A reminder: Making Tax Digital comes in from April 2019, initially only in respect of VAT, but its likely to be extended wider in the future to include quarterly returns for business profits – quarterly accounts under any other name, some when from 2020.
HMRC has published a new suite of MTDfb reforms.
Three are on the legislative reforms that will put quarterly reporting into tax legislation and one sets out the MTDfb VAT changes. You can comment on these until noon on 10 November.
The following extracts are from the consultation documents and clearly set out HMRC’s position regarding quarterly reporting:
7.—(1) A relevant entity must provide to HMRC update information for a business, as specified in an update notice, in respect of each period of 3 months (“a quarterly period”).
(2) “Quarterly update” means the provision of information required by paragraph (1).
(3) Each quarterly update must be provided by no later than the quarterly deadline.
(4) “Quarterly deadline” means the date which is one month after the end of the quarterly period to which the quarterly update relates.’
HMRC’s explanation of the changes are that ‘it introduces the requirement for businesses to keep digital records and provide quarterly updates. As well as reducing the amount of tax lost through errors in record keeping, MTDfB will give businesses a clearer view of their tax position in-year. Businesses will use software to maintain the digital records of transactions and, as a result of providing updates more regularly, will receive tailored digital prompts and nudges to improve compliance. In turn, this will help businesses understand the support that the government provides through the tax system.’
It then comments that the legislative changes will only be on a voluntary basis and:
- ‘businesses will not be mandated to use the MTD system until April 2019 and then only to meet their VAT obligations. This will apply to businesses with turnover above the VAT threshold. Businesses with turnover below the VAT threshold will not be required to use the system but can choose to do so benefitting from a streamlined, digital experience, to include for income tax
- HMRC 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
- all businesses will have one month after the end of their quarterly period to provide their update to HMRC.’
The MTDfb VAT overview highlights the start date of April 2019 and that all VAT records must be kept digitally from this date. This includes the obvious purchases and sales but also adjustments. Only the flat rate scheme and the retail schemes are mentioned with reference to specific requirements. Businesses such as those in groups, those under margin schemes eg motor dealers, those under the tour operators’ margin scheme and those subject to partial exemption may be concerned over software availability as the regulations state the following:
‘The regulations will provide that a business is in scope for MTD must use functional compatible software to meet the new requirements.
Functional compatible software means a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). The functions of the compatible software must include:
- keeping records in a digital form as required by the regulations
- preserving digital records in a digital form as required by the regulations
- creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally
- providing HMRC with VAT data on a voluntary basis
- receiving information from HMRC via the API platform in relation to a relevant entity’s compliance with obligations under the regulations.’
As you will see from the above the detail has been kept out of the few clauses in the Finance Bill September 2017. These are in Part 4, Administration, avoidance and enforcement, Reporting and record-keeping and are clauses 60 Digital reporting and record-keeping for income tax etc, 61 Digital reporting and record-keeping for income tax etc: further amendments and 62 Digital reporting and record-keeping for VAT.
Article from ACCA In Practice