Making Tax Digital (MTD) will become compulsory for many businesses from April 2019. A large number of businesses seem to be trying to pretend it won’t happen so maybe looking at how other countries have introduced similar legislation might focus the mind. HMRC did not invent the idea of MTD. They have looked at how digital reporting is done in other countries and have adapted it – possibly as a gentle introduction so they can eventually tighten their controls and collect more tax, not just VAT.
Mexico started their digital reporting regime in 2010. Under their system all larger companies are required to submit invoices they issue for more than about £125 to a central, electronic, repository, allowing the tax authorities to check and track these. In six years the Mexican tax office reported that 5,358 fines had been issued and 565 establishments closed down.
In 2017 the system was extended to allow the authorities to track payment receipts.
In 2014 the Czech Republic introduced online filing of VAT (sound familiar?).
This was extended to other business taxes in 2014. In 2015 all cafes, restaurants and hotels were required to use electronic tills which track receipts and submits VAT information automatically to the tax authority. Is something like this a part of HMRC’s future plans?
A large part of the Chinese tax system was converted to digital in 2016. Tax invoices issued by most service-based industries are actually issued by the Chinese Tax Bureau on behalf of the Seller. The Seller submits the information, is issued with an e-invoice which is then given to the buyer.
China is also developing a blockchain based transaction database. Blockchain adds an extra dimension and layer of security to the system and makes it very difficult to hide transactions. Hopefully, adoption of this technology is a long way away.
Introduced in 2016, Poland requires larger businesses to submit invoices including VAT in an Extensible Markup Language (XML) to the authorities at the same time as a VAT Return is submitted. This was extended to medium sized companies in July 2018.
In a very short time, the Polish authorities have identified 85,000 invoices which required further investigation.
It is worth noting that in the UK, company accounts and tax returns must be submitted using something similar to XML so it wouldn’t be too big a step to extend this to actual invoices.
The land of samba introduced mandatory electronic invoicing in 2017 which is obligatory for nearly all businesses in Brazil. Essentially, whenever a taxable act takes place between enterprises, a document must be produced which is sent and stored electronically and submitted in real time to the tax authorities.
From July 2017 all large sized VAT registered businesses to report invoices issued within four days using an XML file (again)
This is pretty new. From 1st January 2019, electronic invoicing is mandatory for all transactions performed between businesses resident or established in Italy. Invoices have to be in XML (again) and be digitally signed. The invoices issued are uploaded to the Italian Revenue Agency. Invoices not submitted through the system can incur penalties of up to 180% of the VAT due. Small enterprises can apply to join a special scheme instead.
The question for UK based businesses is how far and how quickly will HMRC go in implementing some of these ideas. The VAT threshold at which businesses must register for VAT has been frozen, meaning that more businesses will become VAT registered. There is pressure to reduce the VAT registration threshold (and we currently have one of the highest thresholds in the world) which will mean even more businesses would need to be VAT registered.
One message is loud and clear – DO NOT IGNORE MTD (Making Tax Digital). Also, start thinking about the possible future. We want businesses to succeed and are pleased to help. Contact us and look at our pages on online software such as Quickbooks Online, Sage Business Cloud and KashFlow, all of which promise to be able to comply with new regulations as they are introduced. We can help you get started on these or convert from desktop versions.