MTD is likely to result in significant changes to the agent-client relationship. The terms of each engagement, and the scope of the services to be provided in future, will need to be reviewed.
9 October 2017
HMRC’s strategy is for tax agents to access HMRC systems through the use of commercial software. Agents who do not currently use commercial software will need to consider doing so, as the current web-based HMRC systems are likely to be gradually phased out. HMRC is committed to providing agents with access to client information in HMRC systems and has stated that the necessary services to comply with MTD obligations on behalf of clients will be available from the start of MTD.
Agents will see some of their non-business/landlord clients being moved out of self assessment (in tranches depending on the types of income they receive). The replacement will be the Personal Tax Account with data being updated directly, via software or, increasingly, pre-populated. These changes are being introduced using a phased approach.
It will be helpful for tax agents to sort clients according to when they will be required to start complying with MTD requirements.
The first group which will be required to report using MTD is VAT registered businesses which have a turnover which is over the VAT threshold. These businesses will be required to file their VAT returns using VAT compliant software, from the first VAT quarter starting on or after 1 April 2019. VAT registered businesses with turnover below the VAT threshold (i.e., those that have registered voluntarily) can continue to file their VAT returns as they do currently, at least until 2020.
The pilot for MTD for VAT is expected to start in April 2018 and is an essential part of ensuring that the software, both the commercial products and HMRC’s systems, work properly and to allow agents, businesses and HMRC to test the associated procedures and support. It is important that the pilot covers the full range of business types, for example VAT groups, those who trade internationally and those that are partially exempt for VAT. All the different VAT reporting arrangements such as annual reporting, the flat rate scheme and margin schemes also need to be included in the pilot. Some companies will be able to use off the shelf software packages but some may need a bespoke solution.
Mandatory MTD reporting for income tax has been delayed but it has not gone away. HMRC still expects MTD for income tax to become mandatory but not before 2020. The pilot for income tax is currently in ‘controlled go live’ – it will be significantly expanded in the near future and we would encourage agents and businesses to join the pilot so that the additional time now available is used to test the systems and processes. Agents in particular will want to avoid the prospect of having to implement the changes for most of their client base all at the same time when MTD for other taxes does become mandatory. There is the option of encouraging clients to adopt electronic record keeping without them necessarily joining the pilot. The lack of a fixed timetable does make it more difficult for agents to plan staffing and fee levels for the future.
When and how MTD will be implemented for corporation tax, particularly for the largest and most complex businesses, is still a matter for discussion and consultation though these businesses will need to be ready for MTD for VAT in 2019.
ICAEW has created a planning tool which has been designed to help agents prepare their clients and their own practice for MTD.
On 29 March 2017, HMRC shared a demonstration of the screens agents will see when they sign up to Making Tax Digital for Business.
The HMRC Agent Services Talking Points webinar outlined the four steps that agents will go through and revealed visuals of the screens agents will see at each stage:
While the screens may be updated before they go live and the commercial software product shown is for illustration purposes only, the visuals and webinar are useful reference point for agents. It is important to note, however, that MTD services are being made available through commercial software only and it will not be possible to access them through the government gateway or the agent portal.
One of the many dilemmas that MTD creates for members in practice is how and when to communicate the requirements to clients. To assist with this communication exercise, ICAEW is making available pro-forma letters and factsheets for firms to adapt, brand and use as they choose.
A short awareness-raising factsheet was published earlier this year and we have now published a factsheet to send to clients who were sent this original factsheet, to update them on the revised timetable.
We have also prepared factsheets which are suitable for clients who have not been sent a communication on MTD.