Making Tax Digital for VAT: legislation overview

ICAEW has responded to HMRC’s publication, Making Tax Digital for VAT: legislation overview, published on 13 September 2017. Our response is published as ICAEW REP 128/17.

We continue to be supportive of HMRC’s digital transformation, but this must not be rushed and we have yet to be convinced that MTD will reduce the administrative burden of VAT for business. Businesses and individuals should be encouraged to adopt digital reporting as a benefit to their business and not as a forced change. Many businesses will not realise that merely completing the nine boxes for a VAT submission on the GOV.UK website as they do now, will not be an acceptable submission for MTD from April 2019.

In our response, we raise a number of issues in relation to MTD for VAT, both for business and for HMRC. Its success will be an important element in directing the next steps in the development of the MTD programme, so we welcome the assurance from the Financial Secretary to the Treasury, Mel Stride, that income tax and corporation tax will not be mandated until it is clear that the programme has been shown to work well.

Our concerns include:

  • Introducing MTD for VAT in 2019 will coincide with Brexit so immediate changes either to VAT policy or its administration, should be minimal
  • The VAT legislation overview provides a summary of how MTD will work for VAT, but a lot of the detailed requirements are missing. We are concerned that there may be insufficient time to fully consider the feedback from this overview before the government proceeds to secondary legislation.
  • MTD requires a fundamental change to the way that many businesses keep their accounting records. We do not think businesses should be mandated to make changes for VAT alone as the same accounting records will form the basis of MTD for income tax or corporation tax in due course. Not all software will be suitable for all taxes.
  • While we understand that spreadsheets with suitable Application Programming Interfaces will be acceptable records for MTD purposes, the full extent of their use has yet to be clarified and should be incorporated in secondary legislation.
  • The complexities of VAT, such as partial exemption, group registration, time of supply rules, and multiple special schemes, make it difficult to see how economical software can be designed to suit VAT reporting.

Our detailed comments in the representation expand on these and other important practical aspects of MTD for VAT.