At the March 2015 Budget HMRC committed to transforming the tax system, delivering a system that is more effective, more efficient and easier for taxpayers.
By 2019 HMRC seeks to create the most digitally advanced tax system in the world.
HMRC estimates the amount of tax not collected due to avoidable taxpayer errors and carelessness has risen to over £8bn a year. HMRC wants to help businesses get their tax right first time and to prevent them from feeling punished for making honest mistakes. That means reducing the likelihood of errors, lowering the chance of unwelcome compliance checks and giving businesses greater certainty that they are getting things right.
The four principles of MTD are:
- Better use of information
- Tax in real time
- A single financial account
- Interacting digitally with customers
There is widespread agreement that Making Tax Digital for business is the right approach for the future. However, a number of concerns about the pace and scale of change have been raised. As a result, the government has announced that the roll out for MTD has been amended to ensure businesses have plenty of time to adapt to the changes.
Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations. Businesses above the VAT threshold will have a 12-month soft-landing period until April 2020.
The implications of Making Tax Digital are focussed around ‘good digital tax housekeeping’. It will be important to have record keeping software which captures all transactions – many businesses already use finance software which enables them to be as near to real time as possible.
What does this mean for the NHS? It’s important for NHS organisations’ teams to make sure they are preparing ahead of next April to avoid any tax penalties – MTD is not going to go away, it is now legislation under Schedule 11. Don’t forget also that March 2019 will be the last return under the current method via the HMRC portal. With the additional impact of Brexit at the end of March 2019, many public sector organisations will want to be MTD ready well in advance.
Essentially, NHS finance teams can be assured that VAT returns will be submitted with the same frequency, either monthly or quarterly, and will still contain the standard nine box forms.
However, the biggest change is that VAT returns will no longer be submitted through the HMRC portal and API (application programming interface) enabled products will be essential to submit the return – all related software must be digitally linked and finally, all financial information needs to be stored digitally.
The benefits for NHS finance teams mean that there’s only a need to provide information to HMRC once and that there will be complete transparency of information held by HMRC. This will give finance teams a clear view of real time situation on-line, and reduce delays when releasing amounts due to organisations and there will be clearer benefits in off-setting one tax against another in the long-term.
In April 2018 Liaison Financial’s Tax team launched a series of ‘Making Tax Digital’ webinars and some 120 NHS customers have attended the online events so far.
Common NHS client concerns have been around getting API ready for MTD. If NHS teams are using larger financial service systems and it’s up to date then they will be able to support this with an API but it’s crucial that they apply the right API patch. Working with your tech support you can also get MTD ready by:
- Reviewing current systems to map the VAT audit trail and identify areas where linkage will be required
- Considering participation in HMRC’s trial or review any demo version of the software that HMRC makes available on its website
As it is likely that HMRC will, over time, increase the depth of accounting information that it requires to be provided electronically, businesses should consider a deeper review of the quality of information available in their systems to future proof them as far as possible.
Other potential issues could be around partial exemption and contracted out services.
Our tax team has been working with several NHS customers and their technology support to pilot API enabled software and digital tools to ensure that they have as smooth an MTD transition as possible.
Kenny Lee – Head of Tax Services, Liaison Financial