Expanding Making Tax Digital (MTD) to all VAT registered businesses

by | Jul 22, 2020

Just a fortnight after a summer statement, which the Chancellor Rishi Sunak insisted wasn’t a ‘mini-Budget’, the Government has slipped out a raft of policy statements on the eve of parliamentary recess – including big news about Making Tax Digital.

The new measures were bundled up in the draft legislation supporting the Finance Bill 2020-21 published on 21 July 2020.

After a Budget in March, non-stop fiscal announcements throughout March and April, and another statement earlier this month, it has been a turbulent time.

This most recent release would seem to be in the run up to the Autumn Budget which is widely expected to be a whopper and potentially packed with tax reforms.

The consultations announced this week signal areas in which the Government is considering making changes, such as pensions tax and research and development (R&D) tax credits.

Here is a summary of the announcements: 

Making Tax Digital

The Treasury announced that it plans to expand the Making Tax Digital (MTD) reporting regime to all VAT-registered businesses from April 2022. Since April 2019 VAT registered traders with annual taxable turnover above £85k have been submitting VAT returns through MTD.  From 2023, the Treasury expects MTD to cover all unincorporated businesses and landlords turning over more than £10,000.

This new urgency has been driven by the difficulty of implementing support measures for business without comprehensive data.

The Government declared its intention to consult in the autumn on a further extension of MTD to cover incorporated businesses which are liable to pay Corporation Tax.

Tax reforms up for debate Consultations are the Government’s mechanism for testing policy with the public and stakeholders. They are often announced as part of formal fiscal statements, to feed into full budget events six or so months later.

There were no consultations announced on 8 July, but today’s announcements more than make up the shortfall.

Business Rates

There was a call for evidence to inform a review of the business rates system, with the intention of reducing the burden on business. This has long been on the cards but any subsequent policy changes now need to reflect the impact of COVID-19. With that in mind, the Government has announced that the next revaluation of business rates will apply from 2023, and will be based on property values recorded at 1 April 2021, during lockdown.

R&D

A consultation into what costs companies can include in R&D tax credit claims was announced in the Spring Budget 2020 and formally launches today, with a deadline of 13 October for responses.

In particular, it will consider whether R&D tax credits ought to apply to investments in data technology and cloud computing.

Pension Tax Relief Reform

The Government is calling for views on pensions tax relief reform, with a focus on low-earners and how their take-home pay might be affected by the way pensions tax relief is implemented by their pension scheme operator.

Other

Other subjects on which consultations were announced include the economic crime levy, the design of a carbon emissions tax and a national insurance contributions holiday for employers of those who have served in the armed forces.

Stamp Duty Land Tax Surcharge – non-UK residents

There were also some major consultation outcomes reported, most notably the results of a consultation on a stamp duty land tax surcharge for non-UK residents. The consultation report includes news that a non-UK resident surcharge will apply from 1 April 2021, supported by legislation in the finance bill for 2020-21.

This is intended to tackle pressure on the supply of properties in the UK housing market from overseas investors.

Comprehensive spending review

The Chancellor also took the opportunity to announce a review of spending across government departments adding “The Comprehensive Spending Review is our opportunity to deliver on the third phase of our recovery plan – where we will honour the commitments made in the March Budget to rebuild, level up and invest in people and places spreading opportunities more evenly across the nation.”

Alongside the expected statements of a desire to invest, innovate, innovate and boost the economy came a clear message that the various ministries will be expected to prioritise, find efficiencies and make savings.

What does this mean for you?

This renewed push to make digital record-keeping and reporting universal only underlines the importance of getting set up with MTD-compatible cloud accounting software as soon as possible.

As a clearer picture of what might be in Autumn Budget 2020 starts to emerge, now is the perfect opportunity to hold tax planning conversations in preparation of 2021/22 – it’s never too soon.

If you wish to speak to a member of our team regarding any of the points in this short summary, please contact us on 020 7330 0000.

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