HMRC release report on Making Tax Digital for VAT and ITSA
This blog is the first of two looking at the report released by HMRC to update the public on Making Tax Digital for VAT and ITSA. In this post, we look at the VAT service.
The Lloyds Bank UK Consumer Digital Index 2019 found that the most digitally advanced businesses in the UK save one day every week in administration time by going digital. This finding supports HMRC’s assertion that Making Tax Digital is its effort to become one of the most digitally advanced tax administrations in the world. Further supporting this ambition, the Enterprise Research Centre found in 2018 that micro-businesses using software see an improvement of 11.8% in their productivity.
The MTD for VAT million-plus milestone was reached on 9th March 2020, when 1.4 million businesses had joined the service. At that point, 4 million returns had been submitted using MTD software. 83% of businesses within the scope of MTD for VAT have signed up, and of those who signed up on time, 95% made their first return on time.
So far, £41 billion in payments and £13 billion in repayments have been processed through the new system.
Challenges and benefits
With the introduction of Making Tax Digital for VAT, Agents have been able to shift their focus from compliance and correcting errors towards advisory services. We have seen a similar trend for our customers using BTCHub to manage their clients’ VAT returns due to accuracy improvements and time-savings on the administration of VAT information.
Some Agents reported issues setting up their Agent Services Account to act on behalf of their clients. There were also reports of costs beyond HMRC’s estimates for Agents in the initial set up of their Making Tax Digital software. It is important to note that software such as BTCHub brings additional benefits such as a client dashboard, the ability to consolidate multiple sources of data, and also future-proofing for the next stage of Making Tax Digital.
Impact of Making Tax Digital for VAT
HMRC’s stage one evaluation reports it is too early to measure the effect on the tax gap, which they hoped to address with the introduction of digital record keeping and digital transfer of VAT return information. The current forecast is to deliver a reduction in the tax gap leading to additional tax revenue of £1.2 billion by 2023/24, saving around £300 million each year.
They have found at this stage:
- Some businesses find operating MTD is easier than they expected
- Digital record-keeping allows management of finances in real-time
- Some businesses and agents incurred more costs than expected
- Some businesses report productivity gains and reduced input errors
- 91% of businesses that were aware of the changes were prepared by July 2019
By 9th March 2020, 270,000 smaller VAT businesses had voluntarily joined MTD for VAT, which represents a quarter of those under the VAT threshold.
Agent feedback has lead to improvements to the sign-up process for an Agent Services Account. When Agents join the MTD for Income Tax and Self-Assessment scheme, they will not need to set up a new ASA. HMRC are also looking at ways to make the client sign up process quicker and simpler for Agents.
Additionally, in October 2019 HMRC launched a repayment tracker for VAT customers which has had 52,000 visits. They have reintroduced the ability to view and print the VAT certificate, and now allow Agents or businesses to tell HMRC about changes in circumstances online.
In the report, HMRC states:
The government is satisfied on the basis of the available evidence that the MTD for VAT service is working.
We have worked closely with HMRC since the initial pilot of MTD for VAT to provide a powerful bridging solution for Agents and businesses to allow them to manage their VAT digital record keeping and submissions. Our customers can collate information from multiple systems to build their VAT return data before submitting it to HMRC. We also support customers who have chosen to use spreadsheets to hold their digital records and VAT return data.