Making Tax Digital – public VAT trial now open and six month deferral for some businesses announced

Oct 22, 2018

HMRC have sent us the below update on the extension of MTD for VAT trial and the announcement of a deferral for certain VAT registered businesses.

“Today we are launching the ‘public beta’ phase of the Making Tax Digital (MTD) VAT pilot. This marks a significant milestone towards our ambition to become one of the most digitally advanced tax administrations in the world.  We have published more information and guidance on GOV.UK but I thought it would be helpful to set out the main points here.

Today we have opened the pilot 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 allow us to pilot the service with larger numbers, so we 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 we will have opened the pilot 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. We 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 our planning for the pilot, we have continued to engage with stakeholders and listen to their concerns about business readiness for MTD. As a result we 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.  I have set out more details about this below.

Deferral

The deferral will apply to around 3.5% of mandated customers, who fall into one of the following categories: trusts, ‘not for profit’ organisations 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. We 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.

Software

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.

We have today also updated our 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.

Thank you for your continued support for the delivery of Making Tax Digital. From now we will significantly increase our communications activity to ensure that those businesses who are mandated to use the MTD for VAT service from April 2019 are aware of their obligations and know what they need to do to get ready. I look forward to continuing to work with you to encourage and assist businesses and their agents to join the pilot.”

A number of supporting documents have also been published:-

Making Tax Digital: how VAT businesses and other VAT entities can get ready

Making Tax Digital for Business - stakeholder communications pack

Making Tax Digital