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The path to Making Tax Digital for VAT (MTDfV) has been a rocky one. There have been delays to the rollout and changes in the requirements, with the latest being a deferment period of six months for those with complex VAT requirements. This will affect around 3.5 percent of businesses including trusts, ‘not for profit’ organisations, public sector organisations, public corporations, and traders based overseas, among others.

The deferral is not unexpected, nor is it unwelcome. In making this decision HMRC has been pragmatic in addressing the concerns of more complex businesses for whom the window of opportunity for making pre-mandation MTD submissions was closing. The deferral period is both to give these businesses time to prepare and to allow HMRC to test the robustness of the system for these complexities. However, those businesses affected should not “leave preparations to the last minute” and have been urged to join the pilot “as soon as they can” by HMRC, most likely around April/May.

Loss of focus

The concern is that this message will get lost and some will instead see compliance as something that can be postponed until October 2019. Organisations still need to focus on becoming compliant and to use precious breathing space created by the deferment period to iron out the kinks and establish effective procedures for meeting the demands of digitalisation. We have spoken to customers who recognise this and are intent on using the six month deferral to ensure they put the right systems and processes in place.

The deferment period comes in addition to a ‘soft landing’ period which gives all businesses captured by MTD (ie those exceeding the VAT threshold of £85,000) an additional twelve months to meet the digital link requirements. Effectively this means that, while criteria requiring digital submission via the HMRC API that must be complied with by April 2019, the full digitalisation of the tax process won’t be enforced until April 2020. Even then, HMRC has indicated that there are no plans to come down hard on businesses who are trying to comply. But once MTD is up and running, there will be penalties for non-compliance utilising the two-tier penalty model outlined in the Finance Bill 2018-19.

Further challenges

This seemingly provides businesses with a clear roadmap of what they must achieve and by when. All well and good. But when these businesses have then turned to the marketplace for assistance they have found it in a state of flux. Many were met with…

  • Vendors who were unable to provide timelines on when their accountancy system solutions would be upgraded to become MTD compliant and able to accommodate digital links
  • Software suppliers working on MTDfV software solutions whose software development cycles had slipped due to HMRC delays in the MTDfV process
  • Advisors who were unable to provide a clear framework on what needs to be done ahead of the 2019 deadline and/or were quoting high fees running in to the thousands for MTD consultancy
  • A lack of long-term clarity on how bridging solutions would facilitate compliance with phase 2 of MTDfV
  • No vision on how to support future MTD regimes

This lack of long-term vision is something that is often overlooked. The immediate deadline for compliance of April or October 2019 (depending on the business) has in some cases eclipsed the very real need to make investment in MTD pay.

HMRC has admitted that MTD will not realise any cost savings for the business, making it essential that the solution selected provides longevity. But what does this mean in practice? That the MTDfVAT solution you select today should provide you with automation capabilities that can facilitate tax processing for other taxes, such as Corporation Tax, tomorrow. With technology investment cycles typically lasting three to five years, it makes sense to take this long term view.

Benefits for the business

MTD compliant solutions are now being developed and made available as listed here by HMRC. But there’s still very much a focus on MTDfVAT rather than an expansive view of how such a solution can transform the business and make it future ready.

Moreover, while MTDfV may not provide the cost benefits previously envisaged, it will undoubtedly provide real benefits. The automation of manual processes will see processes streamlined, making the business more efficient. It will allow tax resource to be applied to more complex tasks to provide strategic gains. Plus it will provide a pool of compliance data that will be readily available and potentially of use for other computations.

At Tax Systems we have been working closely with HMRC for more than 25 years on tax compliance and have developed our AlphaVAT product suite to specifically meet the challenges of MTDfV and beyond. To find out more on MTDfVAT and how AlphaVAT can assist, read our e-book ‘Digital as a destination: the steps to Making Tax Digital for VAT’.

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