Charities have expressed confusion and concern over the government’s digital tax requirements, ahead of their introduction next year.
The government’s Making Tax Digital (MTD) scheme for VAT returns is currently being piloted and will be mandatory for organisations with a turnover of more than £85,000 from April next year.
Speaking at the Charity Finance Summit last Thursday, Claire Williams, of HM Revenue and Customs’ customer readiness and external stakeholder team, said organisations would not need to fully comply with MTD during the “soft landing” period, which will run until April 2020.
Williams said charities will 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.
Richard Bray, regulatory and taxes manager at Cancer Research UK and vice-chair of the Charity Tax Group, was chairing the session and asked the audience of about 300 charity finance professionals who felt comfortable that they will be able to comply with MTD by April 2019. Only a handful said they were in this position.
Bray said it would be more difficult for charities to produce some of the MTD data required than it would be for a fully taxable business. In particular, he said, it would be difficult to supply VAT output data.
He said: “Do we need to make our lives a misery to provide what seems to be a meaningless figure?”
At a later session, John Hemming, head of tax at the Wellcome Trust, said at a later session that he did not think the April 2019 MTD requirements will be “a disaster” for charities.
"It is not as difficult as you might think," he said. “But look out for 2020 – that is going to be the nightmare.”
Stopgap software needed
Hemming said it is likely that the software charities use to comply in the first year will have to be replaced in 2020. But he said that hopefully their existing suppliers would have improved their systems by 2020.
He said: “The API that you are going to use for the first year, may not be the one you are going to use in 2020 because you might find a better system by then. It is only a stopgap.”
HMRC has produced a list of 150 software providers who have pledged to produce MTD-compliant service.
Williams said HMRC had seen a demonstration of about 50 of those, which it would reveal the details of shortly.
Bray said this API software would cost about £100 a year but said the Charity Tax Group would be promoting some free software in future.
PwC previously announced it would be offering a free version to charities and Bray said this has now been approved by HMRC.
Pilot scheme
Williams said HMRC would launch its public beta pilot scheme for MTD shortly but said that charities would not be able to sign up.
“But around that time we expect to publish some information around the timelines around when we expect to be able to support charities within the pilot,” she said.
An audience member said they were concerned that charities appeared to have been given less time to pilot the MTD scheme than other organisations.
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