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The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

TFN is published by the Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh, EH3 6BB. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation. Registration number SC003558.

Shape the future of digital tax system

This opinion piece is over 6 years old

Jim Burberry, from financial consultants RSM, looks at how plans to create a digital tax system will affect charities

Where there are significant changes to the UK’s tax system, it is always beneficial to pilot such changes before implementation. It is therefore encouraging that HMRC has recently invited VAT registered organisations to consider volunteering to join in a pilot starting in April 2018 to trial and test the Making Tax Digital (MTD) process before mandatory implementation on 1 April 2019.

The introduction of MTD will be phased and initially this will only apply to VAT, but will cover other taxes in due course. For VAT returns commencing on or after 1st April 2019, VAT registered organisations that have turnover in excess of the registration threshold (currently £85,000) will be required to submit their returns digitally and to retain certain records in a digital format.

The proposed changes will have a significant impact on taxpayers including VAT registered charities and their subsidiaries in how they prepare and submit return data. These changes constitute an important element in the UK Government’s plans to transform the tax system.

Jim Burberry
Jim Burberry

It appears that VAT registered organisations will be required to keep certain mandatory records in a digital form within ‘functional compatible software’ which must be able to interface with HMRC’s systems after 1 April 2019. Returns will be filed electronically via the interface (no more manual keying of return data into HMRC’s portal) and the interface must be able to send and receive information to/from HMRC. Charities that use multiple accounting software packages will have to ensure that these are digitally linked for them to be MTD compliant.

This marks a significant change for many registered charities and their subsidiaries, and it seems likely that as MTD beds in the submission of data which is currently referred to as supplementary data may over time become mandatory; and HMRC will continue to add to the information which must be submitted digitally.

To assess whether MTD for VAT will be fit for purpose it is imperative that this pilot includes charitable organisations and their subsidiaries with complex issues such as business/non-business calculations and partial exemption calculations. It is therefore crucial that charities engage with the pilot to help shape the final system if they can.

For those organisations that currently use accounting software packages, they should confirm with their software providers that they are in the process of developing an API application that will ensure they are able to meet the MTD requirements from April 2019.

In some cases, the relevant reporting/data-bridging software to address these complex VAT issues is not available from their relevant suppliers, so some charities may not be able to participate in the pilot. This software issue could result in an incomplete pilot.

If the MTD pilot cannot therefore identify and adequately address the complex issues which a significant number of VAT registered organisations may face, particularly in a post-Brexit environment, there must be serious concerns whether MTD should go live next year.