HMRC says it wants feedback from tax agents and software developers following the announcement that the MTD implementation timetable has altered significantly.
The announcement on 13 July 2017 that the rollout of MTD for business was to be pushed back to 2020 came as a big surprise to everyone, including the software development support team at HMRC.
The latest timetable (see below) is still quite vague, but the written statement made by Mel Stride, Financial Secretary to the Treasury, makes it clear that compliance with MTD reporting will be voluntary for taxes other than VAT until at least April 2020.
That statement says: “The Government will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.”
Time for redesign
HMRC has acknowledged in calls to software developers that the MTD project needs to be reconfigured into something that businesses want to use, as the emphasis will now be on encouraging people to opt into MTD, rather than compelling people to use the system with the threat of penalties. This indicates that a redesign of the whole structure of MTD will be required.
The difficulty accountants will face is persuading clients that the costs of using MTD-compliant software will be outweighed by the convenience of digital record keeping, better accounting information, and potentially lower accountancy fees.
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Some accountants won’t push their clients towards using MTD software until it becomes compulsory, others will continue along the road towards cloud accounting for all clients.
It is clear that voluntary MTD reporting will mean the current online and paper methods of filing tax returns will have to run in parallel to MTD reporting for some years. It follows that the law which underpins MTD, (dropped from FA 2017 before it was rushed through Parliament in late May) will have to be redrafted yet again. We are not likely to see a new version of the draft MTD law and regulations before September 2017.
A key plank of the original MTD plan was that free software would be available to allow the smallest businesses to comply with their MTD reporting obligations. As MTD reporting will be voluntary for businesses which are not VAT registered, the need for this free software disappears. This could punch a hole in the bottom of the business plans for start-up companies planning to develop MTD software for sole-trader businesses.
The absence of free software should not greatly impact well-established software developers. Rob Ellis, CEO of BTCSoftware, said the company has been closely working with HMRC's Digital Team for the past 18 months on MTD and would continue to do so. It would, however, take this opportunity to canvas opinion from its customer base as to what they will need from tax and accounting software over the next few years.
If HMRC wants to hear the tax community’s ideas about the direction and development of MTD, they need to issue some new consultation documents. We have been promised a consultation paper on complex businesses and MTD since December 2016, which has still not materialised. This document was supposed to cover how MTD would apply to companies and larger partnerships.
The current plan for MTD is based on HMRC releasing APIs to handle the transfer of data to and from accounting software. However, to date there have been no APIs released to deal with accounting data from any size of partnership, and similarly, no APIs exist for trusts which carry on a trade.
The issue of VAT reporting under MTD was not covered in great detail in the MTD consultations last summer, as the consultation papers only addressed unincorporated businesses. Now that the emphasis is on requiring all VAT reporting to be done using accounting software, the sensible way forward would be to have a full consultation on the VAT related issues, including draft legislation, before the necessary software is designed.