the build-up to the various deadlines.
ICB Director and Head of Technical Policy
Member – HMRC Making Tax Digital Forum Group