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.
13 June 2018
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 that will be required to report using MTD is VAT registered businesses that 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 started, on a small scale and by invitation only, 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. The very limited pilot is expected to be extended into public beta in summer 2018 at which point HMRC will publish a list of available software. 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 moved to public beta in March 2018. Businesses can sign up to MTD for income tax on gov.uk: Use software to send income tax updates. Agents can sign up on Agents: use software to send income tax updates.
If they have not already done so, the first step for agents is to sign up for an agent services account. Guidance on how to sign up is now available on gov.uk: Get an HMRC agent services account and on the ICAEW agent services account page.
Taxpayers are eligible to participate in the public beta pilot if:
Further groups of taxpayers will be brought in as new functionality is added. HMRC’s guidance states that if a taxpayer has income from other sources this will probably need to be reported on a self assessment return. The Tax Faculty understands that HMRC expects to release APIs (Application Program Interfaces) so that software companies can develop the functionality to allow all types of income to be reported using MTD for income tax software, but we do not yet know when this is likely to happen.
A list of MTD for income tax compatible software products is available on gov.uk. The list currently includes only four software suppliers: Absolute, Forbes, IRIS and Rhino. We understand that approximately 20 providers are working with HMRC on the MTD for income tax pilot and more products should be added to the list as the pilot progresses. However, some providers may wait until the full suite of APIs has been released by HMRC and others may wait until MTD for income tax becomes mandatory. If a business or agent is already using software they should check with their supplier when they expect to provide MTD compatible products.
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 checklist that has been designed to help agents prepare their clients and their own practice for MTD.
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 last 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.
As HMRC rolls out new digital services to agents, including MTD for business services, access will be via a new Agent Services Account. See our separate page on the Agent Services Account for detailed information.