Tax expert Mark Purdue answers some critical questions on the latest changes to Making Tax Digital (MTD) and what it means for ICPA members
In September, this year’s second Finance Bill (Finance Bill 2017-19) finally published the legislation covering Making Tax Digital (MTD) for Income Tax, which was removed from the first Finance Bill pre-election.
More recently, the consultation covering the secondary legislation closed for comment, which incorporated the Income Tax (Digital Requirement) regulations and an overview of the expected VAT legislation. Some here’s a summary of some of the key issues:
Were there any surprises in the consultation? There was concern in the profession that clients wouldn’t cope with updating digital records daily or even weekly. It’s interesting that the draft Income Tax (Digital Requirement) regulations state that the ‘digital record’ of transactions only needs to exist when the quarterly update is made to HMRC (or due, if the update is made late).
It seems that HMRC has relaxed their previous stance of expecting recordkeeping as near to the point of transaction as possible. This is likely to be well received and offers some flexibility when dealing with clients who may struggle with the move to digital.
Any update to the definition of ‘digital exclusion’? As expected, the definition of ‘Digitally Excluded’ in the Finance Bill mirrors the existing VAT rule. In summary, this is defined as being unable to engage digitally by reason of religion, location, age or disability.
Those digitally excluded are excused from all parts of the digital reporting process – e.g. keeping digital records and providing quarterly updates. All partners must qualify for the partnership to be treated as digitally excluded.
What about partnerships? A partner in the partnership needs to be nominated to be responsible for MTD or HMRC will nominate someone – similar to responsibility for compliance now. The nominated partner carries out periodic updates, the end of year update, and the partnership return.
It’s worth noting that all partners are jointly responsible for recordkeeping, not just the nominated partner, with a maximum penalty of £3,000 per partner if recordkeeping isn’t in line with the legislation.
How can accountants prepare clients for MTD for VAT? Make a list of which of your clients are affected and put together a plan around what they need to do, and also what you need to do as their accountant.
Digital recordkeeping is mandatory for those clients, so review what they do today and which tools they are using. Also assess who does the VAT submissions now – you or your client – and how it’s done.
What should accountants ask themselves now? Outline your firm’s position post-deferral and provide staff with a good understanding of the topic, so they can communicate with clients. Consider your next steps – ask yourself “what impact will MTD have on the services I offer to clients (VAT and other)?” and “what changes do I need to make to our internal processes to deliver those services?”
When will clients be affected? The only change to the original timeline relates to quarterly reporting for Income Tax. The earliest date quarterly reporting will be mandatory is now April 2020, instead of April 2018.
It’s important to point out that, while MTD is voluntary for those businesses and landlords below the VAT registration threshold, it is still happening and may well be mandated in the future.
- Mark Purdue is Tax Product Manager at Thomson Reuters. For the latest information on Making Tax Digital visit Thomson Reuters’ MTD Hub: digita.com/MTD
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