HMRC delays launch of Making Tax Digital for charitable trusts

17 Oct 2018 News

HMRC building

Fergus Burnett

Charitable trusts have been given an extra six months to comply with the government’s digital tax requirements, HM Revenue and Customs has announced.

The government’s Making Tax Digital (MTD) scheme for VAT returns is currently being piloted and will be mandatory for most organisations with a turnover of more than £85,000 from April next year.

However, HMRC announced yesterday a new implementation schedule which means that trusts and other unincorporated not-for-profit organisations will have their mandatory compliance date deferred to 1 October 2019.

These deferred organisations, including other organisations with “complex arrangements”, will be able to sign up to a pilot MTD scheme in spring 2019.

Charitable companies, however, will still have to comply by April 2019.

Data provided by David Kane, a freelance data consultant for charities, suggests that just under 21,000 of roughly 38,000 VAT-registered charities in England and Wales are incorporated. Umbrella bodies called for the exemption to be extended to all charities. 

‘Vast majority of charities not ready’

Charity support groups called on HMRC to allow charitable companies to comply later as well.

Caron Bradshaw, chief executive of Charity Finance Group, said: “We welcome HMRC's decision to postpone Making Tax Digital for trusts and non-profits that are not set up as a company.

“However, it has become increasingly clear that the vast majority of charities are not ready for the coming changes, so we would want them to go further, and defer Making Tax Digital for all charities until October 2019.

“This would help ensure all parts of the sector are fully prepared and ready to satisfy the requirements.”

John Hemming, chair of the Charity Tax Group, said: "We do not see the logic in not also including charitable companies in this deferral as it is illogical to suggest that their tax arrangements are any less complicated than a charitable trust.

"Both have to deal with partial exemption and business/non-business VAT considerations which make charities among the most complex VAT structures. We argue that the mandation date for all charities should be deferred."

No change to soft landing period

HMRC has previously announced a “soft landing period” for the first year of compliance with MTD.

This means organisations will only need to fill in nine boxes of information from April 2019 in a spreadsheet, which is then automatically linked to HMRC using application programming interface (API) bridging software.

However, from 2020, the data in the nine boxes cannot be entered manually and must be digitally linked from elsewhere. This is likely to require more complex software.

An HMRC spokesperson said the soft landing period would still run until April 2020 despite the deferred compliance date for some organisations.

They said: "We recognise that businesses will require time to become familiar with the new requirements of MTD.

"So during the first year of mandation, we will not pursue filing or record keeping penalties where businesses are doing their best to comply with the law."

Hemming urged HMRC to extend the soft landing period for those organisations with an October start date.

He said: “In practice, feedback that we have received to date suggests that compliance with full digital link MTD requirements, by April 2020, is going to be trickier than the soft landing when just an API connection is required.

"For this reason it is very disappointing that HMRC has not agreed to extend the soft landing period by six months for the deferred organisations.

"This will leave them with a shorter amount of time than other organisations to make sure that their software solutions and digital link arrangements work.

"Extending the soft landing period for deferred organisations would be a simple and pragmatic step by HMRC.”

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