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MTD Penalties - Forgotten But Not Gone

13th Nov 2018
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Bridge to NowhereThe final decision to implement the mandatory filing of VAT through HMRC’s MTD platform remains unaffected by the Chancellors statement on 29th October, despite many advisors doubting MTD will (ever) be implemented. 

But advisors may be forgiven for their scepticism on the MTD implementation timescales, as the Finance (No.3) 2017-19 Bill starts its way through the process of becoming the Finance Act 2019 without the two-step penalty model initially proposed in the draft Finance Bill in July 2018.

Also missing from the Finance (No.3) 2017-19 Bill is the alignment of late payment interest and penalties across VAT, income tax self-assessment and corporation tax which was proposed in the July draft in readiness for the move to MTD.

This move will push the sanctions for late MTD return filing into the 2020 Finance Bill at the earliest.

Journey Into The Mist

In a recent survey a staggering 49% of all UK VAT registered businesses had not even heard of MTD for VAT, begging the question, are accountants failing to start their clients on the journey because of the vagaries surrounding start dates or in the false hope that MTD will all be swept under the carpet by the Brexit brush?

On Your VAT Starting Blocks

MTD for VAT has not changed from VAT notice 700/22 published in July 2018 and setting out guidance on the digital record keeping and return requirements for Making Tax Digital for VAT.

VAT – Quarters starting on or after 1st April 2019

Those registered for VAT with a turnover over the VAT threshold must start to use either: VAT compliant software, spreadsheets and bridging software or API enabled spreadsheets to file their VAT returns on the HMRC digital platform from their first VAT quarter starting on or after 1st April 2019.  That’s their VAT returns only.  There is no requirement to file anything else digitally.

A 1 year soft landing from 1 April 2019 will allow for adjustments, for example where partial exemption calculations have to be uploaded via spreadsheets.

Those voluntarily registered for VAT with a turnover under the VAT threshold will be exempt from MTD for VAT until at least until 2020. These businesses can elect not to be exempt and make VAT returns digitally and can withdraw their election at any time provided the business remains under the VAT exemption.

A six-month deferral to 1st October 2019 will apply to businesses who fall into one of the following categories:

  • Trusts
  • Some charities and none corporate ‘not for profit’ organisations.
  • VAT groups and divisions
  • public sector entities that are required to provide additional information alongside their VAT return (e.g. Government departments and NHS Trusts)
  • local authorities and public corporations
  • traders based overseas
  • those required to make payments on account
  • annual accounting scheme users

All other business types and reporting arrangements available will be mandated for the 1st April 2019 start date.

Here are some considerations prior to April 2019

Accountants may consider early application for an agent services account here.

HMRC systems can only be accessed by accountants using commercially produced 3rd party software. Accountants can check if their software supplier has confirmed their software is supporting MTD and has been tested in the HMRC test environment. The current list was issued on 7th November 2018 here.

It will be possible to use spreadsheets, to record individual transactions or as part of a mix of software and spreadsheets, however, the spreadsheet will need to be either API enabled or used in combination with an MTD compatible software product so that data can be sent to and received from HMRC systems. An existing spreadsheet alone is not a solution for complying with MTD.

Accountants who join the pilot will gain time to learn and test, avoiding the prospect of implementing MTD for the full client base on the mandatory date.

Accountants should check if the software they choose will also link easily with the software in use by clients. Should the accountant push for consistency in the software used by clients and use only one given brand?

Some clients will be able to use off-the-shelf software but some companies may require a bespoke software solution which will take time to design, build and implement.

Where a client retains records in more than one program or software product there must be digital links between each of the pieces of software (there is a one year soft landing for this requirement).

Clients will need to be continually aware of their turnover. Should their turnover rise, the business will be liable to make MTD returns of VAT from the start of the next VAT return period.

Clients may want to consider the use of direct bank feeds into software.

If the business start date for MTD filing is in the first tranche, for example, if their VAT quarters run to March, June, September and December, then mandatory VAT filing starts on 1st April with the April to June 2019 VAT return.  If that business has a year-end of 30th June 2019 will it be practical for the client to change software for that final quarter of their accounts year?  Or would they prefer to take on their new software earlier to be confident in its use prior their mandatory filing date?

Income and Corporation Tax - The Fog Hasn't Lifted

Income Tax – Earliest date will be accounting periods starting after 6th April 2020

The government has not widen the scope for MTD to any other taxes until April 2020 at the earliest. Landlords and the self-employed fall into this category and HMRC have not stated a definitive start date.

Accountants and clients can sign up to the MTD for Self-Assessment beta trials. That’s any self-employed person or landlord irrespective of turnover, but there is no obligation on anyone to keep digital records at the moment.

Initially it is anticipated that mandatory MTD filing will extend to sole traders with income from one business, but the next stage will extend mandatory filing to landlords.

The limits of £10k turnover have not been mentioned nor reinforced since the entry dates were put on hold in 2017, so it is highly possible that these may change.

Corporation Tax – the consultation is yet to get underway

A consultation on CT is due to get underway but there are no timescales as yet, however that does not change the position for VAT registered companies, who will need to be ready to digitally file their VAT returns on their mandatory filing date after April 2019.

No one voice has said MTD is not a good idea and the treasury will be keen to bring in the extra £2 billion in tax receipts it projected would be in their hands by 2022, leaving little doubt that MTD will be implemented, eventually. 

MTD will be disruptive. Accountants who have educated and prepared their clients well in advance will be in a better position to handle the increased work load and to price correctly for the transitional and ongoing commitments, than those accountants who have not. 

ProActivTax help accountants around the UK be more successful with value added tax services and winning new clients.

We have a range of tax resources to help you spot, price and deliver tax savings to clients, as well as market your tax services and bring in new clients. We also have a range of specialists available that can help you and your clients further.

We also provide support, technical briefings, webinars and events to help you keep up to date and understand tax saving opportunities.

If you would like to find out more please click here to access my online diary or simply drop me an email with some provisional dates and I’ll set up a conference call.

Debra Lowndes

Email : [email protected]

Website: www.ProActivTax.co.uk

Tele : 01246 488 200

 

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