After a few damp squib tweets, HMRC has finally lit the fuse under the MTD communications by writing to all businesses within the scope of MTD for VAT.
The CIOT has confirmed the first ‘wave’ of 20,000 letters to affected businesses will hit doormats on Thursday this week, followed a further 180,000 to be issued next week. There are two versions being used to enable HMRC to monitor their performance.
Why the delay?
HMRC says it held off contacting businesses directly about MTD for VAT until the pilot was ready to accept VAT returns from those particular businesses. HMRC managers apparently believe that business owners would be eager to jump straight into the MTD pool without taking time to adjust their accounting systems or to train staff.
Thus, HMRC’s communications policy around MTD is driven by which businesses can access the pilot. As the pilot is opened up to more categories of businesses, those organisations will receive a welcome to MTD letter from HMRC.
Who is in the pilot now?
The MTD for VAT pilot was initially accessible by invitation only to the simplest businesses: essentially sole-traders. In mid-October the pilot also opened up to single companies, covering up to 600,000 eligible businesses.
All those VAT registered businesses who can now join the pilot and who have annual turnover of £85,000 or more, should shortly receive a letter from HMRC explaining how they can start submitting VAT returns under MTD, and when this will become compulsory for them. Some VAT registered businesses with turnover just below the VAT threshold will also receive the same letter.
Who is outside the pilot?
The following categories of VAT traders can’t join the MTD pilot yet, so won’t receive a MTD welcome letter from HMRC:
- trade with the EU
- in a VAT group
- VAT division
- based overseas
- use VAT flat rate scheme
- make VAT payments on account
- newly registered and haven’t submitted a VAT return yet
- in the surcharge system.
Extension of the pilot
HMRC expects to start private testing the MTD for VAT system with partnerships and businesses who trade with the EU in late 2018. A selected few businesses from these categories will be invited to join the MTD for VAT pilot at that time. If those private tests run smoothly, the MTD pilot program will be opened up to all partnerships and EU trading businesses in early 2019.
Also in late 2018 or early 2019 the MTD pilot will be opened up to newly registered traders, those who use the flat rate scheme, and businesses within the surcharge mechanism.
MTD for VAT is mandated for all VAT registered businesses except those who have been deferred and those who qualify for an exemption on turnover or other grounds, for VAT periods beginning on and after 1 April 2019. The requirement to keep digital records starts from this date but the first VAT return, for a normal quarterly period, must be submitted by 7 August 2019.
We expect the MTD for VAT pilot to be opened around this time for the following VAT registered organisations who have been deferred:
- Unincorporated not for profit organisations
- VAT divisions
- VAT groups
- Public sector entities and companies
- Local authorities
- Traders based overseas
- Large businesses who must make VAT payments on account
- Annual accounting scheme users
These organisations should receive a welcome to MTD letter at this time
All businesses currently exempt from online filing for VAT will automatically be exempt from MTD for VAT, and they won’t have to apply for a separate exemption. This is a tiny number of VAT registered traders.
HMRC is expecting a small increase in the numbers of businesses who will qualify as exempt from MTD for VAT on the basis of disability, age, religion, or digital exclusion. These businesses will have to apply for an exemption from MTD.
The VAT Notice 700/22, para 2.2 says traders should contact the VAT helpline if they think they may be exempt, but that helpline has no information about the MTD exemption. HMRC will publish details of how to apply for an exemption for MTD at the end of November 2018, alongside new guidance, which HMRC hopes will reduce the numbers who will claim an exemption.
HMRC will be running a social media campaign about MTD for VAT including twitter posts and YouTube videos. HMRC will also publish case studies of how businesses have converted to MTD filing of VAT returns, taken from real examples.
The HMRC webinars on MTD are available to view again under ”help and support for tax agents”, scroll right down under the online services heading to find the list of earlier webinars.
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.