Rebecca Cave listened to the CIOT webinar on MTD, which provided some useful insights on how HMRC will apply the MTD for VAT regulations, and where the other aspects of the MTD project have got to.
The webinar was presented by Richard Wild and Margaret Curran of the CIOT technical team, alongside Adrian Rudd of PwC, who chairs the CIOT digitalisation and agent strategy working group. The CIOT team has amassed a huge pool of knowledge about MTD as they have been in close contact with HMRC at all stages of this project.
The CIOT website has an area dedicated to MTD resources, which includes the slides for this webinar. The questions raised during the webinar will shortly be added with the technical team’s answers. All of these MTD resources are free for anyone to access.
The webinar covered these areas of MTD:
- Income Tax pilots
- MTD for individuals
- Tax agents
- Companies and complex businesses
I have picked out some key points to report, but I recommend listening to the entire 90-minute webinar, which can be streamed for free, and rerun multiple times so you can share it with your staff.
HMRC is expected to issue its definitive guidance on MTD for VAT in the form of a VAT notice, in the very near future. This notice will set out how a business will be able to claim an exemption from MTD filing on the grounds of religious believes, insolvency procedure or not reasonably practical. Once HMRC has accept the business is exempt from MTD for VAT reporting, it should also be exempt from income tax reporting for MTD.
Who is drawn into MTD?
All VAT registered businesses with UK taxable turnover over the VAT registration threshold (currently £85,000) will be required to comply with the MTD recording keeping and reporting requirements for the VAT periods which begin on and after 1 April 2019. VAT periods will not be split, so if the VAT period ends on 30 April, the business will enter the MTD regime from 1 May 2019.
Where a business is VAT registered but has turnover under £85,000 at April 2019, it is not required to enter the MTD regime in April 2019. However, those businesses will have to monitor their turnover on a rolling 12-month basis, and if the turnover breaches the VAT registration threshold, the business will have to enter the MTD regime from the beginning of the next VAT period.
Once a business is within the MTD regime, it can’t opt out even if its turnover drops below £85,000. The only way out of the MTD for VAT regime will be to deregister for VAT.
Any business which registers for VAT on or after 1 April 2019 will be required to enter the MTD regime from the start of their first VAT period, unless the business has registered voluntarily, in which case MTD reporting will not be mandatory.
Charities with trading subsidiaries, and landlords who let VAT-opted property, will fall within the MTD regime on the same terms as other businesses.
VAT returns under MTD
HMRC is committed to supporting parallel means for voluntarily registered businesses to submit VAT returns, ie by way of the current online interactive VAT form, but only until April 2020. It is possible that all VAT registered businesses will be mandated into MTD for VAT from April 2020.
All VAT returns for businesses which are mandated into MTD will have to be submitted via MTD-compatible software which uses an API to transmit data to HMRC.
What to record
As a tax agent you will be permitted to maintain the digital records required for MTD on behalf of your clients. The digital records for the quarter need to be completed by the earlier of:
- The due date of the VAT return
- The date on which the VAT return is actually submitted
All VAT records need to be retained for six years, but HMRC won’t require the digital records to be held in the accounting software in which they were recorded. That data can be downloaded and retained in some other form.
The webinar went into some detail about what exactly will have to be digitally recorded for each transaction, as the MTD rules are more onerous than the current rules for recording sales and purchases for VAT purposes.
Retail business and those using certain special schemes won’t have to digitally record every transaction. Those relaxations from the VAT regulations will be set out in the forthcoming VAT Notice on MTD.
How data will be transferred
The webinar contained several examples of how the VAT data may be transferred to HMRC from the software or spreadsheet where it was recorded. These examples will be contained in the VAT notice in a similar form.
From April 2019 the relevant totals for the VAT return plus any voluntary supplementary data must be submitted to HMRC via an API from the MTD-compatible software.
However, HMRC realises that businesses use combinations of software and spreadsheets, so data needs to be transferred between these different elements. For the first year of MTD, those transfers between software or spreadsheets need not be made digitally, but from 2020 such transfers must be done via a digital link.
Manual adjustments to the VAT data will be permitted to the VAT account, say for partial exemption calculations. There will be more information on this in the VAT notice.
There is a timing issue for software production as we are only nine months away from the go live date. Currently there are very small numbers of businesses and software companies testing MTD-compatible software in the MTD for VAT trial.
Richard Wilde commented that its going be a “very tight timetable” to get MTD software ready on time. Once the software products are adequately tested, the detail of how to obtains those products will be listed on HMRC pages of gov.uk.
Adrian Rudd commented that PwC are building API-enabled spreadsheets and other MTD software. PwC has made an offer that the API-enabled spreadsheets will be available free of charge to charities to use.
A new penalty points system for MTD will be introduced, and the draft legislation to enable this is expected to be issued this summer.
During the first 12 months of the MTD regime HMRC will not generally impose penalties for non-compliance, but this soft-landing approach will only apply to businesses who make a real effort to comply. Those businesses who make no attempt to meet the MTD requirements should expect penalties to be imposed.
HMRC’s attitude to non-compliant businesses seems a bit unfair as it has made very little effort to communicate the changes to the business community at large.
The CIOT have been urging HMRC to start telling businesses that MTD is coming in 2019. HMRC is apparently developing a communication plan, but the CIOT have not seen a draft.
Income tax reporting
As for MTD for VAT there will be a de-minimus turnover limit for MTD income tax reporting, below which MTD reporting will be voluntary. This threshold is expected to be £10,000 for income tax, but as HMRC hasn’t confirmed this figure, it could be set at a higher level in regulations.
However, we do know the threshold will be set per taxpayer not per business, as for VAT. For example, an individual with £6,000 rental income and £6,000 of trading income will fall within the MTD income tax regime, as his total turnover of £12,000 will exceed the expected £10,000 minimum threshold.
Adrian Rudd said the quarterly reporting of the raw trading results to HMRC for income tax will serve no purpose other than prove to HMRC that the business is keeping digital records.
The quarterly data won’t be adjusted for tax matters such as disallowable deductions, or for accounting adjustments such as accruals, as those adjustments will be made in the final report for the year. As such the MTD quarterly reports can’t be “wrong”, and the figures will not be enquired into.
Each business (not taxpayer) will have to do an MTD return for income tax, whereas for VAT the reporting it will be per VAT registration. The reporting deadlines for income tax and VAT will be different and separate, even if the VAT quarters align with the accounting period, as the VAT reporting period has an extra seven days.
It is possible that MTD for income tax will be mandated as early as April 2020, but the CIOT expect this implementation date to be later.
Companies and complex businesses
Partnerships will not be within MTD for income tax if their turnover is greater than £10 million.
HMRC appears to have no settled policy on MTD for corporation tax. CIOT has been told that will be a formal consultation on MTD for corporation tax “later in Spring 2018”. In theory MTD for corporation tax could be mandated as early as 2020, but that seems unlikely.