Making Tax Digital for VAT – Easing of requirements welcomed


The Chartered Institute of Taxation (CIOT) has welcomed the legal status of HMRC’s ‘soft landing’ intended to help taxpayers who may otherwise struggle with some of the IT demands of Making Tax Digital for VAT.

Businesses who have a turnover above the VAT threshold (currently £85,000) will be required to comply with the Making Tax Digital for VAT rules from April 2019. Businesses below this threshold can choose to do so voluntarily. The Government has committed not to widen the scope of Making Tax Digital beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest.1 An estimated 1.2 million businesses will be mandated into Making Tax Digital for VAT next year.

A recent VAT Notice published by HMRC said that in the first year of mandation (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. In this initial period, HMRC will accept the use of cut and paste, or manual transfer, as compliant for these VAT periods.

John Cullinane, CIOT Tax Policy Director, said:

“It is to be welcomed that this relaxation has been set out in part of the Notice which has the force of law. This is something we asked HMRC to do. It would have been completely inadequate for the law to require you to do one thing, but then for HMRC to say informally that they would not enforce it. Most businesses want to comply with what the law requires them to do, and this approach from HMRC helps ensure that is the case.”

But the CIOT warns business to be mindful that the scope of this ‘soft landing’ does not extend to the actual submission of the VAT return itself, which must be through API-enabled software. It does not allow affected businesses to simply continue typing the VAT return figures into HMRC’s portal.

HMRC announced in its response to the Making Tax Digital consultation on Tax Administration that taxpayers will be ‘given a period of at least 12 months before they will be charged any late submission penalties under Making Tax Digital’, be it for VAT or when it is extended to other taxes. This is to help businesses during the transition to the new Making Tax Digital requirements.

HMRC also plan to move to a new points-based penalty regime in the future. This is still at the draft legislation stage, and is likely to apply from April 2020, a year after the commencement of Making Tax Digital for VAT in April 2019.

John Cullinane said: We would like clarity on how the general soft landing on late submission penalties will apply, particularly for those businesses mandated into Making Tax Digital for VAT in 2019/20. It would appear that VAT registered business may still be subject to the existing, heavily automated VAT default surcharge regime.6 Robust systems will need to be implemented by HMRC to ensure that this soft landing is fairly and consistently applied, with the least amount of aggravation for businesses, their agents, and HMRC.

Source: CIOT