Government announce delay to making tax digital proposals

David Evans, our Tax Partner, discusses the announcement of this delay and what it means for businesses going forward.

Last week the Government finally gave in to pressure and announced that they would delay the rollout of Making Tax Digital (“MTD”) to at least April 2020.

The only exception to this is digital reporting for VAT which will come into effect from April next year, but only for businesses with turnover over of the VAT registration threshold (currently £85,000).

According to the official announcement, the reason for the delay is to “ensure that there is time to test the system fully and for digital record keeping to become more widespread”.

We’ve created a summary of the revised timescales below:

Business Annual Turnover Quarterly reporting for taxes Old timetable – For accounting periods beginning on and after New timetable – For accounting periods beginning on and after
Over £85,000 + VAT registered VAT only 1 April 2019 1 April 2019
Over £85,000: all business and landlords (not necessarily VAT register) Income tax and national insurance 6 April 2018 At least April 2020
£10,000 to £85,000** Income tax and national insurance 6 April 2019 At least April 2020 but on voluntary basis
All companies Corporation tax 1 April 2020 At least April 2010

what is Making Tax Digital?

MTD is the Government’s proposal to digitise the tax system by creating one tax account for each taxpayer which covers all their taxes within HMRC. First announced in March 2015 by George Osborne, using this digital tax account, taxpayers will be able to view their tax record and manage tax payments. The proposals also introduced a requirement for all businesses to make a quarterly report to HMRC to accelerate the timing of their tax payments.

what’s happening with MTD now?

HMRC have changed their stance on MTD; the focus will now be on encouraging businesses to want to use digital record keeping, as opposed to it being mandatory. As a result, it seems obvious that HMRC will have to run the new digital system in parallel with the existing online & paper based system as businesses move over at their own pace. It will also mean the proposed law will need to be redrafted to remove the mandatory aspect.

Almost two and a half years have passed since the original announcement and it seems HMRC are no closer to getting the ball rolling. Throughout this period we’ve had various consultations about the detail of the proposals and popular opinion within the accountancy industry has largely been that HMRC have not allowed enough time to properly develop the new system.

This latest announcement is therefore a welcome one which has been well received by the accountancy professional bodies.

The ICAEW Deputy President, says:

It’s great that the government has listened to both the voice of business and the profession on Making Tax Digital (MTD). Removing mandation for the smallest businesses is a welcome step forward and is one less regulatory burden for SMEs to worry about.

John Preston, president of the Chartered Institute of Taxation says:

This deferral will give much more time for businesses, supported by their advisers, to identify for themselves, at their own pace, the benefits of digital record keeping.

We will be keeping an eye on how the MTD proposals progress once parliament’s summer recess is over. It is likely that further detail and more consultations will be released during the autumn.

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