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Making Tax Digital postponed until 2019/20

Tim Woodgates

A recent Treasury announcement confirmed that Making Tax Digital (MTD) will now only apply from April 2019 for businesses with turnover above the VAT threshold.  Full-blown quarterly reporting for all other businesses will now not apply until April 2020 at the earliest.

Immense pressure was put on the government from accountancy firms, business groups and select committees who raised concerns about the MTD regime and its planned scope and the pace of change it required from businesses impacted.  The controversy surrounding MTD was almost certainly a reason why it was dropped from the Finance Bill before the election.

The story of MTD has been a winding one with previous details of the regime often unclear or subsequently changed but the recent announcement has stated that the position now is:
  • Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records for VAT purposes.
  • The MTD regime as above will only apply from April 2019
  • Businesses will not be asked to keep digital records, or to update HMRC quarterly for other taxes until at least 2020
  • MTD will be available on a voluntary basis for smaller businesses and landlords
HMRC will conduct a pilot Making Tax Digital for VAT programme by the end of this year starting with small-scale private testing, followed by a wider, live pilot from spring 2018.  This will allow far more time for HMRC to fully test their systems to make sure they are robust enough before the MTD regime is mandated.

These changes are certainly positive ones and demonstrate that concerns are now being listened to.  With MTD initially only applying to businesses with turnover in excess of the VAT threshold, the change for these businesses will be far less dramatic.  These businesses are already engaging with HMRC on a quarterly basis so there will be no need to provide information to HMRC more regularly than they are currently doing. 

However, there are certainly VAT registered businesses who do not currently keep digital records so these will need to move their record keeping onto a digital platform to fulfil their obligations from April 2019.

Furthermore, as we have consistently said, MTD is not going away entirely.  The direction of travel is clear – digital records and digital communication with HMRC.  Whilst the additional two years now given to all other businesses and landlords to adapt to the changes is welcome, preparation is still needed to be ready for when the MTD regime eventually will apply.