As we approach the go-live date for MTD for VAT, there has been an acceleration in new or revised HMRC guidance and procedures – three developments have emerged in the last month and there are more in the pipeline.
As has been expected, on 18 January HMRC released a revised version of VAT Notice 700/22:Making Tax Digital for VAT, which corrects errors included in the original version.
It also contains a clarification of the soft landing period and examples of when the MTD rules start to apply for different businesses. HMRC has also altered the conditions for applying for the ASA.
Testing the turnover
The original version of VAT notice 700/22 implied that if the taxable turnover of the business had ever exceeded the VAT registration threshold, the business was required to enter the MTD regime from April 2019. This is not correct, as only the turnover for the 12 months ending immediately before the date of the turnover test should be considered.
The revised VAT notice 700/22 makes it clear that the MTD for VAT rules only apply from 1 April 2019, so 31 March 2019 is the earliest date on which the annual turnover level can be tested.
Notice 700/22 provides three examples of businesses with different start dates for MTD, which I’ve summarised as:
- A Ltd is VAT registered with turnover above £85,000 and a VAT period that runs from 1 March to 31 May. A Ltd must comply with MTD for VAT from 1 June 2019.
- B Ltd registers for VAT from 1 September 2019 as its taxable turnover for the 12 months to 31 July has exceeded £85,000. B Ltd must comply with MTD from 1 September 2019.
- C Ltd has voluntarily registered for VAT, but its annual taxable turnover does not exceed £85,000 until November 2019. C Ltd must comply with MTD from its next VAT period which begins on or after 1 December 2019.
Note the difference between the time B Ltd and C Ltd have to prepare for MTD. As B was not previously VAT registered it has an extra month to inform HMRC and register for VAT. Depending on exactly when C’s VAT period starts, it may have a longer or shorter time to prepare for MTD filing.
HMRC refers to the period in which the rules for digital links won’t be enforced by the imposition of penalties as the “soft landing” (section 188.8.131.52 VAT Notice 700/22). This soft landing has the force of law – it is not due to the application of an HMRC concession.
For most businesses the soft landing period will run from 1 April 2019 to 31 March 2020. However, if the business has been directed by HMRC’s letter that it has a deferred start date for MTD filing to the first VAT period beginning on or after 1 October 2019, the soft-landing for that business will run from 1 October 2019 to 30 September 2020.
Note the soft landing only applies to waiving the conditions for digital links between software products within the accounting system. It does not apply to penalties which may be applied for not complying with the requirement to file the VAT return using MTD-compatible software.
Exemptions from MTD
The text referring to other exemptions from MTD (section 2.2 VAT notice 700/22) has been changed very slightly. Referring to the grounds for exemption listed the Notice says “These may apply even if you are not currently exempt from online filing for VAT.”
This is a departure from the previous HMRC position, as it acknowledges that a person may not be able to meet all the MTD requirements even if the business (or its agent) currently manages to submit the VAT return online.
During HMRC’s MTD webinar on 22 January, the presenter promised that further guidance regarding applying for an exemption from MTD would be issued by the end of this month.
In August 2018 John Stokdyk outlined the procedure for setting up an Agent Services Account (ASA), but in December 2018 HMRC added a new set of data to be provided before you can get an ASA for your firm.
In addition to the details of the firm’s UTR number, you must now enter the details of your firm’s money laundering supervisory body, your firm’s membership number with that body, and the date on which your money laundering supervision expires.
Most accountants and tax advisers will be supervised for the anti-money laundering regulations by their professional body. Accountants who are not supervised by a professional body should be registered directly with HMRC for money laundering supervision.
This is unlikely to be the end of the changes to the MTD procedures, and to the ASA in particular. We will keep you informed as further changes come to light.