We are now less than six months away from Making Tax Digital (MTD) becoming a reality. For VAT periods commencing on or after 1 April next year, with a limited number exceptions, businesses with taxable turnover above the VAT threshold will be required to keep digital records and submit VAT returns electronically.
In our experience, businesses are at different stages in their preparation for the change: some are well engaged in the process but, others seem not yet to have grasped that fundamental change is on its way.
The seminar programme that RSM is running on MTD for VAT is one of the best attended we have ever put on. We will be asking a series of questions at all of our seminars about businesses’ preparedness and understanding of what MTD for VAT actually involves and we will report back on our findings in a later edition of this briefing.
Of course there is another side to this: how well prepared is HMRC for MD?
There are positive messages coming out of HMRC on all of this and there is a pilot programme underway which we hope will iron out some of the rough edges, but like any other major change we will only be able to assess the effectiveness once it begins in earnest.
I don’t expect that the system will fall over, but neither do I suppose that everything will all work seamlessly. New software products, which are essential to making MTD work, are only now being launched into the market place and there is very little time left for businesses to integrate these into their working processes.
HMRC has promised a 'soft landing' for the first year of MTD. It will not be charging penalties for non-compliance with the electronic record keeping requirements and will, for a while, allow a certain amount of cutting and pasting of data between programmes before insisting on a purely end-to-end electronic process.
Under the original plans for MTD, we would of course have been far further down the line - remember the 'death of the tax return', which would have seen us all move to digital income tax returns this year? We don’t have any firm starting dates for MTD for income tax or corporation tax and given the huge pressures on HMRC resources resulting from Brexit, there must be a question over the whole future direction of the programme. A lot may depend on how well the first year of MTD for VAT goes.
We have consistently supported the principle of greater use of digital technology to improve the operation of the tax system for taxpayers and HMRC alike. That remains our position, but our concerns over the practicalities remain. We hope that the Government takes a long hard look at how MTD for VAT has actually worked before making any further commitments for compulsory digitisation of other parts of the tax system. If MTD really does offer the advantages to taxpayers that HMRC says it will, people will want to use it: compulsion should not be necessary.