Making Tax Digital: delays, deadlines and what it all means for you

The roll-out of Making Tax Digital for VAT has been moderately successful. Of the estimated 1.17m businesses that are mandated to sign up to the new digital system, over 900,000 did so in the first reporting period, which ended on 7th August. Although the government will still be concerned that a significant number are yet to register, the figures should relieve concerns that most people were unaware of the new rules.

Making Tax Digital (MTD) is a sweeping government initiative to change the way tax is reported and, ultimately, paid. After an initial false start – the original intention was to target small businesses for income tax – the government sensibly changed its approach and just focused on VAT to start with.

The rules require businesses with a turnover above the VAT threshold to register for MTD and use designated software or ‘apps’ to keep digital records and report VAT to HMRC on a quarterly basis. Businesses that have voluntarily registered for VAT, but which are under the threshold, do not have to comply with MTD yet.

IPSE surveyed affected freelancers just ahead of the roll-out of MTD and found one-in-four were in the dark about the rules. These results chime closely with the figures recently released by HMRC.

The focus now will be on businesses that should have, but didn’t, register. Normally they would incur a fine, but HMRC has agreed to waive fines in the first year as part of its ‘soft landing’ approach.

If you are one of the businesses that hasn’t yet registered, don’t panic, but don’t bury your head in the sand either. There’s lots of help out there for businesses that are confused about MTD. This article may be a good place to start.

IPSE’s view on MTD for VAT

The initial timetable for MTD was way too ambitious and the wrong businesses were being targeted first. Initially, HMRC was to onboard the very smallest businesses and make income tax returns digital. They set a very low threshold for exemptions (£10,000 turnover) which would have caused problems, as a surprisingly large number of very small businesses still keep paper records.

We are grateful to the government for heeding our calls to reconsider its approach. Starting with VAT makes much more sense, as it is already reported quarterly and, in most cases, records are already kept digitally.

The requirement to purchase new software, and get used to using that software, will inevitably cause some consternation, but bridging software is available for those who want to continue to use spreadsheets.

We are still doubtful about the quarterly reporting requirement for income and corporation tax, but that’s not here yet. In fact, government has gone extremely quiet on the next phase of MTD, so don’t expect anything to happen this year, or next year, and maybe not even the year after that.

More information on MTD and MTD for VAT can be found on the government website.

Meet the author

Andy Chamberlain

Deputy Director of Policy and External Affairs