With Making Tax Digital (MTD) for VAT on the horizon, it is worth giving an update on what is happening with extending MTD to cover other taxes. There have been some changes to the income tax timeline over the last week or so, which have yet to filter widely. This blog covers off what has changed, and what is still on track for delivery.
It is worth saying that the driver for these changes is not due to any change in attitude towards MTD by HMRC, but are the consequence of the need to prepare for the UK leaving the EU – in simple terms the MTD resources and staff are needed elsewhere.
Firstly, how is VAT impacted?
The VAT timeline is unchanged. There may be some who believe that MTD for VAT will not happen, but HMRC are clear – the VAT timeline is unaffected and is being delivered;
- Majority of VAT registered businesses with turnover over the registration threshold will be mandated from their first VAT period which starts on or after 1 April 2019.
- 3 – 4% of the more complex businesses will be deferred until October 2019. See https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital#making-tax-digital-for-vat for details.
What about Income Tax?
The recent discussions with HMRC have centred around income tax.
Firstly, the current pilot for sole traders and rental landlords will continue, and in mid-2019 it will be extended to cover reporting of savings interest, dividends and Gift Aid payments.
However, what is now unclear is what happens next. HMRC have confirmed that following the update mentioned above, and with their focus now on Brexit, they have paused plans for future MTD developments in the short term. So, MTD is not going away, but for the moment priorities have shifted to more pressing areas.
What about mandation of Income Tax?
This is unclear, but in my view unlikely by April 2020. Remembering that mandation is not a decision that falls to HMRC (Treasury ministers make the decision), HMRC can’t really provide iron clad information on when mandation will be.
What is clear to me is that if there are unlikely to be further enhancements between now and April 2020, then MTD for businesses will not have full coverage in April 2020, making mandation for anyone extremely unlikely. At most it would be mandated for those who can join the pilot (Income sources covered: single sole trade; rental income; savings interest; dividends and gift aid) although I think mandation for a small group is extremely unlikely.
What about other income tax entities (partnerships, trusts, etc)?
These do not form part of the scope of the current pilot, and there are currently no ongoing discussions in this area. Therefore, I assume these entity types are some way off (e.g. discussions starting post March 2020).
What about MTD for corporates?
Again, these are currently not supported by the pilot. I assume MTD for corporates will be discussed post March 2020.
What happens next?
The current pilot is still important to HMRC – ultimately the pilot success will determine when mandation can be considered. Thomson Reuters have accountants taking part in the pilot, and in the new year we will be looking to support further accountants that want to take part in the income tax pilot by giving them access to Onvio Tax.