Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is: more effective, more efficient, easier for tax payers to get their tax right.
The latest update from HMRC to software vendors
Today HMRC are launching the ‘public beta’ phase of the Making Tax Digital (MTD) VAT pilot. This marks a significant milestone towards their ambition to become one of the most digitally advanced tax administrations in the world. They have published more information and guidance on GOV.UK but also they have summarised the key points of the ‘public beta’ in the below paragraphs.
Today the pilot have been opened to around half a million businesses which meet the initial eligibility criteria who will be mandated to use the service from April 2019. Businesses will be able to voluntarily join now, familiarise themselves with the new service and start testing it early. This also allows HMRC to pilot the service with larger numbers, so they can be confident it is all working well before April.
The pilot will open first for businesses whose affairs are up to date and straightforward and extend to most other business types over the coming months. By the end of October the pilot will be opened to over 600,000 businesses. The pilot is open to sole traders and companies (except those which are part of a VAT group or VAT Division) provided they are up to date with their VAT and have not incurred a default surcharge in the last 24 months. Those who trade with the EU, are based overseas, submit annually, make payments on account, use the VAT Flat Rate Scheme, and those newly registered for VAT that have not previously submitted a VAT return, are unable to join at this point. HMRC have set out further details on when others will be able to join on GOV.UK.
Under Making Tax Digital (MTD), around 1.1m businesses registered for VAT, with a taxable turnover above the threshold of £85,000, will need to keep their VAT records digitally and file their returns direct from their MTD-compatible software. These changes will come in from 1 April 2019 for VAT return periods starting on or after that date.
HMRC recognises that businesses will require time to become familiar with the new requirements of MTD. During the first year of mandation, HMRC will not pursue filing or record keeping penalties where businesses are doing their best to comply with the law. HMRC will continue to take action to safeguard VAT revenue, and sanctions remain possible in cases of deliberate non-compliance.
As part of planning for the pilot, HMRC have continued to engage with stakeholders and listen to their concerns about business readiness for MTD. As a result, they have made the decision to defer mandation for 6 months for a small minority of customers with more complex requirements, to ensure there is sufficient time for testing the service with them in the pilot before they are mandated to join.
The deferral will apply to around 3.5% of mandated customers, who fall into one of the following categories: trusts, ‘not for profit’ organisations (NFP) that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as Government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users. HMRC will be writing directly to all customers within this group to inform them before the end of 2018.
The functionality to allow those within these groups to join MTD will be delivered before April, but to ensure HMRC are able fully to test the service with these customers they will not be mandated to join MTD until 1 October 2019. Any business not in one of these groups and over the VAT reporting threshold (£85,000) will be mandated to use MTD for VAT from April 2019 as previously announced.
There are currently over 70 software suppliers listed on our GOV.UK page who have tested their products in our test environment and demonstrated a prototype to HMRC. This includes many of the biggest names in the market, covering everything from basic record keeping tools to fully integrated accounting systems. There will also be a choice of ‘bridging software’ products available, which can extract the required data from records kept in spreadsheets and submit it to HMRC.
HMRC have today also updated their software choices page to include commercially available MTD VAT products that are ready to use now. This page will be updated weekly as more products are made available, providing customers with clear details of potential MTD for VAT software options.
Microsoft Dynamics NAV & Business Central compatibility with MTD
Microsoft has stated that their Dynamics NAV and Dynamics 365 Business Central accounting software will fall within the Making Tax Digital legislation when it goes live in April 2019, but only for those versions still under mainstream support (NAV 2015 and above).
Currently, if you use a Microsoft Dynamics solution, digital records are already kept for each transaction in the system and it also it allows you to submit VAT reports electronically. To comply with MTD, your system needs to use an Application Programme Interface (API) to digitally link between HMRC and electronic records which may involve a cost.
However, as technical requirements are unclear, Microsoft is currently working with the HMRC to better understand any further updates to Microsoft Dynamics products that will be required. Further details on action points for your business and whether you need to upgrade your existing Dynamics solution will be confirmed by Microsoft in due course.
Making Tax Digital (MTD) Update from HMRC
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