44 | AUGUST 2019
Business
Read online at www.proinstaller.co.uk
INITIAL REACTION TO MTD
AND WHAT’S COMING NEXT
There’s been a fair amount of talk about MTD but recently it’s all gone quiet. Benjamin Dyer
of Powered Now reviews what’s happened so far and looks at what is coming next.
What is MTD
MTD (Making Tax Digital) is the
computer based program aimed
at dragging both us and HMRC
into the 21st Century. The main
reason for MTD is so that HMRC
can collect more tax, closing the
so-called “tax gap”. There have
been similar successful programs
in a number of other countries.
The first stage of MTD hits those
that are VAT registered.
Under the complete program,
everything to do with tax will end
up becoming digital. At the end,
detailed records of all expenses
and income must be kept on
computer along with all other
business financial records. But the
plans are way behind.
While we should now be in the
middle of a big MTD program, it
has been temporarily cut back to
only cover VAT and even within
that things are limited. Prepare
yourself though, as even if you
don’t charge VAT you will be
caught by MTD in the next wave.
The next phase means that every
business with sales over £10k
will become subject to MTD and
report their quarter’s profit and
loss by computer. However, it will
only be by a requirement by 2021
at the earliest.
The deadline for MTD for VAT
has come and gone and it would
be easy to wonder what all the
fuss was about. After all, after an
initial flurry of news, things have
largely died down. What wasn’t
always clear is that the first man-
datory submission for MTD is 7th
August 2019. It is VAT periods
starting on or after 1st April 2019
that must have their returns made
through MTD.
That means that everyone on
quarterly reporting, apart from
some very, very narrow excep-
tions, will have to make their
first submissions on 7th August,
7th September or 7th October.
It’s not unreasonable to think
that people still have no idea
what is going to hit them as the
number of businesses still to
adopt MTD for VAT is vast.
My company, Powered Now,
was recognised by HMRC as
MTD compliant fairly late, so it’s
fair to say that only having a few
initial firms to guide through
the complexities has worked
well for us. It has meant that we
have been able to smooth all the
bumps out and get our staff all
up to speed before the tsunami
hits us.
Overall, MTD has got off the
ground very slowly. Tens of thou-
sands of businesses had joined
MTD by 1st April, but that still
left more than a million busi-
nesses to go. There are still huge
numbers of companies that need
to get onto MTD.
If everyone waits until the last
moment, there will be 330,000
or so businesses doing their
first MTD for VAT return each
month in August, September and
October.
That means that if people
indeed wait to the last minute,
there will be pandemonium. If
you are still to move to MTD, I
would strongly recommend that
you get everything sorted out
ahead of the rush. That’s even
though the late summer mess
looks like it will be so bad that
it is likely that no one will be
blamed for late submissions.
The solutions
There is a really big array
of over 300 software solutions
available for MTD, including the
one from my company, Powered
Now.
If you are still to make the
change, the one big choice to
make is to either use “bridging
software” or implement a full soft-
ware solution. Bridging software
simply copies data into the MTD
portal with minimal change to
the way that you work now. That
sounds attractive, but our advice
is to implement a permanent
solution. It means that you won’t
need to change things again
when the exemption allowing
bridging software is withdrawn.
You will also avoid an even
bigger shock when other phases
of MTD come in and which don’t
allow “bridging”.
The next bombshell
I’ve already touched on the
fact that the next MTD deadline
will not be until 2021. However,
and almost unbelievably, before
MTD has been adopted by the
mainstream, there is another
important VAT change coming
which will impact VAT regis-
tered installers who subcontract
to other companies. This is the
confusingly named “domestic
reverse charge”. Fortunately, if
all of your work is domestic,
you will dodge this particular
bullet.
So, first the good news. If
you are not currently subject to
CIS as a contractor or subbie
then you are most probably not
impacted. Please skip to the “In
conclusion” section below.
If you are both VAT regis-
tered and deal with CIS, the bad
news is that you will be caught
from 1st October. If you have a
VAT return due on 7th October
you will have the deep joy of
combining this new change
with your first MTD VAT return
6 days later! You couldn’t invent
this stuff.
The “domestic reverse charge”
is designed to eliminate VAT
fraud. It means that when a
purchase is made between trade
companies that would be subject
to CIS, instead of the subbie re-
ceiving the VAT and making the
payment to HMRC, the contrac-
tor (purchaser) does.
HMRC Guidance
On 7th June, HMRC published
their advanced guidance on this
subject.
The big picture is that the
domestic reverse charge (DRC)
changes the way that VAT is col-
lected for many transactions in the
building and construction industry.
It’s called the domestic reverse
charge because there is already