Businesses have been anxiously awaiting the draft legislation to see what will be required of them and what they will need to do to be compliant.
MTD for VAT involves two key concepts:
- Keeping records digitally; and
- Digital submission of the VAT return via functional third party compatible software.
HMRC has stated that one aim of MTD is to reduce the VAT lost through errors and mistakes arising from manual input.
What are the challenges?
HMRC says it will ensure that there is software and support in place that meets the needs of the businesses affected by the changes and that it is testing the processes extensively. It should be noted HMRC have no plans to provide software, as it does presently, and will rely on third party software providers to develop the relevant software.
'...ONE OF THE SIGNIFICANT ISSUES WITH MTD FOR VAT IS THE IMPLEMENTATION DATE OF APRIL 2019.'
In the first year (from 1 April 2019), HMRC anticipates a lenient approach to provide businesses extra time to make legacy systems compatible.
One of the significant issues with MTD for VAT is the implementation date of April 2019. This date clashes with the anticipated date of Brexit which, depending on the outcome of negotiations between the UK and EU, could require its own changes for VAT at the same time. Therefore, businesses which trade cross border could face the task of dealing with the effects of MTD and Brexit at the same time.
With less than a year to go, the full picture of the changes MTD and Brexit will bring is not yet fully confirmed, giving VAT registered businesses very little time to identify and make the necessary adjustments.
We have already seen changes to the timeframe with the introduction of MTD from HMRC and there is still time between now and 1 April next year for further changes.