Upon listening to concerns raised by parliamentarians, in particular the Treasury Select Committee, businesses and professional bodies, the government amended the Making Tax Digital (MTD) timetable – delaying it until 2020, except for VAT.
Amendments to the MTD come after the surprise snap election – with the MTD clauses being stripped out of the Finance Bill to ensure it could be passed before Parliament dissolved – as well as concerns that the original timetable did not allow businesses enough time to prepare.
How has MTD changed?
Originally, the MTD initiative was set to come into force from April 2018 for businesses over the VAT threshold that paid income tax. The new timeline for the MTD initiative however, means that only businesses earning over the VAT (Value Added Tax) threshold (currently poised at £85,000) will need to file digital records from 2019 – and only for VAT. Businesses outside this group – i.e. those below the VAT threshold – will not be affected by MTD until 2020. Furthermore, small businesses will not be asked to keep digital tax records or give quarterly updates until April 2020, but can file digitally on a voluntary basis for other taxes.
What do the delays mean for accountants and businesses?
The delays bring both good and bad news. For those businesses who have yet to develop a comprehensive plan for MTD, they now have enough time to develop a more detailed strategy and address any potential problems. On the other hand, however, continuous delays may prompt some businesses to put MTD plans on ice and instead focus on other immediate business issues.
Another concern is Brexit. With MTD for VAT taking place at around the same time as the UK leaving the European Union, questions regarding transactions between the UK and EU will inevitably arise, and accountants will need to be on hand to educate businesses on what changes – if any – there will be.
But transitioning over to new digital tax infrastructure takes time – and the delays in the MTD initiative reflect that. Even the HRMC itself has encountered issues in developing the infrastructure and data exchange standards to make digital tax filing possible. To iron out those issues, the government will roll out a testing phase of Making Tax Digital for VAT by the end of this year, followed by a wider pilot starting in Spring 2018, allowing for more than a year’s worth of testing before any businesses are mandated to use the system.
What action should accountants take?
Accountants will need to re-emphasise the importance of developing an MTD-compliant strategy right now – ensuring businesses do not direct their focus elsewhere. Education around MTD will need to be revisited as the regulation continues to be updated.
Another key concern for businesses must be the acquisition and implementation of MTD-compatible software to help manage the business’ financial reporting. Accountants will, undoubtedly, be referring their clients to financial software providers that can deliver adaptable, MTD-compliant solutions. While many businesses will be moving towards digital recordkeeping software, there will be those who prefer a manual approach, and will need some support in getting to grips with new digital tax software.
By preparing well in advance, accountants will have more time to assist clients in the transition; and while the terms of MTD will not apply to every business until 2020, having real-time access to digital tax records, will put businesses in an excellent position to support financial planning. No more paper-based record keeping or excessive Excel spreadsheets.
So, while there is a delay and sense of uncertainty around MTD, the fact is (like it or not) it’s not going away. Accountants and businesses need to look at their current solutions and potentially start recording business records in a different way, right now. There is still a limited amount of time for businesses to move over to these new working practices, but setting the wheels in motion now will ensure businesses avoid a sudden transition in the future.
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