Making Tax Digital (“MTD”) takes effect from 1 April 2019 and Brexit is coming. Whilst many VAT and other tax and customs changes as a result of Brexit remain unknown at the time of writing, what you can be certain of is that Brexit and MTD for VAT could cause a collision of change for many businesses this month. But what do we know about these important changes? Read on.

MTD for VAT comes into effect on 1 April 2019 and applies to any VAT-registered business with a turnover exceeding the current VAT registration threshold of £85,000 and which has not received confirmation from HMRC that MTD for VAT is deferred to 1 October 2019. MTD applies to the first VAT return period commencing on or after commencement.

At the heart of the regulations are two core requirements:-

• Digital record keeping – businesses will be required to keep and preserve digital records; and
• Electronic filing of VAT returns – to submit a VAT return, businesses must use information stored in their digital records combined with “functional compatible software” to submit VAT returns directly to (and receive responses from) HMRC.

HMRC have recently announced more details of the soft landing for MTD for VAT. During the “soft landing” period only (i.e. the first year from either 1 April 2019 or 1 October 2019), where a digital link has not been established between software programs, HMRC will accept the use of cut and paste as being a digital link for these VAT periods. Cut and paste will not be acceptable after this period has elapsed. VAT Notice 700/22: Making Tax Digital for VAT sets out this and the “soft landing” in more detail.

At the Spring Statement it was also confirmed that MTD will not be made mandatory for any other taxes or businesses in 2020. The government also confirmed that there will be a “light touch” approach to penalties in the first year of implementation of MTD. Where businesses are “doing their best to comply, no filing or record keeping penalties will be issued”. This soft landing does not apply to late payment penalties (default surcharge) which are unchanged. HMRC are also warning that signing up for MTD for VAT takes at least seven days.

HMRC increased external communications in advance of the introduction of MTD for VAT. Communications activity was aimed at focusing “the minds of businesses and agents on preparation for MTD”.

HMRC has also confirmed that businesses will be able use a ‘cut and paste’ approach during the one-year soft landing for MTD for VAT before digital links must be used. VAT Notice 700/22: Making Tax Digital for VAT sets out the soft landing in more detail.

In February 2019, HMRC opened up the MTD for VAT pilot to all businesses other than those based overseas. With the exception of overseas businesses, all those that are mandated to comply with MTD from either April or October 2019 can now join the pilot.

HMRC have also recently published the following documents relevant to MTD:-

• Updated Making Tax Digital for Business – stakeholder communications pack
• Two new guides for agents:- Making Tax Digital for VAT as an agent: step by step and Check when a business must follow the rules for Making Tax Digital for VAT
• An updated policy paper
• A new Business Step by Step Guide

VAT Notice 700/22 has also been updated to cover exemptions from MTD for VAT and includes an outline of the process for application. The relevant part of the Notice is Section 3. The notice also includes some examples of businesses that, according to HMRC, are exempt.

Changes have also been made to HMRC’s pages on GOV.UK that provide information on MTD-compatible software.

Firstly, to ensure taxpayers have access to information relating to the correct MTD service for them, the original page has been separated into two separate pages covering VAT and Income Tax respectively.

Secondly, HMRC have launched the first iteration of the VAT software choices viewer with a filter function, allowing the user to filter products according to criteria such as:

• Whether the product is for a business and/or agent;
• What features the products has (such view VAT returns, check what VAT you owe);
• Whether it’s bridging software or full digital record keeping.

In the area of Brexit, HMRC have published revised guidance, which will apply in the event of a no-deal Brexit, for the future treatment of payments between associated companies in the UK and other Member States. These are currently exempt from deduction of tax under the EU Interest and Royalties Directive. The revised guidance appears to confirm that, at least initially, domestic legislation will continue to apply for payments from UK companies to EU associates for interest and royalties.

In the event of a no deal Brexit, the UK will introduce a postponed method of accounting for import VAT on goods that are imported into the UK from the EU and outside of the EU thereby alleviating a cash flow headache for many traders.

The BEIS has also published a leaflet for SMEs, outlining changes that may affect the business when the UK leaves the EU, with advice on actions to take and sources of support.

Details of the governments approach to avoiding a hard border between Northern Ireland and Ireland if the UK leaves the EU without a deal on 12 April have also been published.