HMRC extends MTD for VAT pilot scheme to all eligible firms

HMRC has extended its Making Tax Digital for VAT (MTD for VAT) pilot scheme to all eligible businesses.

MTD for VAT is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000. As part of the initiative, firms must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).

Any business utilising MTD for VAT whose turnover subsequently falls below the VAT threshold must stay in the regime, unless they deregister for VAT. Additionally, any firm exceeding the registration threshold after 1 April 2019 must comply with MTD for VAT, and is given 30 days to ensure that the appropriate digital software is in place.

As part of the pilot scheme, all eligible businesses are permitted to test out HMRC’s MTD for VAT system. The pilot scheme was first launched in April 2018, and was subsequently opened to half a million UK firms in October 2018.

Commenting on the pilot scheme, Clare Sheehan, Deputy Director for MTD for Business, said: ‘The MTD pilot is now available to all businesses who will need to use the service from April. This marks a significant milestone towards our delivery of a modern tax administration.

‘We encourage all eligible businesses to join and try out the service before they are mandated to use it.’

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Small business group calls for focus on ‘domestic agenda’ in New Year message

The Federation of Small Businesses (FSB) has urged the government to re-focus on encouraging and supporting UK small businesses, rather than spending time on ‘political infighting’, in its New Year message.

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Mike Cherry, FSB National Chairman, said: ‘Small business owners tend to be an optimistic bunch. They are used to being nimble, adapting to circumstances and making the most of opportunities. They are creative and entrepreneurial.

‘And yet as we head into 2019 small business confidence is on the floor, and desperately needs lifting’.

Highlighting the impact of the recent political turmoil surrounding Brexit, Mr Cherry called on the government to provide clear advice for businesses on how to comply with any new requirements. He stated: ‘Adapting to whatever the new trading circumstances with the EU are will mean changing business procedures, taking valuable time out from running a business, and for many it will involve paying for external expertise’.

The FSB’s New Year message also drew attention to other key issues affecting small businesses, including forthcoming legislative changes such as Making Tax Digital for VAT, the pressure on UK High Streets, and the issue of poor payment practices.

LITRG urges HMRC to publish MTD for VAT exemption guidance

The Low Incomes Tax Reform Group (LITRG) has called for HMRC to publish detailed Making Tax Digital for VAT (MTD for VAT) exemption guidance.

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MTD for VAT is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000. As part of the initiative, firms must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).

The LITRG stated that it is ‘very concerned’ that HMRC has so far failed to publish guidance on how someone might be able to claim exemption from MTD for VAT.

The Group said that without detailed guidance, some taxpayers may ‘worry unnecessarily’ as to how they will cope, and others could be left with ‘very little time to prepare’ if their application for exemption is turned down.

‘We are very concerned that HMRC has not yet published any detailed information as to how exemption from MTD for VAT may be obtained, with the start date so close,’ said Victoria Todd, Head of Team at the LITRG.

‘HMRC has said that people should contact the VAT helpline to speak to an adviser if they think they should be exempt. We would like to see more specific guidance which explains what information and evidence HMRC will require from a caller, and what they can do if their application is turned down.’

Committee warns small firms ‘could pay heavy price’ for MTD for VAT

The Economic Affairs Committee has warned HMRC that UK small businesses ‘could pay a heavy price’ for Making Tax Digital for VAT (MTD for VAT).

In a new report, the Committee stated that HMRC has ‘failed to adequately support small businesses’ ahead of the introduction of MTD for VAT.

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The initiative is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000. Under MTD for VAT, firms must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).

Many businesses ‘will not be ready’ for the introduction of MTD for VAT, according to the Economic Affairs Committee. It also stated that it remains ‘unconvinced’ in regard to HMRC’s claims that the new digital system will ‘narrow the tax gap’.

‘HMRC has neglected its responsibility to support small businesses with MTD for VAT,’ said Lord Forsyth of Drumlean, Chairman of the Economic Affairs Committee.

‘HMRC [is] not listening to small businesses, while offering a six-month deferral to many in the public sector.’

The Committee has urged HMRC and the government to ‘start listening’ to small firms’ MTD for VAT concerns.

HMRC sends MTD for VAT communications to affected businesses

HMRC recently started to send out so-called ‘encouragement letters’ to businesses within the scope of Making Tax Digital for VAT (MTD for VAT).

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The letters are being sent to 200,000 businesses which are eligible to join the current MTD for VAT pilot.

According to reports, HMRC is also sending letters to some VAT-registered businesses with a turnover just below the VAT registration threshold. However, the letters will not be sent to firms’ agents.

The letters are being sent out in two waves. As part of the first wave, 20,000 letters were sent this week: a further 180,000 letters are set to be sent by HMRC during the week commencing 12 November.

Two versions of the letter are being used. The first version of the letter explains the changes to the way in which firms ‘keep VAT records and submit their VAT returns to HMRC’ under MTD for VAT. The second version will be a shorter letter, and will supply businesses with advice on how to prepare for the introduction of MTD for VAT in April 2019.

HMRC stated that it is ‘committed to writing to everyone within the scope of MTD for VAT’, and that it aims to accomplish this by the end of November.

HMRC delays reform of late payment penalty regime

HMRC has further delayed the planned reform of the late payment penalty regime.

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HMRC planned to introduce the new penalty regime alongside Making Tax Digital (MTD) for income tax in April 2018, but the Revenue subsequently pushed its introduction back when MTD for income tax was deferred to April 2020.

Within the Overview of Tax Legislation and Rates (OOTLAR) document, which was published following the 2018 Autumn Budget, the government stated that it ‘remains committed’ to the reform of the late payment penalty regime, and intends to legislate for it ‘in a future Finance Bill’. Consequently, some experts have predicted that the new penalty regime will not be in place until April 2021 ‘at the earliest’.

Commenting on the matter, John Cullinane, Tax Policy Director at the Chartered Institute of Taxation (CIOT), said: ‘We are broadly supportive of these reforms to HMRC’s penalties regimes, so we are disappointed by this further delay, though as with any reform, we acknowledge that it is more important to do it right than to do it quickly.’

HMRC previously outlined the new penalty scheme, which is set to be a two-tier system that will take effect 15 days after a late payment.

HMRC launches second MTD for VAT pilot

HMRC has launched a second pilot scheme for Making Tax Digital for VAT (MTD for VAT).

The Revenue has invited more than half a million UK businesses to test the system, ahead of the introduction of MTD for VAT on 1 April 2019.

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From this time, firms with a taxable turnover above the VAT registration threshold (currently £85,000) will be required to keep digital records and provide quarterly updates to HMRC for VAT purposes, using functional compatible software.

The pilot is now open for businesses with ‘up-to-date and straightforward’ financial affairs. HMRC intends to extend the pilot to ‘most other business types’ over the coming months.

HMRC also announced that a small group of taxpayers with ‘more complex’ requirements will be given an additional six months to prepare for MTD for VAT, and will therefore not be mandated to use the system until 1 October 2019.

The six-month deferral applies to not-for-profit organisations that are not set up as a company; trusts; VAT divisions; VAT groups; local authorities; public corporations; and traders based overseas. Public sector entities required to provide additional information on their VAT return, those who must make payments on account and annual accounting scheme users are also covered by the deferral.

Commenting on MTD for VAT, Mel Stride, Financial Secretary to the Treasury, said: ‘HMRC is transforming the tax administration so that it’s more effective, more efficient and easier for taxpayers.

‘More and more businesses use digital tools every day to help them operate – tax shouldn’t be different. This is a major step towards bringing VAT into the 21st century.’