Making Tax Digital

Making Tax Digital for VAT – access to service closed from 30 November to 4 December

HMRC has advised us that they will shortly be undertaking scheduled maintenance to the Making Tax Digital (MTD) VAT service to enable them to release additional functionality. As a result they need to close access to the service from 17:00 on Friday 30 November until 11:00 on Tuesday 4 December. HMRC states:

“During the scheduled maintenance period, there will be no access to any of the elements of the service. This includes new customers joining the VAT pilot and existing customers accessing their accounts, making submissions, or filing VAT returns. Customers who join the service on 29 or 30 November may also encounter a delay in receiving their sign-up confirmation.  We appreciate that the timing of this is close to the filing deadline for those who have to file their next return by 7 December, but the service will be available again from 11:00 on 4 December to ensure they are able to do so.  Customers participating in the pilot should not revert to filing their VAT returns through the HMRC portal or their old ‘XML’ software in the interim. This scheduled maintenance will release more functionality that will allow us to open up the pilot to the vast majority of customer types, once we have completed initial, private testing with small numbers of invited businesses and agents. This includes partnerships, EU Traders, new businesses and those whose affairs are not up to date. We will update you once that private testing is complete and we are ready to open the pilot up to these customer types and will be writing to all customers within the scope of MTD for VAT once they are eligible to join the pilot.”

The MTD Income Tax pilot is unaffected by this maintenance.

 

Overview of Making Tax Digital for VAT – deferral period and timeline for pilot and mandation

HMRC announces in its policy paper that there is a deferral period of 6 months for Making Tax Digital for VAT for businesses falling into one of the following categories:

  • trusts,
  • ‘not for profit’ organisations that are not set up as a company,
  • VAT divisions,
  • VAT groups,
  • those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts),
  • local authorities,
  • public corporations,
  • traders based overseas,
  • those required to make payments on account, and
  • annual accounting scheme users.

These business will only be required to adhere to the MTD for VAT rules from 1 October 2019.

Details in respect of the deferral and the timeline can be found here.

HMRC have also produced a visual timeline of the key dates for entering the pilot and the dates that MTD for VAT goes live.

 

Joining the VAT pilot: sole traders and limited companies meeting the eligibility criteria

The pilot was opened to sole traders and limited companies that are on standard accounting period VAT returns on 16 October 2018, for those who are up to date with VAT, but who are not:

  • a trust or charity,
  • part of a VAT group or VAT Division,
  • trading in goods or services with the EU,
  • based overseas,
  • a partnership,
  • submitting annual returns,
  • making VAT payments on account,
  • using the VAT Flat Rate Scheme and
  • a business that is newly registered for VAT and have not previously used the VAT online account to submit its VAT Return.

Businesses that have incurred a default surcharge in the last 24 months could not initially join the pilot but have been able to join from early November 2018.

Businesses that pay VAT by direct debit will not be able to sign up for the MTD for VAT pilot in the 15 days leading up to the VAT return submission date.

More information and the sign-up link can be found here.

 

Joining the VAT pilot: agents

Agents can join the VAT pilot for submitting VAT returns for clients that meet the entry criteria set out above. Agents will require an Agent Services Account (ASA). Details about the ASA and a sign-up link are found here.

Further details about the ASA can be found here.

Agents with clients in the pilot must use the change of business details service to tell HMRC about updates to clients’ details. Details can be found here.

 

Software suppliers

A list of software suppliers with details about the product’s capabilities for products that can file VAT returns and/or income tax updates can be found here.

 

MTD Communications – HMRC letters to businesses affected by MTD for VAT

During the week commencing 5 November 2018, HMRC started to send out their first wave of what they are calling “encouragement letters” to businesses within the scope of MTD for VAT. The letters are being sent to businesses which are currently eligible to join the pilot (see above).  They are not being copied to the businesses’ agents.

The first wave is 20,000 letters and, following a pause to monitor their impact, a further 180,000 letters will be issued the following week (commencing 12 November). There are two versions being used, again to enable HMRC to monitor their impact. Both have the same core message but are written in slightly different styles.

Since HMRC will be monitoring how businesses react and respond to the different versions of the letter, we have been asked by HMRC not to publish the full text of the letters.  However, HMRC recognise that it is important that agents are aware of the letters and what they say, so are happy for us to summarise the content.

Version 1 explains to the business that the way they keep VAT records and submit their VAT returns to HMRC is changing, and that the new way of doing things is called Making Tax Digital.  It goes on to explain which businesses are within scope (mandated) from April 2019, and that they will need to keep their records digitally, either using software or a combination of software and spreadsheets, and submit their VAT returns using MTD compatible software.  It says the business can join early if it wants to.  There is then advice on how to join the new service, with links to help and advice on gov.uk.

Version 2 is shorter.  It says that the VAT system is being modernised, and the business needs to get ready for the change now.  It explains which businesses are within scope (mandated) from April 2019, and that they must keep digital records for all VAT transactions and use software to submit their VAT returns to HMRC. This is called Making Tax Digital. There is then advice on how to get the business ready, with links to help and advice on gov.uk.

HMRC remain committed to writing to everyone within the scope of MTD for VAT, which we understand is to be done by the end of November, although HMRC have not committed to a firm backstop date.

 

HMRC assistance: Webinars and videos

HMRC have created webinars and videos to assist with using software to send income tax updates and VAT returns to HMRC if you are an agent or a business.

 

HMRC – MTD for VAT guidance and information

VAT Notice

HMRC published public notice 700/22 Making Tax Digital for VAT here on gov.uk.

We anticipate that further supplementary guidance will be published in due course as well as updates to HMRC’s VAT manuals. We will upload links as they become available.

Making Tax Digital for Business - stakeholder communications pack

HMRC has published key information here on gov.uk in respect of Making Tax Digital for VAT and income tax for stakeholders (e.g. advisers, software developers and professional/trade bodies) who are informing/communicating with their clients, customers or members about the changes to digital record keeping and digital submissions.

Software suppliers supporting Making Tax Digital for VAT

HMRC is working with over 150 software suppliers who will have compatible software available for Making Tax Digital for VAT by the launch date on 1 April 2019. HMRC publishes the list of developers here on gov.uk. The list is regularly updated as more developers complete their testing with HMRC.

 

Making Tax Digital CIOT & ATT webinars

The CIOT and ATT held a webinar on the morning of 20 November 2018. This session focussed on how to get ready for MTD for VAT, looking at the more recent developments around the timetable, record-keeping requirements, the pilots, and the Agent Services Account.The webinar can be accessed here and the slides are available to download here. We have compiled the list of Q&As from the questions received before and during the broadcast and these can be found here.

The CIOT and ATT also held a webinar on the 7 June 2018. The webinar can be accessed here and the slides are available to download here.
We compiled a list of Q&As from questions that were sent to us before and during the broadcast, and this can be found here.

If you have any further questions please email technical [at] ciot.org.uk.

 

Pilots

The MTD for VAT pilot launched on 11 April 2018. The pilot built on the small-scale technical testing HMRC started at the end of 2017. HMRC invited a small number of simple businesses who met the initial eligibility criteria to join the pilot, with a view to gradually widening access once the new service had been tested thoroughly and as further functionality was delivered. The “public beta” trial was launched in October 2018 for businesses meeting the entry criteria (details are set out further up the page). HMRC will continue to expand the pilot entry criteria in 2018 and early 2019 to those businesses not currently meeting the eligibility criteria but who are not impacted by the deferral to MTD mandation.

HMRC publishes its list of MTD-compatible software products on gov.uk here. This list is regularly updated as further developers’ products complete the testing phase. If your developer is not yet on the list, software users should ask their provider about when their product will be updated for MTD or when its testing phase with HMRC will be completed.

MTD for Income Tax Self Assessment trials entered their public beta testing phase on 15 March 2018. You can access the service here. Initially, taxpayers will be eligible for the public beta if they are a sole trader with income from one business and their current accounting period ends after 5 April 2018. The next planned stage is to expand eligibility to taxpayers with income from property.

To take part in the pilot, businesses will need to record their income and expenses in a MTD compliant software package, which lets them send quarterly income tax updates to HMRC.  At the end of the accounting period they will need to send a final report to confirm their income and expenses for the year. If they need to claim allowances and reliefs, they can do this within that final report. They will then be able to see a tax calculation for the year in their business tax account as well as through their software. Businesses taking part in the pilot will need to agree to the terms of participation, which can be found here.

Likewise, agents that sign clients up to the pilot (including clients whose digital records are being kept by the agent and clients that keep their own digital records) will need a software package that lets them send the updates to HMRC on their clients’ behalf.

If you and your clients are already using software to keep records, you should check with your supplier when it will be ready to allow you to send MTD updates to HMRC. 

The current list of MTD compatible software products is set out on gov.uk here. We understand that there are a number of other products at various stages of development and HMRC have said that they will continue to add to this page as new products become available. A MTD compatible software product includes an API (application programming interface) enabled spreadsheet. There are no API enabled spreadsheets on the market at present although we anticipate that they will be added to HMRC’s list as they become available.

 

Making Tax Digital: Timetable

On 13 July 2017 the Government announced that it would be delaying the introduction of Making Tax Digital (MTD).

In response to concerns raised by MPs, businesses and professional bodies such as the CIOT, MTD will not be mandatory until April 2019, and then only for VAT purposes. In October 2018, HMRC announced that certain businesses with more complex VAT matters would have mandation deferred for six months (details are set out further up the page). This is expected to apply to approximately 3.5% of the mandated business population.

Under the timetable:

  • Only businesses over the VAT threshold (currently £85,000) will have to keep digital records.
  • Digital records will only be required initially for VAT purposes, and only from April 2019 (unless the deferral period applies).
  • Business will not have to keep digital records or report quarterly for other taxes (e.g. income tax and corporation tax) until April 2020 at the earliest.
  • MTD will be available on a voluntary basis for businesses below the VAT threshold, and for other taxes.

The Government have stated that they will not widen the scope of MTD beyond VAT before the system has been shown to work. 

The enabling primary legislation for MTD for businesses for both Income Tax and VAT is in sections 60, 61 and 62 and Schedule 14 Finance (No 2) Act 2017.

The MTD for VAT Regulations SI 2018/261 were laid before Parliament on 28 February 2018 and will come into force on 1 April 2019. No significant changes were made to the Regulations from the draft regulations that were consulted on between 18 December 2017 and 9 February 2018. We understand that some of the detailed comments made by stakeholders, including CIOT, during the consultation exercise might be taken into consideration in the directions and notices, which are expected to be published in May / June 2018. 

We have produced a detailed chart which compares the current VAT rules with those expected under MTD for VAT. This can be found here.

HMRC will consult on MTD for Corporation Tax at some point in 2018.

The remainder of the MTD pages should be read with the above in mind.