Bull: is HMRC’s Making Tax Digital pilot fit for purpose?

HMRC plans to start piloting Making Tax Digital from April needs to have the serious reach to really test out the limits of the new VAT reporting system to avoid a botched rollout in April 2019, says George Bull, senior tax partner at RSM

Where there are significant changes to the UK’s tax system, it is always beneficial to pilot such changes before implementation.

One such significant change is the April 2019 introduction of Making Tax Digital (MTD) for all VAT-registered businesses with turnover above £85,000. That is, in case anyone missed it, around the same time the UK will leave the EU.

It is therefore encouraging that HMRC is inviting VAT-registered businesses to volunteer in a pilot to trial and test the MTD process before mandatory implementation. Indeed, many software providers are already working on solutions to interface between a taxpayer’s accounting software and HMRC’s systems.

To assess whether MTD for VAT will be fit for purpose it is imperative that this pilot includes businesses involved with complex VAT issues such as imports and exports, those with taxable, exempt and non-business supplies, with real-estate transactions, VAT groups and businesses who account for VAT under various margin schemes and retail schemes.

Only such an intense pilot across a number of sectors will prove whether MTD for VAT can accommodate the various VAT profiles of over two million users.

Since the software is not ready, the results of the pilot will be incomplete

Until the relevant reporting and data-bridging software to address these complex VAT issues is available to taxpayers from their relevant suppliers, then it is self-evident that such taxpayers will not be able to participate in the pilot. The results of the pilot will therefore be incomplete.

If the Making Tax Digital pilot cannot therefore identify and adequately address the complex issues which a significant number of VAT-registered businesses may face, particularly in a post-Brexit environment, there must be serious concerns whether Making Tax Digital should ‘go live’ in April 2019.

About the author

George Bull is senior tax partner at RSM www.rsmuk.com

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