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Making Tax Digital should not be mandatory, says ICAEW

Anita Moneith, ICAEW Tax Manager, shares her comments on the House of Lords Economic Affairs Committee report issued today (Thursday 22nd November 2018) on Making Tax Digital for VAT.

“The report today recommends that Making Tax Digital (MTD) should not be mandatory when it is introduced in April 2019, but the pace of take up should instead be led by what is best for businesses themselves. Recent research by ICAEW revealed that over 40% of businesses about to be affected by Making Tax Digital (MTD) for VAT are not yet aware of it and that a quarter of all businesses are still using a paper based accounting system – paper based records will not be permissible for MTD for VAT.

“We support HMRC’s ambition to increase the use of digital technology, but we are concerned, as is the committee, that many VAT registered businesses are not going to be ready for implementation in April 2019. Direct communication by HMRC about this major change is only just beginning and with only four months to go, there is not enough time for businesses to act.

“Time is running out. MTD for VAT is a major change in tax administration and, with its start date coinciding with Brexit, it is important for businesses, the economy and the UK tax system that it is a success. This is too important to be rushed.”

From 1 April 2019, MTD for VAT will become compulsory for VAT registered businesses making annual taxable supplies of over £85,000. New rules will make digital record keeping for VAT compulsory as well as introducing a new requirement to file VAT returns directly from software or a digitally enabled spreadsheet. Many businesses currently type the figures for their quarterly VAT return directly into a free form provided on the government’s GOV.UK website. In future all VAT registered businesses within the scope of MTD will have to use software to complete their VAT returns.

*Not all VAT registered businesses will be within the scope of the new rules. Around 40% of all VAT registered business are registered voluntarily, their turnover being below the VAT threshold. These business are not currently within the scope of MTD.

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