Ahead of the official Making Tax Digital announcement by the Treasury, 80% of UK accountants we surveyed agreed that any deferral of Making Tax Digital (MTD) until 2019 should be aligned to the VAT threshold – so the recent new timetable for making tax digital is undoubtedly well received.
In his latest article, Mark Purdue answers some critical questions about the new version of MTD and what it means for accountants and their clients.
Q: Mark, how has the timetable for MTD changed?
The old MTD timetable:
- Quarterly Reporting for income tax for traders and landlords with a turnover above the VAT registration threshold (£85,000).
- Quarterly Reporting for VAT for all VAT registered businesses.
- Quarterly Reporting for income tax for traders and landlords with a turnover below the VAT registration threshold (£85,000).
- Quarterly Reporting for corporate tax for all incorporated businesses.
The new MTD timetable:
- Quarterly Reporting for VAT for all VAT registered businesses with a turnover above the VAT registration threshold.
- For VAT registered businesses with a turnover below the threshold, quarterly reporting is optional.
April 2020 (at the earliest)
- Quarterly Reporting for income tax and corporate tax (as appropriate) for all businesses (including landlords) with a turnover over the VAT registration threshold.
- For businesses (including landlords) with a turnover below the threshold, quarterly reporting will be optional.
Q: What will accountants have to do in 2019?
As the vast majority of VAT registered businesses already report quarterly for VAT, this means that, other than a technical change in April 2019 to the actual method of reporting, the data reported and frequency of report is unlikely to change for most businesses, and therefore, most accountants.
Q: What about digital record keeping?
Only those businesses with an obligation to file quarterly (VAT registered businesses with a turnover over the threshold) are obliged to keep digital records. For all other businesses, this becomes optional.
Q: Does ‘optional’ mean that quarterly reporting will be widely adopted?
Only time will tell. There are benefits to digital record keeping vs. poor or paper records, and these have not changed:
- Collaboration of data between agent and client.
- Robust records vs. no records.
- Efficiency of data transfer between client/agent/HMRC.
- Ability for agent to react to live data and offer proactive advice.
- Efficient processing of data.
Q: So do accountants need a VAT software solution?
Currently, the vast majority of accountants use HMRC’s gateway to make the submission for their small clients (a relatively simple submission process, with nine boxes).
For more complex or larger clients, VAT submission is usually performed by a dedicated accountancy software product or from the bookkeeping product.
For quarterly reporting of income tax, HMRC stated that they were not going to continue to provide their own software. It’s unclear whether they intend to continue providing a VAT solution under MTD.
Q: Will the MTD pilot end?
No – the pilot continues as before. However, I expect the focus to shift more towards VAT, with less immediacy around the income tax reporting.
Q: So what’s next?
I expect further consultation on MTD in relation to VAT registered businesses, larger and more complex businesses. Within the Finance Bill due in September, I also hope there will be some clarity around the 2020 timeframe. In particular ‘who’s in’ and ‘who’s out’ in terms of which businesses will be required to report quarterly, and for which taxes.
For many accountants I’ve been talking to – MTD has kick started a period of assessment, both in terms of ways in which accountants can become more efficient; and ways in which they can encourage and even improve their clients own efficiency.
If MTD prompted you to reflect on areas of your practice you could improve, don’t waste any prep – whether that’s a review of your internal systems, or moving your clients onto digital record keeping. My advice put simply is – don’t stop.
If you want to learn more register for Mark’s upcoming webinar on Thursday 3 August at 10 am to gain a clear summary of the key points from the Treasury announcement on 13 July.
Mark Purdue tax product manager at Thomson Reuters, has spent over 25 years' working in tax and specialises in Personal and Capital Gains Tax.