29th March 2018

In July 2017, amid an array of concerns and setbacks, HMRC announced that they would be delaying the wider roll-out of Making Tax Digital (MTD) across all taxes until April 2020 at the earliest.

One tax that was exempt from this deferral, however, was VAT, and companies operating above the threshold of £85,000 will be required to keep digital records for VAT purposes from April 2019.

As it has been compulsory for returns to be submitted quarterly online since 2010, HMRC probably view VAT as the natural first step to introduce MTD across all taxes as companies will not be required to submit information on a more regular basis than is already necessary.

While MTD for certain taxes, such as corporation tax, has been deferred indefinitely, charities and their subsidiaries will have to abide by the same rules as the rest when it comes to VAT. The one exception to this rule is for charities which are VAT registered but have a level of taxable turnover below the current  registration of £85,000 p.a.

The first stage of MTD will require those taxpayers affected to operate ‘functional compatible software’. This will enable them to:

  • Keep financial records in a digital format
  • Submit VAT returns to HMRC using an automated platform
  • Receive receipt of information from HMRC electronically

HMRC will pilot the changes from Spring 2018 and is keen to gain participation from a wide range of companies and organisations, including charities, to ensure everything is in place for the eventual launch.

Mark Hetherington, VAT Partner at UNW, said: “Despite a number of months having passed since HMRC confirmed its intention to press ahead with MTD for VAT alone, I remain surprised that they have decided not to delay the implementation further given that its proposed introduction coincides with the date the UK is meant to leave the EU. This is a time when HMRC’s finite resource will be focused on creating new processes for import and export declarations.”

My worry for charities and other organisations operating in the not-for-profit sector is the simple fact that their returns are far from a simple process. Most need to make manual adjustments to input tax to cater for non-business and VAT exempt activities, not to mention those charities with trading subsidiaries registered as a VAT group.”

Let’s hope the various accounting software providers come up with cost effective solutions to these issues and don’t simply use it as a way of increasing software license fees.”

For more information regarding this topic, you can contact Mark Hetherington at markhetherington@unw.co.uk or on 0191 243 6073.

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