Making Tax Digital (MTD)

The government has announced a new timetable and plans for Making Tax Digital (MTD), which means MTD is not going to be forced onto businesses in the immediate future.

The new timetable, announced in a written statement by Mel Stride MP, Financial Secretary to the Treasury and Paymaster General, means that businesses will not be mandated to use the MTD system until April 2019, and even then, they will only have to use it to meet their VAT obligations. This will apply to businesses with turnover above the VAT threshold.

This is welcome news: the government has listened to both business and the profession. ICAEW has said all along that we support the move to digital in principle, but it should not be mandatory or impose unreasonable admin burdens, and its introduction should allow enough time to ensure the system works. Removing mandation for the smallest businesses is a welcome step forward and one less regulatory burden for SMEs to worry about.

Businesses with turnover below the VAT threshold will not be required to use the system but can choose to do so if they wish. Businesses will also be able opt in for other taxes.

Under the new timetable: 

  • only businesses with turnover above the VAT threshold (currently £85,000) will have to keep digital records, and only for VAT purposes;
  • they will only need to do so from 2019; and
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

Making Tax Digital will be available on a voluntary basis for the smallest businesses and for other taxes. We note the reference to keeping digital records is retained in the requirement for VAT. We will need to see what this means in practice, but for now this is a great step forward which means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system. If the new system is good, businesses will be encouraged to use it without the need for mandation.

HMRC has announced that it will start to pilot MTD for business for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system.

The government has given assurances that it 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.

Following the huge amount of work ICAEW has put into our representations on MTD, we are very pleased that the concerns of business and agents have been listened to. We look forward to working with HMRC towards a new and better digital tax system in the months ahead.

The MTD legislation will be included in Finance Bill (No 2) 2017, due to be introduced in the autumn.

Circular from ICAEW Tax Faculty

14 July 2017