‘No news is good news’ and that’s never been truer than this week when MTD Phase 2 was conspicuous in its absence from the announcements made by HMRC and the Treasury. Tax Day, which took place on 23 March, saw a raft of news announcements made in relation to tax administration reform and tax policy development.
It was the last point at which the government might delay the mandation of the digital links mandate. Its omission means that, from 1 April 2021, the soft-landing period comes to an end and all eligible businesses must comply by using digital linking in their next VAT Return.
All systems go
Now that there’s no turning back, organisations will need to ensure their digital strategies are in place. If you are have yet to make a start, are in the process of reviewing or want to get the most out of the VAT process, a good starting point is to take our VAT Readiness Test which will quickly assess your tax process and advise upon the best pathway to compliance.
It’s also worth bearing in mind that MTD for VAT is just the start of more comprehensive reforms as laid out in HMRC’s 10 Year Administration Strategy, so you may want to think about whether your MTD solution will help futureproof your tax function by being ready for real-time reporting and the need to be more accurate through…
- Ensuring your implementation addresses the issue of a “failure to take reasonable care” that HMRC sees as driving the tax gap. It is important to note that digital links compliance alone still means submissions can be wrong
- Automated error checking to Increase the accuracy of submissions
- Tax data analytics which provides the ability to make period-on-period comparisons, predict future liabilities, upside tax claims and reliefs
- Source to submission digital audit trails that make it easier to interrogate data, demonstrate compliance and allow a pain free response to HMRC queries
- Reducing the manual element of compliance workloads with a more efficient process
- Support for future regimes (MTD for Corporation Tax) with a single ‘source of truth’ from which you can extrapolate data for all tax returns
Expectations are that HMRC will seek to shrink the tax gap still further from the 4.7% announced this week and to increase its compliance yield - particularly given the COVID-19 debt and the Chancellor’s reluctance to raise taxes. This means businesses are going to be under much more pressure once we fully exit lockdown to prove their compliance under the digital links mandate, making it even more imperative that you can review and digitally audit your process from source data to submission.
Tax Day highlights
If MTD Phase 2 wasn’t part of Tax Day, what was? Firstly, it was made clear that the aim of the 10 year plan for reform is to invest in digital to enable HMRC to move to real-time compliance.
The £95million pledged towards digital infrastructure will be used to help fund the development of a single digital account and single tax payer record as well as rolling out the ‘Time to Pay’ scheme beyond income tax to the other taxes. This all tallies with what we heard from HMRC’s Verna Gellvear earlier in the month when she explained HMRC’s plans for “all taxes [to be] managed through a single, digital account, with similar, effortless processes [to MTD for VAT]”.
Two ‘Call for evidence’ processes were also set in motion: one on how the tax administration framework could be improved and the second on timely payment mechanisms for both income tax and those corporation tax payers who don’t currently pay quarterly. An HM Treasury review into the effectiveness of the advice given by the Office of Tax Simplification was also announced, the conclusions of which will be published Q3 2021.
With respect to tax changes, there will be a further consultation on the compulsion for large businesses to notify HMRC of uncertain tax treatments pertaining to transactions in Returns from April 2022 (this sees the revision of proposals set out in an earlier consultation). It was also confirmed that, following responses to a consultation on VAT Grouping which took place in August 2020, this would be dropped.
Transfer pricing was a hot topic. It was acknowledged that the International Dealings for Transfer Pricing will require large companies to have much more confidence in the reliability of their data while HMRC stated that it will be consulting on transfer pricing reporting documentation (rules are currently not specified in the UK) based upon BEPS Action 13.
Responses to the ‘Simplifying PESM and the Capital Goods Scheme’ consultation have also now been published in full with recommendations to reform the application process and introduce sectoral frameworks. This should make it much quicker and easier to apply for a suitable PESM and to get this agreed by HMRC without the lengthy delays that have previously dogged the process, and should also make it easier for businesses to amend existing PESMs.
HMRC won’t be deviating from its plans to digitally reform the tax administration which should see processes streamlined to make it easier for organisations to meet their tax obligations. It’s ambitions for a real-time compliance-based system place data firmly at the heart of its strategy and the message is clear: businesses will need to ensure their data is accurate and their compliance documented.