HMRC update on MTD (VAT and ITSA)

20th Mar 2020
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HMRC recently published research on MTD which also considers the details of the penalty regime.

Obviously the key issue for people to handle at the moment is the impact of Covid-19.  HMRC have delayed the introduction of IR35 - unsurprisingly and there is not as far as I can see any attempt to speed up the introduction of MTD for ITSA.

However, HMRC did release recently various research documents which can be found here:

https://www.gov.uk/government/publications/making-tax-digital/overview-o...

I felt it was worth writing a short piece that looks at these issues as although I believe that the challenges that the world has to face from the Covid-19 virus will last for a number of years (both medically and economically).  There are still other issues to look at and it is worth keeping up to speed.

The overall summary about the introduction of MTD for VAT concludes "Overall, the MTD VAT service has worked well for the majority of people joining and using it. Learning from this first phase will be applied to future plans."  

HMRC have also published some MORI research based upon interviews with a number of small businesses.  None of the conclusions will surprise Tax Agents. One conclusion was "It was found in the study that scope for error was reduced by businesses automating processes. Theoretically this should lead to additional tax revenue. However, the research was not designed to measure this explicitly." and additionally it was not clear whether companies using spreadsheets and bridging were likely to move on from that process.

Additionally a study looked at different approaches for a penalty regime.  This study involved 11 Self Assessment taxpayers with a turnover in excess of £10,000.   These are those people who potentially could fall into a mandatory regime for MTD ITSA.

Perhaps the key conclusion was "Offering customers the chance to make a mistake or file late before being penalised reflected positively on HMRC, as it was seen to demonstrate an appreciation that customers may miss a deadline due to reasons beyond their control from time to time. Giving customers a chance to file late also reinforced the idea that penalties were in place to encourage compliance, not as a mechanism for raising revenue. However, there was a balance to be struck between leniency, fairness and simplicity in the number of chances offered."

Obviously this becomes a more significant issue when quarterly returns are required from SA taxpayers.

Of the six current suppliers for MTD ITSA three offer a free service for smaller businesses.  It is also likely that Open Banking will enable an automatic transfer of data from bank accounts through to accounting systems to be generally available at a low price - potentially zero.

Hence one would conclude that had a virus not mutated in late 2019 that MTD ITSA would be progressing full steam ahead.  One has to conclude that there are other priorities at the moment, but it is still worth knowing what the background thinking is on the issue.