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U.K. Moving Toward Digital Taxation

Britain wants to abolish tax returns. Back in 2015, the government announced it would spend more than £1 billion to transform Her Majesty’s Revenue and Customs (HMRC) into one of the most digitally advanced tax administrations in the world. A central part of this effort is the Making Tax Digital (MTD) initiative which, in the words of a July 2017 policy update, is intended to “make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.”

HMRC took a huge step in that direction in February, when MTD requirements relating to VAT regulations were passed into law. The new regulations will require businesses above the VAT registration threshold to keep certain records digitally by using “functional compatible software” – systems that can transmit data to HMRC via an application programming interface (API). Businesses will be required to submit VAT returns directly through an API, which “can be from software, bridging software or API-enabled spreadsheets,” according to draft guidance issued in January.

While the new regulations apply to return periods starting on or after April 1, 2019, HRMC will not enforce digital transfers for return periods commencing between that date and March 31, 2020 – the “soft landing period.”

An article published in May by the London-based Chartered Institute of Taxation, Making Tax Digital for VAT: Main Issues for Consideration, points out that compliance will be complicated by Britain’s exit from the EU: “Uncertainty around the VAT treatment of transactions between the UK and EU will inevitably arise, and businesses will need to both understand the tax-technical changes to the rules and ensure that their accounting systems deal with such transactions correctly.”

Another potential speedbump on Britain’s road to leadership in digital taxation: Trials of the software needed to handle digital submissions “are currently in a very early stage and on a very small scale,” according to the Chartered Institute.

The U.K.’s move to digital taxation is one we’ll be following closely. Check back for more updates as new details unfold.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.


About this Contributor

Danny Vermeiren Headshot
Danny Vermeiren
Director of VAT

Danny Vermeiren is the former Director of VAT in the Chief Tax Office, where he was responsible for external positioning, VAT strategy and helping clients develop solutions to meet their needs. Danny has 20+ years of experience in VAT, both in consulting and in-house as a global director of indirect taxes for a large diversified manufacturing company. Danny is a certified lawyer with a postgraduate degree in tax law.

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