Chancellor: VAT MTD is go, but no further mandation until 2021

While not referenced within Chancellor Philip Hammond’s Spring Statement this week, in his written response he made a strong reference to the Government’s commitment to Making Tax Digital for VAT (MTDfV).

No further mandation before 2021

Hammond’s written response referenced an earlier promise not to extend the mandation of MTD to any new taxes or businesses until the MTDfV system has been shown to work well, and not before 2021 at the earliest. 

Given the immediate focus will be on supporting businesses to transition to the new service, this can only be described as a common-sense move,  and one to provide some certainty.

Latest from HMRC

The publication of the Chancellor’s Spring Statement was followed immediately by a statement from Theresa Middleton (HMRC Director, Making Tax Digital Programme):

“Our VAT pilot service is progressing well, with over 46,000 businesses in the pilot and over 200 MTD compatible software products available, including some free products, and over 140 existing subscription products being updated at no cost at all.”

Middleton’s comments also referenced that HMRC:

“…continues to listen to feedback from business, and recognises the importance of supporting businesses through the transition to MTD.”

Future direction of travel needs to be clearer

It is great that what I have been saying privately to HMRC, that further mandation in 2020 was not doable, has now been publicly acknowledged. 

I would urge Government and HMRC to be clear about the future direction of travel for MTD to help the software industry to know what they need to do and by when. 

The danger of an absence of clear commitment will leave a vacuum and as we all know, where a vacuum exists, the arising gap will be filled with conjecture. 

What is MTDfV?

The major change to the way that VAT-registered businesses with VAT-taxable turnover of £85,000 or more will keep their VAT records. These will entirely be recorded digitally, and businesses will need to submit their VAT returns using MTD compatible software for VAT periods starting on or after 1 April 2019.

Brian Palmer is the tax policy adviser for AAT.

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