HMRC plan changes to Making Tax Digital

6th Jan 2020
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Further changes to MTD have recently been announced by HMRC.

Over 1.3 m businesses are now signed up to VAT MTD and over 2.6m VAT returns have now been submitted.  The attention of HMRC is now moving to Income Tax and Self Assessment, but there are still a few changes being made to the VAT system.

In February HMRC will add a search filter for "free software" to the list of software providers for MTD for VAT.

John Hemming, CEO of Cirrostratus said, "We did suggest this to HMRC as it does help in filtering the over 470 suppliers of VAT MTD software to identify those which provide some form of free service.   There are now 8 providers listed working on ITSA.  We know that the reason why Cirrostratus is on the "Coming Soon" part of that list is that we have only done one live submission for MTD ITSA and that when we do our second we will go on the "available now" part of the list.   Whether that is the reason for the two other companies remaining on "Coming Soon" we don't know."

The list of ITSA suppliers can be found here:

https://www.gov.uk/guidance/find-software-thats-compatible-with-making-t...

Changes are also  being made to the information available on the HMRC website (The UI) this will include setting contact preferences and viewing vat certificates for non-standard tax periods.

Additionally the ability to register for VAT and at the same time sign up to MTD will be available in March.   Later on, with dates to be confirmed, agents or businesses will be able to ask for a refund or repayment.   The proposal for the provision of extra information relevant to a VAT return (through MTD) will also become available at some stage in the future.

Most of the changes being made, however, relate to ITSA.  (Income Tax Self Assessment)

ITSA requires considerably more information to be sent to HMRC than VAT.  That is obvious really as the SA100 series of forms also require a lot more informaition than VAT100.

With ITSA MTD, however, the information is often submitted as separate submissions.  Some of these submissions are quarterly and some of them are annual.   It is important to remember that ITSA is now live although relatively few taxpayers are using it.  Changes are being made to the Business Income Source Summary, but that does not affect anyone who is not using MTD ITSA.

An Annual accounting adjustments API will also become available soon to be added to the various loss recording APIs released in December also details of the deadlines for SA returns will be available via an API.

Many of the more subtle aspects of ITSA such as averaging adjustment for Market Gardeners have not yet been written as part of MTD.  That is likely to affect the range of taxpayers that can use ITSA until such a point as the additional functions have been written.  HMRC are not as yet clear as to exactly when that will be available, but it is expected to be part of the process.

John Hemming said, "Following the activity with MTD for VAT it is clear that ITSA is progressing.  It is, however, a much more complex type of taxation and hence requires more interfaces."

"I remain of the view that it is a good idea for agents to aim to get at least one of their client live before MTD ITSA becomes mandatory.    There are issues like the setting of accounting periods that need some consideration.  There are, in my view, simple solutions which mean that the VAT periods and ITSA periods can be coterminious.  I do not think it would be a good idea to be reporting different unrelated quarterly periods.  However, this sort of thing needs consideration.  Very few VAT taxpayers have vat periods that coincide with the tax year (some do). Hence it is best to ensure that the accounting period and vat periods coincide and taxpayers take advantage of the facility specified in HS222 which allows an accounting year ending on 31st March to be treated as a basis period ending on 5th April. (see "Accounting dates in the period 31 March and 4 April" in HMRC document HS222)"

HS222 can be found here:

https://www.gov.uk/government/publications/how-to-calculate-your-taxable...

John said, "I do not think many people would wish to be reporting four self employment periods which were not coterminous with 4 VAT periods."