Mark Purdue explains why businesses need to consider all the implications before rushing to register for MTD and offers some pointers on how guide clients through the sign-up process.
HMRC’s Making Tax Digital (MTD) is now live but what does that actually mean for businesses caught up in MTD for VAT? What steps should you now be taking to ensure you keep on top of the MTD timeline? And what do you need to tell your business clients to help them?
For those businesses affected by MTD for VAT, there are three basic elements to consider: the need for digital record-keeping; the submission of VAT return information to HMRC via software; and encompassing all of this, when to register for MTD with HMRC.
For most VAT-registered organisations digital record-keeping kicked off on 1 April 2019. As most VAT businesses report quarterly, their effective start date is their first VAT period starting on or after 1 April. Most businesses will have come into the MTD regime on either 1 April, 1 May or 1 June 2019.
Unless otherwise exempt or deferred to later this year, these businesses should have already made their digital record-keeping decisions. This just leaves the thorny issues of when to register, and how to make the submission.
When to sign up for MTD
Despite keeping digital records as part of their compliance with the new MTD regime, businesses should not register for MTD for VAT too soon and run the risk of encountering unforeseen complications.
When clients sign up for MTD depends on whether they are monthly or quarterly filers and which period is their first mandated submission. Importantly, you should not try to sign up until your last “old style” VAT return is submitted, otherwise you may sign up for the pilot, which could force you to submit any outstanding periods via the new MTD process, adding to everyone’s workloads and potentially complicating things further.
If you have clients who file VAT monthly, their first MTD submissions should already have been completed. Assuming the client is not otherwise excluded or deferred, the first MTD reporting period fell on 7 June for the period from 1-30 April.
Time will tell how these first submissions fared, but HMRC has already experienced some downtime on the new service due to IT maintenance – not ideal when it’s just launched.
If your client has missed this deadline, they need to take positive action now to rectify the situation. First, ensure any VAT owing has been paid and and then start the process of setting the client up for MTD if this has not already been done.
There are various urban myths circulating that there are no penalties or surcharges for the first year. This isn’t strictly true – there are no penalties or surcharges for business in the first year provided they “try their best” (a slightly woolly HMRC phrase) to engage with MTD. Taking positive steps now may help in any penalty or surcharge mitigation discussions later.
Depending on the client’s VAT return stagger, the first date due for submission will be either 7 August, September or October. The respective sign-up periods are 15 May to 23 June, 15 June to 23 July, or 15 July to 22 August.
These sign-up periods are given by HMRC, and must be observed by direct debit payers. However, if your client does not pay via direct debit, they can sign up 24 hours after your last “old” return has been submitted.
By now, you should have set up any “stagger one” clients for MTD, as the suggested deadline for this was 23 June. However, if you still have stagger one clients to set up, don’t panic just yet – follow the steps below as soon as possible, ensuring there are at least 72 hours between the finishing of the set-up process, and your first intended submission.
How to sign clients up for MTD
Hopefully by now, you will have created your Agent Services Account and linked it to your existing Government Gateway accounts, which is the first step needed before being able to submit MTD data to HMRC.
Remember that the sign-up for MTD for VAT is not automatic for a VAT-registered business. Either your client, or you on their behalf, must go through the process of onboarding them into MTD – it will not happen automatically.
As an accountant, once you have your Agent Services Account, the process is relatively straightforward. From HMRC’s homepage go to Featured > Making Tax Digital for VAT > For Agents, and follow the step by step guide.
Go through the process of confirming which client you are onboarding (provide the VAT registered number etc) and then within 72 hours the new MTD record will be created for the client by HMRC. Onboarding is on a client-by-client basis, and so allowing sufficient time to follow the process for all of your clients is vital.
The future of Making Tax Digital
MTD for VAT is just the beginning of the transformation of the UK’s tax regime. Like many others, I believe that other taxes will be delivered in the same way in the next few years. I believe that MTD for income tax will be mandated, and anticipate that will be in April 2021.
The Treasury’s Spring Statement confirmed it would not happen during 2020, however, having recurring confirmation of dates it won’t be will only take us so far. We now need confirmation of the date we should all be planning for.
Software developers need certainty to plan and continue investment in MTD software. Accountants need certainty to plan with clients. Why should an accountant start telling clients about changes to processes and services when there is no certainty?
For mandation to happen in April 2021, HMRC will need to have evidence from a long-running pilot in an equivalent area. If the department needs a full scope pilot (the current pilot is limited) to go live during 2020, then it has to start working with software developers throughout 2019. The future success of MTD depends on commitment from those developers.
Throughout 2019 therefore, we will start to build a picture on how realistic April 2021 would be for mandatory start to quarterly income tax reporting. And yes, we anticipate corporation tax will come online too, but the date for that is anyone’s guess at this stage.