After several years of planning, talking about and working towards Making Tax Digital, Anne Cianchi, our MTD consultant looks back over the process so far.
It was November 2015 when George Osborne announced in his Autumn statement ‘We’re going to build one of the most digitally advanced tax administrations in the world. So that every individual and every small business will have their own digital tax account by the end of the decade, in order to manage their tax online.’
So how much progress has been made in realising this vision?
For many taxes MTD is still some way off. Following stakeholder concern over the pace of change, the original timetable for self-assessment taxes was dropped and instead it was decided to start with a staggered roll out of MTD for VAT. This was mandated in April 2019 for the majority of businesses over the VAT income threshold of £85,000.
The process started slowly, with relatively few software companies making HMRC’s initial list of recognised software providers. By August 2018 less than 20 accounting packages had met the requirements, but Farmplan were pleased to be at the forefront of this development. Eighteen months later, with the end of the soft landing period fast approaching, there were over 500 MTD packages available.
Now, according to HMRC, more than 1.4 million businesses have signed up to the service and over 4 million submissions have been received. Interestingly over 270,000 of these businesses are under the VAT threshold but have chosen to sign up voluntarily to take advantage of digital filing. This is more than a quarter of all VAT registered businesses below the threshold.
There is still no date given for the mandation of Income Tax, Corporation Tax, or Capital Gains Tax, though HMRC are piloting Income Tax returns with a very small number of businesses.
The MTD VAT process hasn’t all gone smoothly. Problems have arisen for a wide range of reasons varying from misunderstandings of what needed to be done, to difficulties creating Agent Services Accounts. In the early stages people also experienced problems in accessing the HMRC helpline, which for a while appeared to be constantly engaged. However, HMRC, aware of these issues, adopted a no penalties approach (where a problem resulted in late filing, late payment, or other breach of regulations) ensuring people were not penalised unfairly. In their recent internal review HMRC say that they have learned many lessons from the roll-out of MTD for VAT and will continue to make improvements to the service. These lessons will also be key to informing their approach to the next phases of MTD mandation.
How has the agricultural sector fared?
There were significant concerns about the ability of the agricultural sector to adapt to these new regulations. Many farms have poor internet connectivity and have historically kept manual records and completed manual returns. For such farms ‘Going Digital’ often meant implementing new systems and learning new skills.
In addition, where farms had diversified, records for different enterprises were often kept on different systems and added together before completing the VAT return. Under MTD regulations these records need to be combined digitally, a functionality not provided by many software products.
At Farmplan we worked very hard to ensure that the concerns of agricultural businesses were not overlooked and that businesses were prepared for this change. By developing our software early (our first successful submissions were made in August 2018) we benefited from months of experience which we were able to share with our customers before MTD for VAT became compulsory. We also provided a wide range of training opportunities from group sessions to webinars and our support team handled thousands of MTD calls. In addition, all our financial products were designed to enable the user to combine data before submission, ensuring that diverse enterprises were catered for. It was therefore very gratifying to read this account (from one of our customers) included in the HMRC’s internal review of the MTD process.
“What had I been worried about? It was so straightforward, quick and reassuring! I have also set up an arable farm on the software who had until then been doing their accounts manually – the whole process could not have been easier. From manual to computerised accounts might seem like a bit of a leap, but I hope other farms have found it as positive an experience as my clients have. It’s obviously been essential for MTD VAT, but having computerised accounts brings so many other benefits to the business – for the farmer, their accountant and their book-keeper!”
COVID-19 is undoubtedly having an impact on the timescales of future MTD processes. In recognition of these extremely challenging times HMRC have recently extended the MTD VAT deadline for businesses to put in place digital links between all parts of their functional compatible software. This had been due to be completed by 1 April 2020, but has now been extended for a further twelve months, to 1 April 2021.
At Farmplan we will continue to work with HMRC to ensure the specific needs of the agricultural sector are taken into account as implementation of MTD moves forward. We will keep you informed of all developments. Please keep an eye out for messages in the program, emails and news on our website.