Posted 2 weeks ago by Tracy
In January 2020, the results of a survey carried out by the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) were published, which have cast doubt on how effective Making Tax Digital for VAT has been to date.
In particular, some responses suggest that the new digital reporting regime may actually be causing more problems for businesses and their advisers than anticipated.
According to HMRC, “Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.” It is part of HMRC’s wider efforts to digitise the tax system and improve tax administration to make it more effective and efficient, while also providing improved accuracy through digital records.
Making Tax Digital for VAT is the first widescale rollout in the Making Tax Digital (MTD) regime.
Since 1 April 2019, businesses that are VAT-registered and have a taxable turnover above the VAT registration threshold have needed to comply with MTD for VAT unless an exemption applies. Businesses can also choose to opt-in on a voluntary basis. Certain businesses, such as those with more complex VAT affairs, had a delayed mandation date, which began on 1 October 2019.
Under MTD for VAT, a business needs to have digital VAT records in place and must also meet digital record-keeping requirements using compatible software.
A soft landing period is currently in place in respect of digital links. This means that for the first year of a business’ mandation, businesses are not required to have digital links in place.
The first filing milestones have already been reached for MTD for VAT. On 7 August 2019, the first quarterly filing deadline passed for businesses that had been mandated since 1 April 2019.
Since then, two other quarterly filing deadlines have passed, the latest being the 7 February 2020 filing deadline for the period to 31 December 2019.
The CIOT and ATT highlighted some significant findings as part of their survey results:
Nearly 90% of respondents said that MTD for VAT has not reduced errors. The largest group of respondents (64%) said that MTD for VAT has had little impact on errors.
43% of respondents found that the average cost of MTD for VAT implementation was more than £109 but less than £500. This surpasses the government’s estimate that the transitional cost to MTD should be £109 on average. For 11% of respondents, implementation costs were estimated to be over £5,000.
The picture is just as bad in terms of estimated ongoing compliance costs. 51% of respondents said they expected ongoing costs to be more than £43 but less than £500, with 37% of respondents estimating costs higher still. Again, the government estimated that the ongoing costs associated with MTD for VAT would be just £43, so there appears to be a noticeable difference.
When it comes to productivity, 34% of respondents said that there had been no impact on the productivity of their clients, with 29% stating that there had actually been a small decrease in their clients’ productivity.
Although it’s understandable that there may have been some cost overruns and initial errors, given that the MTD for VAT regime is still relatively new, this survey’s results do appear to contradict HMRC’s claims that MTD for VAT offers a relatively low-cost solution to produce greater accuracy in VAT returns.
The findings from the survey have also been shared by the CIOT and ATT as part of their representations in relation to the upcoming Spring Budget. In it, they
“urge the government to carry out a thorough review and evaluation of the rollout of Making Tax Digital (MTD) for VAT […] before making any commitments to the extension of MTD to other taxes or businesses.”
MTD for VAT is just one part of the wider Making Tax Digital programme for HMRC. There are plans to roll out the regime to other taxes, including income tax (for which a pilot is already in place) and corporation tax. HMRC has confirmed that no other taxes will be mandated into MTD until at least April 2021. Nevertheless, if the CIOT/ATT’s survey responses are to be taken seriously by HMRC, there may well be further delays as to when MTD is mandated to these other taxes. 53% of respondents, for example, were in favour of an April 2025 timeline for the mandation of income tax into MTD, while 36% of respondents felt the same way about mandation for corporation tax into MTD.