Chancellor Hammond made two key announcements regarding MTD; the exemption threshold will be fixed at turnover of £10,000, and businesses with trading income under the VAT threshold won’t have to commence MTD reporting until 2019. All other MTD proposals remain as stated in the Government response to the consultations on 31 January 2017.
The reference to “businesses” includes landlords, and “turnover” includes gross rental income. Businesses will be required to start sending regular “updates” (as HMRC calls them) at least quarterly from the first accounting period that starts on or after:
- 6 April 2018 – for unincorporated businesses with turnover exceeding the VAT threshold (£85,000 from 1 April 17), excluding very large partnerships.
- 6 April 2019 – for unincorporated businesses with turnover exceeding £10,000 but less than the VAT threshold.
- 1 April 2019 – for all VAT registered businesses, for VAT-related reports.
- 1 April 2020 – for all companies to report income and expenses subject to corporation tax, and partnerships with turnover of £10 million or more.
Taxpayers who qualify for free software will now be in the second wave of MTD joiners, who start reporting for accounting periods starting on and after 6 April 2019. This will provide the software suppliers with an extra year to work on their free offering. It will also give landlords, who may not currently use accounting software, more time to find a software package suitable for their needs.
The first wave of MTD joiners includes businesses with turnover above the VAT threshold, but who aren’t required to be VAT registered, so don’t have the discipline of preparing quarterly VAT returns. This covers businesses whose turnover is fully exempt from VAT, such as landlords of residential property, and medical doctors.
It is worth noting that the commencement of MTD reporting depends on the accounting period. A business with turnover exceeding the VAT threshold, and a year end of 31 March, will commence MTD reporting from the accounting period that starts on 1 April 2019.
The interaction of VAT returns and MTD reporting from April 2019 is still a mystery. We will keep you up to date with developments as they are announced.
Written by the Tax Advice Network