A lack of visibility of Making Tax Digital approved software leaves businesses facing disruption and rushed implementation, the Association of Tax Technicians has warned, and many companies will need to act sooner than they think. The tax body is calling for changes to the planned introduction of the new rules, to allow companies to make the switch more smoothly.
The new reporting rules, which require tax records to be kept digitally and submitted quarterly using HMRC approved software, will apply to VAT filings from April 2019, with rollouts to other business taxes and non-VAT registered firms planned for future years. The ATT’s concern centres on the fact that HMRC has yet to identify which software packages are compliant with the required standards.
This may not seem an urgent issue, with Making Tax Digital (MTD) not due to start for another 14 months, but the timing of its introduction means that some companies have as little as five months to choose compliant software, or face the chaos of having their 2018/19 accounts on two different systems. The ATT’s Yvette Nunn explains: “The first businesses to come into MTD will be those with a VAT quarter running from 1 April to 30 June 2019. If they happen to have a 30 June year end, they will need to have an MTD-compliant accounts package in place by 1 July 2018 or risk changing their accounting package mid-year. This gives them only five months to select and integrate a new package if their current one would not be MTD compliant.
“It would be a major headache for businesses, from a practical perspective, to have to change mid-accounting period, as when they come to do their accounts or tax return, the information would be spread over two systems. It would also make it difficult to get an in year view of profitability.” The ATT has called for MTD to apply from a firms next company year after April 2019, rather than their first VAT quarter, to smooth the transition.
Any confusion in accounting systems could be significant, since the new filing requirements will be accompanied with a new penalty regime for non-compliance. The Revenue confirmed in December that they will adopt a points-based penalty system for MTD, which will see penalties ratchet up for repeated infringements, but points drop off a taxpayer’s record over time, in the same way as points on a driving license. The “shelf-life” for points represents a change from HMRC’s previous proposal, which was welcomed by the Chartered Institute of Taxation’s John Cullinane, who said: “It is encouraging that HMRC have taken on board many of our concerns about the points-based model. The original proposals with their lack of a shelf life for points would likely have been ineffective as well as unfair because there would have been little incentive to improve one’s behaviour if points stuck with you for too long regardless of your ongoing compliance”.
Business owners will be heartened at this evidence that HMRC is capable of responding to professional advice, and will hope that they do the same with the ATT’s suggestion. I the meantime if your turnover is above the VAT threshold be aware that you may need to act earlier than the April 2019 date suggests, and start shopping around for software now.