MTD six months countdown

The fighting talk is nearly at an end, while years of political wrangling, and arguments for and against, are ultimately not going to prevent its implementation.

That’s right, we are now all but six months away from the first implementation of Making Tax Digital (MTD) – and not a Chequers ‘agreement’ in sight.

From 1 April 2019, all VAT registered entities with an annual VAT-able turnover above £85,000, the current compulsory registration threshold, will be mandated to a keep digital record of their VAT transactions, and to file MTD-compliant VAT returns using API enabled software for all VAT return periods commencing after 31 March.

Entities with a VAT-able turnover below the threshold are not obliged to change their method of record keeping or to file MTD-compliant VAT returns in this way, but can do so if they so wish.

Six months may sound a while away. However, given the looming spectre of Brexit, set to become reality on 29 March, the fact is there isn’t much time left for the 1.2 million affected businesses. Many of these are yet to establish if their current software will be MTD-compatible, or if they don’t already use appropriate software to source a VAT MTD-compliant solution.

Update from HMRC

Meanwhile the UK’s tax authority isn’t hanging around in its ambition to become the world’s most digitally advanced tax administration.

The initial pilot for MTD-VAT began privately as an invitation-only affair in April, with a small select group of businesses and their agents taking part. A range of MTD-compatible products is nearing completion.

After a modest start, HMRC has expanded the range and scope of its MTD-functionality to enable a greater range of business types to join the private testing phase.

On-board early

With confidence growing, it is clear that HMRC is preparing to move into a public, testing phase, where the majority of businesses within the scope of MTD-VAT will be able to on-board (join) early if they wish.

Participants will be required to keep a digital record of their VAT transaction and to file MTD-compliant VAT returns using API enabled software. On-boarding early will enable those involved to familiarise themselves with the requirements of the new way of working well ahead of mandation, next April.

While most VAT registered entities will be able to on-board at the start of the public testing phase, interestingly, given my earlier Brexit references, those who trade with the EU will not be able to participate at this stage.

Understandably, HMRC remains bullish and optimistic about MTD being the right approach for business. Indeed, one of the department’s recent communications talked about taking an ‘agile approach to delivering MTD’ and underlined its ‘commitment to delivering a modern, streamlined, digital service that helps businesses get their tax right.’ I, for one, am convinced that the project will act as a benefit to business in the modern era, and not a scourge.

The clock is ticking

However, there’s no doubt that while through this move to more or less real-time record keeping MTD should reduce tax errors and help businesses with managing their cash flow, those mandated and agents need to start laying careful foundations if they are to get MTD right for their business.

With this in mind, AAT spoke to some 184 of its licenced members to find out whether they are edging towards having a fully MTD-compliant system, so that they can test any pitfalls themselves during the pilot phase.

63% told us they are fully confident they will be ready come 1 April; indeed 31% think they are effectively already prepared. In many cases, of course, this could be because they happen to be with a software provider who has already rolled out their own compliant products and are doing their best to ensure their own clients are sticking with their offering.

Are clients ready?

Members were less positive about their clients’ readiness. Rough estimates suggested that around 53% of their clients affected by MTD would be in a position to successfully file their returns when the new tax year starts.

Part of the frustration has been that some software providers have been slow to get going, leaving tax agents and businesses waiting to see if they were going to deliver a VAT-MTD compliant product.

Recently in response to demands from AAT and others, HMRC has published a list of some 50 software products that have successfully filed MTD-compliant VAT returns using non-live data. It looks likely that this list will continue to grow to more like 150 products by next April.

Nonetheless, you might not want to stick too much longer; with the expanded pilot phase clearly being an extremely useful tool in ironing out any last minute hiccups.

You can access further information about AAT and Making Tax Digital.

AAT surveyed 184 of its members via its Green Room survey facility between Monday 24 September and Monday 1 October 2018.

Brian Palmer , former tax policy adviser for AAT..