Although MTD becomes mandatory from 1 April 2019, the date a business should sign up is not straightforward.
For businesses within its scope, Making Tax Digital (MTD) for VAT is mandatory for VAT return periods that commence on or after 1 April 2019 (or 1 October 2019 for deferred businesses – more on this below). MTD will not happen automatically and each business has to sign up for it. However, the date which a business chooses to sign up is critical and should almost certainly not be 1 April. If the wrong date is chosen, particularly if the sign up process is completed too early, a business may find it impossible to submit all its VAT returns on time. This article looks at the points a business should consider in order to make a decision on WHEN to sign up. Next week we will cover HOW to sign up for MTD.
Is the business deferred?
Certain more complex businesses have been given a six month deferral and HMRC have provided details of these businesses in their stakeholder communications pack (the most common categories are VAT groups and VAT divisions). HMRC have written to all businesses they think are deferred based upon the information they hold. However, it has become apparent that this information is not always accurate and some businesses have received letters in error (which HMRC have said they will honour) and other qualifying businesses have not received one. Because the letters provide the legal dispensation for a business not to comply from 1 April it is critical that any business wishing to defer until 1 October has received a letter. HMRC have advised any business that thinks it qualifies but has not yet received a deferral letter to contact the VAT helpline (making it clear the query relates to MTD).
Another important point to be aware of is that the deferral may not apply to an entire corporate group if it has separate VAT registrations. A common scenario arises in groups with some companies in a group VAT registration (which qualify for deferral) and others with single registrations (which do not qualify) where two different start dates could potentially apply.
The rest of this article assumes a business is not deferred, is not intending to join the MTD pilot and therefore has a 1 April 2019 start date. The same principles are likely to apply for deferred businesses but changes may have been made by October so this is not yet certain.
What should be completed BEFORE signing up for MTD?
The most important initial step is to ensure the business is using MTD compatible software – more details can be found on the HMRC website (including details of KPMG in the UK’s Tax Bridge and PX Cube technology amongst others). It is essential not to sign up for MTD before the right software is in use as this could prevent further submissions of VAT returns.
The other requirement is to wait until the final non-MTD VAT return has been submitted successfully. This is very important because the process of signing up for MTD effectively closes the old HMRC portal so that no further VAT returns can be submitted that way. Signing up too early has apparently been a common mistake made by businesses in the MTD pilot and is difficult for HMRC to resolve.
Once the two steps above have been completed the decision on what date to sign up for MTD depends upon whether a business pays VAT by direct debit or not.
When to sign up if not paying by direct debit
The position is fairly straightforward for businesses that do not have a direct debit set up for payment of VAT. Sign up can take place at any time from immediately after the submission of the final non-MTD return until 72 hours before the first MTD submission due date. So, for a ‘Stagger 1’ taxpayer (return periods Jan-Mar, Apr-Jun etc.) the due date for the final non-MTD return will be 7 May 2019 and the due date for the first MTD return will be 7 August 2019 so MTD sign up can take place anytime from 8 May to 4 August 2019.
For businesses that submit monthly returns the sign up window is correspondingly shorter – between 8 May and 4 June 2019.
When to sign up if paying by direct debit*
There are more restrictions for businesses that pay their VAT by direct debit. Sign up cannot take place in the five working days immediately following submission of the final non-MTD return or in the 15 working days immediately before the due date for the first MTD return. So, for the same ‘Stagger 1’ taxpayer, MTD sign up can take place anytime from 15 May to 17 July 2019.
For businesses that submit monthly returns and pay by direct debit the sign up window is extremely short – these businesses can only sign up on 15 or 16 May 2019. This is based upon HMRC’s current advice but they are aware of the problem so it is possible this could change.
In next week’s Tax Matters Digest, we will look at how to sign up to MTD.
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