Making Tax Digital Day?

Making Tax Digital

 

 

The first Making Tax Digital (MTD) for VAT filing deadline has already passed. The next two filing deadlines are for VAT quarters ending in June and July with the real test predicted to come on 7 August when the biggest wave of the 1.1 million-affected VAT registered businesses are mandated to file under MTD for the first time. 

 

 

 

The risks for a busy MTD day in August are due to two potential problems. The first issue is a lack of action by more than 600,000 businesses, who should have already registered for MTD. The second being failures in the IT systems, where software developers have not been given a full test environment to test their software's capabilities for MTD. 

 

There are more than two million VAT registered businesses in the UK. Only VAT registered businesses over the VAT threshold of £85,000 have to make the switch to MTD, a total of around 1.1million businesses. About 300,000 businesses have not yet registered with HMRC for MTD. Most will not need to file a MTD VAT return until after the end of their first VAT quarter. The concern is not that the media coverage for the initial MTD date of 1 April has passed and media attention of MTD has reduced, the rate of sign-ups may fall. This makes for a ticking time bomb for HMRC. 

 

HMRC cannot accurately identify which businesses fall into the mandated category due to unreliable data. HMRC have been obliging businesses to register online to switch to MTD. If businesses do not register they cannot file their VAT returns on the new digital filing platforms. 

 

The first MTD filings in May have exposed some IT issues, which could undermine the big MTD push in August. 

 

Aside from reducing the possibilities for tax payers' data entry on VAT filings - estimated by HMRC at £600 million - one of the other objectives of MTD was to consolidate HMRC VAT processing onto one of the most digitally advanced tax systems. 

 

One issue that the first May filings have shown is that tax payers are getting variable filing data from HMRC via their MTD software or accounting systems. Many tax payers have been missing details of old filings and have been getting back inaccurate data. 

 

HMRC have already undergone significant planned outages of the MTD system during May and June to fix known errors. It will be critical that these planned outages of the MTD system work in order to avoid major confusion in July and August as the big wave of filers hit the system. MTD helplines were already under strain during May, with many callers reporting over two-hours delays in HMRC answering their call. 

 

Whilst this scale of software implementations will also bring out the hitches with the software and the MTD platform, it is the lack of test production environment that has really challenged this undertaking. Software providers were only given a limited-feature version of the final MTD platform to test their software on and therefore, they are only now being able to test out their solutions fully, using live client VAT data, with filing deadlines and potential fines at stake. 

 

HMRC have allowed a two-year soft-landing period between April 2019 and March 2020 in which there will be no financial penalties for non compliance.