Making Tax Digital – Update

Mel Stride – HM Treasury

The Finance Bill introduced in March 2017 provided for a number of changes to tax legislation that were withdrawn from the Bill after the calling of the general election. The then-Financial Secretary to the Treasury confirmed at the point they were withdrawn that there was no policy change and that these provisions would be legislated for at the first opportunity in the new Parliament.

The Government confirms that intention. It expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions. Where policies have been announced as applying from the start of the 2017-18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained. Those affected by the provisions should continue to assume that they will apply as originally announced.

The Finance Bill to be introduced will legislate for policies that have already been announced. In the case of some provisions that will apply from a time before the Bill is introduced, technical adjustments and additions to the versions contained in the March Bill will be made on introduction to ensure that they function as intended. To maximise certainty about the exact provisions that will apply, the Government is today publishing updated draft provisions.

The Finance Bill will include legislation for the Making Tax Digital (MTD) programme. Having listened carefully to the concerns raised by the Treasury Select Committee, parliamentarians and stakeholders, the government is announcing policy changes that will be reflected in the legislation to be introduced. Businesses will not be mandated to use the MTD system until April 2019 and then only to meet VAT obligations. This will apply to businesses with turnover above the VAT threshold. Businesses with turnover below the VAT threshold will not be required to use the system but can choose to do so. Businesses will also be able opt in for other taxes, benefitting from a streamlined, digital experience.

The Government will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.

The new MTDfB timetable


Businesses agree that digitising the tax system is the right direction of travel but they have expressed concern about the scope and pace of reforms. The government has listened and is making the following changes to bring the tax system into the digital age in a way that is right for all businesses.

•            Only businesses with a turnover above the VAT threshold (currently £85,000) will need to keep digital records and only for VAT purposes

•            They will only need to do so from April 2019

•            Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least April 2020.

This means that the pace at which businesses and landlords with a turnover below the VAT threshold will be slowed, allowing these smaller businesses to adapt over a longer period of time.

VAT has been online since 2010 and over 98% of VAT registered businesses already file electronic returns.  MTDfB will build on this by integrating digital record-keeping to provide a single, seamless process, with the quarterly updates generated and sent direct from the software the business/agent uses to keep their records.

We expect many of these businesses, and the agents who represent them, to take the opportunity to provide quarterly updates for other taxes, but there will be no requirement to do so. Similarly, businesses that are not VAT registered and those below the VAT threshold who have voluntarily registered for VAT can opt to join MTDfB. We remain confident that many businesses and agents will choose to use MTD voluntarily and benefit from a streamlined digital experience where they can integrate tax into their day-to-day business record-keeping in a way that gives them confidence that they have got their tax right.

Live testing   

The first businesses have already started keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the MTDfB service for income tax and NICs.  We will continue to develop and expand this pilot over the coming months before starting to pilot MTDfB for VAT by the end of this year.  We have also started testing Agent Services with a small number of agents, allowing them to subscribe for MTDfB and send quarterly updates on their clients’ behalf.  We will start the VAT pilot with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system. We will consult on draft VAT regulations in early 2018.


Working with stakeholders

By slowing the pace of MTDfB for smaller businesses and only making it mandatory for those businesses who already interact with HMRC regularly and digitally, we believe we have balanced the opportunities of a modern digital tax system against the concerns from businesses


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21 July 2017

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