Following months of uncertainty over Making Tax Digital (MTD), many in the accountancy profession will welcome the government’s announcement that the start date for MTD for Businesses (MTDfB) has, perhaps inevitably, been pushed back. Here we consider the latest situation.
So what’s changed?
Many accountants had been preparing their clients for the introduction of MTDfB in early 2018. However, following concerns raised by the Treasury Select Committee, business and professional bodies over the pace of the changes, the government has now deferred the introduction of MTDfB by a year to ensure a ‘smooth transition to a digital tax system’.
Under the new timetable, businesses will not be required to start using MTDfB until April 2019, and then only to meet their VAT obligations. Small businesses and landlords can also breathe a sigh of relief as the rules will only apply to businesses with turnover above the VAT threshold, although those below the VAT threshold who have voluntarily registered for VAT can opt to join MTDfB if they wish.
And there’s more good news. The Treasury has confirmed that businesses will not be asked to keep digital records, or update HMRC quarterly, for other taxes until at least April 2020.
A welcome reprieve
The decision has certainly been welcomed by many in the accountancy industry.
Contemplating the changes to the MTD initiative, Paul Aplin, Deputy President of the ICAEW, said: ‘Removing mandation for the smallest businesses is a welcome step forward and is one less regulatory burden for SMEs to worry about.’
The ACCA’s Head of Taxation, Chas Roy-Chowdhury, also applauded the news, claiming the announcement would be ‘warmly welcomed by millions of small businesses who were concerned about, or simply unaware, of MTD’s introduction’.
However, he also warned that there could be issues with the new proposals. ‘For voluntary MTD to be available we will still need to have all the legislation in place from the beginning. This suggests we may still have the highly compressed initial timetable, although the scope to amend and adjust before it becomes mandatory will be there (provided Parliamentary time can be found),’ he said.
He continued: ‘There is also still a worry about the timing of VAT reporting, as many of the largest businesses have a two year lead in time for their software systems to cope with a change of this nature, but we are now well past that cut-off date to start development and we do not even have a consultation document, let alone draft legislation.
'We must not forget the wider landscape – Brexit may fundamentally change the nature of VAT as well, meaning two major changes to VAT systems in short order.'
The changes to the MTDfB timetable will be legislated for as part of the elusive Finance Bill, which is now set to be introduced ‘as soon as possible’ following the government’s Summer recess.
The government will then pilot MTD for VAT on a small scale by the end of this year, with wider live piloting expected to follow in Spring 2018.
Despite the later start date, accountants should consider preparing their clients for the switch to MTDfB sooner rather than later. Investing the time to introduce clients to digital accounting well in advance of the new deadline will pave the way for a smoother transition later on.
As for now, we’ll be keeping a close eye on the proposals and any further developments as they arise. Practice Track’s MTD factsheet will be updated in line with the information presented in the next Finance Bill. To register your interest, please email firstname.lastname@example.org.