Is MTD for VAT a blessing or a curse?
In recent weeks, I’ve helped several companies who are battling to comply with HMRC’s Making Tax Digital – VAT requirements. They are small businesses who are struggling in the current economic environment and they have spent thousands, investing in new systems or upgrades to existing systems. It has made me question, why? Who does this benefit other than software providers and dare I say consultants like myself?
What are the rules?
After 1st April 2019 all businesses with turnover above the £85,000 threshold must submit their next full quarterly VAT returns (e.g. if the quarter is 1st May to 31st July, digital records must be prepared from 1st May and the VAT return submitted by 7th Stepmber 2019) using MTD compliant software, noting there are over 450 providers on HMRCs list (https://www.tax.service.gov.uk/making-tax-digital-software).
Businesses do not have to comply with MTD if:
- it’s not reasonably practicable for them to use digital tools to keep business records or submit VAT Returns because of age, disability, remoteness of location or for any other reason
- the business is subject to an insolvency procedure
- the business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records
Applications can be made by phoning the VAT helpline 0300 200 3700 or in writing to HM Revenue and Customs – VAT Written Enquiries Team, Portcullis House, 21 India Street, Glasgow, G2 4PZ.
What information do HMRC get?
Businesses and their accountants have for years sent HMRC quarterly VAT returns via the electronic inteface “Government Gateway”. They got the standard 9 box VAT return and the only exemptions for non-submission electronically were the same as those stated above. After MTD VAT, HMRC still get the 9 box VAT return, via the Government Gateway with the only difference being the link to the businesses compliant software.
They aren’t getting any of the transaction data which supports the calculations. I doubt their data storage would be able to cope if that was indeed the case. So why? Why all this cost and disruption to business to get what they always got?
What does HMRC say?
The link below is HMRC’s overview and in summary they have the aim to ensure we have the most digitally advanced tax system and it should lead to taxes being collected more efficiently, effectively and right first time. They also estimate that better tax collection will bring in £9 billion a year in additional revenues for the Exchequer. I’d love to know your thoughts.
The Chancellor’s Spring Statement in March 2019, announced that:
The focus will be on supporting businesses to transition and the government will therefore not be mandating MTD for any new taxes or businesses in 2020
There is more MTD to come for other taxes, including Income Tax, possibly 2021 and Corporation Tax, however, that is likely to be much further in the future.
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