Making Tax Digital – eight months to go

With 12 months to go to the introduction of Making Tax Digital, Deloitte advises on how housing associations should prepare.

6 July 2018

With the introduction of the Making Tax Digital requirements for VAT less than eight months away, now is the time to ensure your organisation will be compliant with the new rules. This article is an update to our spring 2018 article

What is Making Tax Digital?

Making Tax Digital is part of a Government initiative to transform HMRC into a more digital tax authority and is an effort to modernise the tax system. 

By digitalising the process of submitting VAT returns, HMRC aims to close the tax gap by reducing avoidable errors.

In summary, Making Tax Digital requires that from 1 April 2019, all VAT-registered taxpayers will be required to: 

  • keep ‘digital records’;
  • create ‘digital links’ between the different software/systems used 
  • digitally submit the VAT return to HMRC via an Application Programming Interface (API) through Making Tax Digital functional software.  

To date, HMRC has released its draft Regulations, draft Public Notice, and addendum to this notice

The addendum to the VAT notice sets out a number of ‘VAT customer journeys’, with diagrams illustrating how systems may interact, and the point at which links are expected to be digital. 

Further guidance has yet to be released by HMRC, but we are expecting this in the next few weeks. 

What you should be doing 

It is important to note that, while many organisations have so far assumed that this may be an issue for their software providers to address, there is a requirement for all VAT-registered businesses to review their end-to-end VAT compliance processes and ensure compliance with the upcoming changes.

Some of the key areas of concern for many housing associations will include:

  • Deciding on the approach to ‘digitally submitting’ VAT return information to HMRC, although in practice it is expected that this may be one of the more straightforward issues (to date, none of the software providers have released an API yet).
  • The complexities arising from using multiple systems in order to accurately compile the VAT return, identifying whether these systems provide compliant ‘digital records’ for the purposes of Making Tax Digital.
  • Complicated VAT return methodologies, which currently incorporate a number of different spreadsheets as well as manual adjustments, and whether this complies with the ‘digital link’ requirements.
  • The interaction between partial exemption calculations and your VAT account, and other digital records. 

What the Federation is doing 

Together with Deloitte, the Federation has scheduled a number of meetings for members with HMRC and we continue to work closely with HMRC to ensure your concerns are addressed. 

We will update you following the release of HMRC’s Making Tax Digital guidance. 

Please let Will Jeffwitz (will.jeffwitz@housing.org.uk) or your usual Deloitte contact know if you would like to discuss the requirements in the context of your organisation.