Making tax digital for VAT - 6 month deferral for complex businesses

03 December 2018

Making tax digital for VAT (MTDfV) will be mandatory for all entities that are required to be VAT registered and make taxable supplies above the VAT registration threshold of £85,000.  However, HMRC has announced an amended timeline for its introduction, confirming that mandatory  MTDfV will be deferred for six months (from VAT periods commencing on or after 1 April 2019 to VAT periods commencing on or after 1 October 2019), for certain entities that are deemed to have more ‘complex requirements’.

These include:

  • VAT groups;
  • VAT divisions;
  • trusts; 
  • ‘not for profit’ organisations that are not set up as a company;
  • businesses based overseas; 
  • public-sector entities required to provide additional information on their VAT return (eg government departments, NHS trusts etc);
  • local authorities;
  • public corporations; 
  • entities required to make payments on account; and 
  • annual accounting scheme users.

Pilot scheme

HMRC has been running a MTDfV ‘pilot’, allowing VAT registered businesses to voluntarily adopt MTD procedures, from 1 April 2018. The pilot has, however, only been made available for those entities which have relatively straightforward VAT reporting requirements. HMRC has therefore recognised that, as more complex organisations (and no doubt, HMRC itself) have had insufficient time to test MTDfV in the pilot phase, and that as such organisations would only have had one VAT return period for testing before MTDfV goes live, a decision to delay mandatory MTDfV until on or after 1 October 2019 is necessary to ensure complex organisations have sufficient time to test their software solutions and HMRC’s service before they are mandated to join MTDfV.

Soft landing

HMRC had previously announced that a ‘soft landing’ period (in which penalties will not be applied for failing to meet MTD obligations) would be allowed in the first year of mandatory MTDfV and has confirmed that this 12 month soft landing period will be extended to those organisations with complex requirements. Consequently, for complex organisations, the first VAT return which will have to be fully MTD compliant will be the first return period starting on or after 1st October 2020. 

Whilst HMRC estimates that the deferral will only affect approximately 3.5 per cent of VAT registered businesses, this still represents a considerable number of entities falling within one or more of the above categories, including many RSM clients. 

Action required

The requirement to submit VAT returns using MTD compatible software for VAT periods beginning on or after 1 April 2019, or for VAT periods beginning on or after 1 October, will depend on whether an entity falls into one of the above ‘complex’ categories. It is therefore essential to identify the date from which each VAT entity will need to be MTD compliant. Advice should then be taken in good time in preparing to meet this new obligation. 

HMRC has recently undertaken a large-scale publicity campaign, including issuing letters to 200,000 businesses regarding MTDfV, but various surveys and anecdotal evidence suggests that many businesses are yet to start their preparations for what, for some, will be a considerable change . Whilst a deferral has been announced for certain organisations, all affected VAT registered entities should now be commencing work on planning for MTDfV if they have not already done so.

For more information please get in touch with John Forth.

making tax digital for VAT