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MTD for clients with no idea about IT

What to do with Mr Bloggs - the agony

Mr Bloggs registered for VAT last year and turnover is probably £85k. I persuaded him to go onto Xero last year, from April, but he ignores Xero and intends to give me well sorted and added up piles of supplier invoices and sales invoices this year as usual. He is one of those who is definitely going to turn up on my doorstep, with this lot for 2018 but when? - who knows. I'm not sure what his stagger period is either. He's also a very nice chap, and being fond of him will probably be the death of me. He rarely answers emails, or misses the important bit. I'm sure you've dealt with one of his cousins and maybe have the same dilemma I have.

I need to think about how I'm going to help him deal with MTD. At least he does have a Xero account, but it appears I'm the only one who's going to be using it. I think I'll have to either to get him to scan his invoices into Xero, or more likely get my own scanner and do that for him, and then do the bookkeeping on a cash basis, along with the VAT return. It will take far too long to use supplier/customer accounts and matching is diabolically slow on Xero. I hate to charge him more, but his head will stay firmly in the sand unless I tell him this is what will have to happen. (He pays everyone immediately and his sales invoices are paid immediately).

What are the pitfalls with my idea? Can you think of a better one?

 

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10th Aug 2018 19:14

Sounds like an ideal candidate for excel spreadsheets with the necessary software to get the numbers to the VAT man (if it ever happens).

Not sure of your reference to the stagger period. Is he doing his own VAT returns now?

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By Tornado
to thomas34
11th Aug 2018 09:16

"Sounds like an ideal candidate for excel spreadsheets with the necessary software to get the numbers to the VAT man (if it ever happens)."

I completely agree. There are other, better, ways to deal with this situation than thinking that Xero has to be used for everything.

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By ShayaG
to thomas34
17th Aug 2018 10:01

Xero is easier to use than Excel IMO

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to ShayaG
17th Aug 2018 13:43

Spreadsheets are free (eg Open Office). What is the cost of Xero?

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By Matrix
10th Aug 2018 19:24

You don't need to scan in the invoices for MTD.

I agree Xero is slow.

There is no point him being on Xero if he is not invoicing from it. If you are going to be doing the inputting then I would put him on VT as the data entry is much faster.

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11th Aug 2018 11:06

First, as he is IT illiterate, the most he will do is put pen to paper. I dread to think of what he would make of Excel, but he wouldn't even try.
He's doing his own VAT returns and since I've not yet seen the returns I worry that they aren't correct either.
I can't see that VT would be faster than Xero, if I'm not setting up sales and purchase ledgers.
I suppose what I could do is move him to a partner only version of Xero, which would at least cost less than his current subscription.
Glad of your confirmation that I don't need to scan in the invoices - that wasn't clear to me.

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to Moonbeam
11th Aug 2018 13:59

Moonbeam wrote:

First, as he is IT illiterate, the most he will do is put pen to paper. I dread to think of what he would make of Excel, but he wouldn't even try.

What's a spreadsheet but a sheet of analysis paper on a TV screen ?

Here's another problem, unearthed by Neil Warren (Taxation 9 Aug 2018). On the cash accounting scheme, you'll need to enter all the invoices individually, rather than just the single payment.

I have three clients who'll be badly affected by this. One payment could amount to forty or fifty invoices - which is a lot of pointless work.

Ironically, all three clients use cash accounting to cut down on work, rather than delay payment of VAT. If they have to enter the invoices anyway, they may as well switch to invoice accounting. Collectively, they'll be around £5000 better off - sadly, only in the quarter of change.

So well done, HMRC. A lot of work created for somebody else and you're worse off as a result. Is it a plan to cut down unemployment in the bookkeeping industry ? It's a far cry from the John the Plumber video - "just take a photo on your smartphone and upload it using the free app - job done."

Having said that, Neil doesn't make it clear whether this is real law or something HMRC have just made up. Which is something they do from time to time .......

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11th Aug 2018 14:09

Thank you Lion - Yes, Mr Bloggs is cash accounting. So it appears we do have to upload the invoices in this case.

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to Moonbeam
11th Aug 2018 14:14

Well, HMRC say so.

Whether that's true needs confirmation.

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By Matrix
to lionofludesch
11th Aug 2018 14:57

What do you both mean by “upload the invoices”?

They don’t need to be scanned into the software under MTD. Do you just mean they need to be reconciled individually?

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to Matrix
11th Aug 2018 15:04

Neil Warren says HMRC say that you have to write up a Proper Purchase Ledger and a Proper Sales Ledger, even if you're on cash accounting. Then you have to link all the invoices to the payment which settles them.

So - yes - Double Entry takes on an extended meaning. More than twice the work.

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By cbp99
to lionofludesch
13th Aug 2018 11:38

Am not a subscriber to Taxation so cannot view the article by Neil Warren (who is usually right about these things!), but MTD does not change the existing record-keeping requirements for Vat. In Moonbeam’s client's case we would post a single payment/receipt in VT and mark the relevant invoices (having checked them for Vat rate) with the sequential PAY/REC number given by VT. This would achieve the necessary matching; I don’t see any need to enter the invoices individually. In my modest experience, I don’t see Vat officers having a problem with this provided the documents are available and the Vat is correct.

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to cbp99
13th Aug 2018 12:09

cbp99 wrote:
.........MTD does not change the existing record-keeping requirements for VAT.

Oh yes, it does.

It requires you to keep the record digitally.

What Neil says HMRC are saying is that the underlying invoices need to be recorded digitally too.

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to lionofludesch
13th Aug 2018 12:25

I'll nail my colours to the mast here and say that I don't believe that HMRC are justified in making such a claim.

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By cbp99
to lionofludesch
13th Aug 2018 12:32

Ok, I see what you (and Neil) mean.

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to cbp99
13th Aug 2018 13:06

I have a feeling that I may be missing the point here but HMRC are not requiring the invoice itself to be held digitally. What they do require is that you hold a scanned/electronic copy IF you do not keep the paper record. At least that is what it says in 700/22 Para 3.1. But maybe I have misunderstood the point being made.

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to paulwakefield1
13th Aug 2018 13:27

Sure. It's the difference between (a) keeping a photo of the invoice on your computer and (b) entering it in your purchase day book.

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to Moonbeam
16th Aug 2018 13:02

Uploading invoices is not required for MTD. Even if you use cloud software you don't have to upload: you can manually key in the data. Uploading is for users who want to use the software to 'read' the invoice and automatically post it. I've never done this and wonder how successful it is.

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to kevinringer
16th Aug 2018 13:06

kevinringer wrote:

Uploading invoices is not required for MTD. Even if you use cloud software you don't have to upload: you can manually key in the data. Uploading is for users who want to use the software to 'read' the invoice and automatically post it. I've never done this and wonder how successful it is.

Yeah but HMRC are saying that the "data" is each individual invoice. Not the single payment.

Which is a game-changer.

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11th Aug 2018 14:57

It's a little while since I used Xero, but I'm willing to bet it would still be quicker to enter the invoices on a spreadsheet, and upload this to VTT+, if you really have to deal with each invoice separately. For many clients, dealing with ledgers is just doubling up the work. And cloud accounting is over hyped when the client can't put pen to paper (metaphorically speaking)

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to Jo Nokes
11th Aug 2018 15:59

Using Autoentry, I'd scan the invoices there and code up to Xero (for this client he has about 10 main suppliers, and around 200 purchase invoices a year). So that would be fast. The difficulty would be matching up the payment to particular invoices, and in his case maybe it would be easier to abandon cash accounting, as clients pay fast.

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to Moonbeam
11th Aug 2018 16:08

In all three of the cases I cited, the customer is usually Joe Public, who tends to pay quickly. The advantage in cash accounting is not paying the VAT later, it is the saving of work in not maintaining a purchase ledger. There's no advantage in the client keeping a purchase ledger - the supplier generally informs them of the extent of their debt.

Once they have to keep a purchase ledger to satisfy the VATmen, it's a no-brainer to switch to invoiced based accounting. The advantage of cash accounting is lost.

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to Moonbeam
16th Aug 2018 13:58

Exactly, Moonbeam. Tell him to send you all of the purchase and sales invoices and bank statements quarterly. You can upload them via AutoEntry in minutes to Xero and reconcile the bank to the invoices easily. You can then file the VAT return from Xero.

Tell your client that, if he insists on filing his own VAT returns, then your annual fee will be higher (not lower) because you will not only have to prepare proper accounts (in Xero) but you'll ALSO have to reconcile those Xero records to his manual VAT records.

Stand firm and, if he refuses, cease acting for this client. It's fine if some clients are Luddite, but then we need to insist that we keep the accounting records for them. Running two separate systems (a manual one maintained by the client for the VAT and an electronic one for the accounts) can only increase the workload and the risk of errors. Use the MTD requirements, if necessary, as an extra lever to persuade him.

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to charliecarne
16th Aug 2018 14:09

Thank you, Charlie.

When he finally brings me last year's paperwork I shall pin him to the wall while I explain what he's going to agree to.

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to charliecarne
16th Aug 2018 14:09

Thank you, Charlie.

When he finally brings me last year's paperwork I shall pin him to the wall while I explain what he's going to agree to.

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11th Aug 2018 16:09

Well what would be the effect of making lists of invoices on a spreadsheet, and using this bridging thingy, uploading the end result to the VAT office . No payments to be included, so the record might have limited accounts application. Or using VT, they could be uploaded and used as part of the bookkeeping. Bank downloads in csv format could also be uploaded, but none of this bookkeeping would be involved for MTD for VAT. (with MTD, that would be different).
I'm still wondering how this VAT specific software will be used for MTD for income tax

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By Tornado
11th Aug 2018 16:19

Cash Accounting was specifically created to REDUCE the amount of record keeping that a business needs to keep. The same goes for many of the other special schemes.

HMRC had better sort this out soon otherwise these time savings schemes will need to be ditched completely before they become a serious carbuncle anomaly in the HMRC grand scheme of things.

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to Tornado
11th Aug 2018 16:25

Tornado wrote:

Cash Accounting was specifically created to REDUCE the amount of record keeping that a business needs to keep. The same goes for many of the other special schemes.

Couldn't agree more. Their argument seems to hinge on folk using the VAT fraction on payments which include both standard and zero rated goods, thereby overclaiming VAT.

My response would be to come and check some of my clients' records and see who gets fed up first. My experience is that suppliers supply either one thing or the other.

Surprisingly, HMRC make no reference to this happening on bankings, with the trader consequently overpaying VAT.

It's extra work for we accountants. But it's work I for one don't really want.

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to lionofludesch
11th Aug 2018 16:27

The other point is that this bombshell might well affect my recommendations as to what software the client should adopt.

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13th Aug 2018 09:01

Do you have a link to the Neil Warren article? Because it appears that HMRC are now going further than 700/22 which is already a big enough pain.

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to paulwakefield1
13th Aug 2018 09:20

paulwakefield1 wrote:

Do you have a link to the Neil Warren article? Because it appears that HMRC are now going further than 700/22 which is already a big enough pain.

No. I just read it low-tech on paper.

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By John R
13th Aug 2018 11:42

Why can't the client keep handwritten records of the individual (or daily in the case of retailers) sales/receipts and purchases/expenses and supply them to you at the end of each quarter so that you can copy them into a digital form? A complete waste of time but in those cases where the client is insistent that they are not prepared to move to digital accounting, does this delegation of duties meet the record keeping rules?

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to John R
13th Aug 2018 12:24

My understanding is that that would be fine as the entries are only made once into digital form.

The cost may well solve the problem - the client may well be "encouraged" to embrace digital accounting having seen his first bill.

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13th Aug 2018 11:53

Hi Moonbeam and all

I have a few simple clients (that's the business not the client) and have been trialling Pandle, which I really like but, with regard to spreadsheets, I'm interested to know whether anyone has used ClearBooks Micro which is free to the user and is effectively three online spreadsheets for sales invoices, receipts and expenditure.

I beta tested it and was not that impressed but CB have received HMRC approval for MTD and so I wondered whether anyone is using it as, in theory, it might suit businesses that only need simple spreadsheet records?

Moonbeam - Over the years I have faced the problem of clients who appear to be incapable of using technology but have been surprised at how well some have taken to it with gentle guidance or, in some cases, by getting them a bookkeeper or showing their children, how to do the books!

This happened with RTI and so it's just more of the same and, in the long run, it makes our lives a lot easier.

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13th Aug 2018 12:38

This is a client who rarely answers emails, and even then misses the point. He doesn't keep any written records and there's no way I can persuade him to do that. He mentioned to me a while ago that he might have someone to do the bookkeeping for him, but I bet that turns out to be a non starter as accounting for anything is never his priority. I'll have to do the bookkeeping for him to begin with, and then perhaps he'll change his mind.

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to Moonbeam
13th Aug 2018 13:22

I know it’s easy to say but, ultimately, keeping accurate, up to date records is part and parcel of running a business, and we have to make sure longer standing clients, who we have propped up, understand and appreciate that they can no longer ignore it.

I’ve been lucky that all my new clients over the past 5 years have been 20-30 year olds who would laugh if I gave them the option to keep their records accurate and up to date or a mess, but if an older client is not prepared to meet me at least half way, I have asked them to go elsewhere.

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to Moonbeam
13th Aug 2018 13:24

Duh! Should not use mobile to post

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By Tornado
13th Aug 2018 13:39

'My phone was stolen' is perhaps a bit more plausible than 'the dog ate my accounting records'.

I wonder what other excuses the Digital age of book-keeping will spawn.

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16th Aug 2018 11:07

Bit late to the party here, but feel I need to contribute!
I am waiting on an official response from the MTD team regarding the recording of purchase invoices under the cash accounting scheme. I too read the Taxation article and reached the same conclusion. Before it's release, I spoke briefly to a HMRC MTD team member regarding Section 3.3.3 in the VAT notice 700/22. She agreed that it reads that all invoices must be recorded individually, but she was going to check on it and get back to me (i have since emailed again quoting Neil's article!).
We have been pushing Sage Business Cloud Accounting Start, which will be rendered useless if we need to run purchase ledgers for every client. The alternative we are hoping is to scan the invoices and attach them to the bank payment transaction posted from the bank feed.

On another note, I saw a demo of a spreadsheet yesterday from Absolute Tax. They are not cleared by HMRC yet, but I've seen it working, right up to VAT return submission. Its (currently) a fully editable spreadsheet, which I envisage entering our own cash book template tabs to link in the Box 1-9 figures that get sent by API link to HMRC. Great option for the technophobes and only (again, currently) looking at £40+VAT per annum for up to 10 licences (£5 each thereafter). I spoke to Clearbooks, and clients can't submit their own VAT. Practice Edition which is where the return has to be posted from is £5 per client per month. Absolute is perfect for those clients that still want to do their own VAT.

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to aabennett99
16th Aug 2018 11:18

f there's only one invoice covered by the payment, it's no problem. Carry on as we thought.

It's where there are two or more that you'd need to use a purchase ledger. Some clients might not be affected or they might get round it by issuing a separate payment for each invoice.

Personally, however, I believe HMRC have gone beyond their remit.

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to aabennett99
16th Aug 2018 21:00

Thanks aab for the info on CB and it’s micro product.

Even when beta testing it, I missed that there was no VAT submission but but would have guessed it would be added.

I’m assuming this will also be the case when the non-VAT businesses follow on to MTD ie they will need an accounting professional to submit.

Surely they are doing themselves out of loads of potential users who want to continue to DIY?

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16th Aug 2018 13:13

I don't subscribe to Taxation so cannot access Neil's article. Where does it say in 700/22 that businesses on cash accounting must record every expense invoice?

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to kevinringer
16th Aug 2018 13:16

You'd need to read the article. It's HMRC's interpretation of something vague like all transactions have to be recorded digitally.

See my earlier posts.

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to kevinringer
16th Aug 2018 14:50

3.3 .3 Supplies received
For each supply you receive you must record the:
• time of supply (tax point)
• value of the supply
• amount of input tax that you will claim
This only includes supplies recorded as part of your VAT Return, supplies that do not go on the VAT Return do not need to be recorded in functional compatible software. For example, wages paid to an employee would not be covered by these rules.
There is no requirement under the regulations to record inputs for the period split by VAT rate.
The time of supply is typically the date on the VAT invoice or, if you are on cash accounting, when you pay for the supply. However you must also hold the associated evidence to claim deduction of input tax. For more information on time of supply, see VAT Notice 700: VAT guide, section 14 and section 15 and also paragraph 10.5 of that same Notice for information on timescales for claiming input tax.
If more than one supply is on an invoice you can record the totals from the invoice. Where the amount of input tax that you will claim is not known at the time you record the supply you have received, you can record:
• the total amount of VAT and adjust for any irrecoverable VAT once calculated
• no VAT and adjust for any recoverable VAT once calculated
• VAT recoverable based on an estimated percentage and adjust for any VAT once calculated
See paragraph 3.4 of this Notice for information on adjustments.
Where an invoice includes supplies with different times of supply that are within the same VAT period, you may record all supplies on the invoice as being at the same date.

And a section of the article in the Taxation magazine dated 8 August 2018:-

Cash accounting scheme
Jean is a public relations consultant who is very creative but struggles with record-keeping. She uses a simple spreadsheet system, recording all of the income and expenditure into and out of her bank account and she adopts the cash accounting scheme for VAT. She is confused by her accountant’s advice that she will need to obtain bridging software to complete her VAT returns after April 2019. She is also concerned by his comment that she will need to process every single purchase and sales invoice – now she posts only payments received and made through her bank account. For example, she uses one subcontractor who raises a separate invoice for each contract he works on each week but she pays him once a month – so she receives up to 20 purchase invoices each month.
Question for HMRC
Under MTD, will it be acceptable for Jean to post one payment entry a month for her subcontractor or must she process all 20 invoices separately? If the latter, is this not increasing rather than reducing the risk of making errors?
HMRC reply
‘The cash accounting scheme allows businesses to account for output tax on their sales on the basis of payments they receive rather than on tax invoices they issue. The businesses benefit by not having to pay VAT to HMRC until their customers have paid them. However, record-keeping requirements are the same whether or not they use the scheme. There are also some additional record-keeping rules under this scheme. Records must clearly cross-refer payments:
• received to the corresponding sales invoice;
• made to the corresponding purchase invoice;
• made or received to the normal commercial evidence, such as bank statements, cheque stubs or paying-in slips.
‘MTD does not change any of the above, So, as now, Jean will be required to process all 20 invoices separately otherwise it could create errors. Currently, some businesses use figures directly from their bank account and apply the VAT fraction. This is a source of errors as they may assume all purchases are standard rated so, if there is anything in the invoices that is not standard rated they will overclaim input tax.’

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to aabennett99
16th Aug 2018 14:58

Thanks aabennett99, I had read 3.3.3 but it doesn't actually say every invoice needs inputting. It does say separate taxpoints need recording so if every invoice has a separate taxpoint then I agree they would all need recording, but invoices issued the same day could be amalgamated.

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16th Aug 2018 19:08

If you are accounting for VAT on the cash basis the tax point is the date on which the payment is received, and not the invoice date.

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16th Aug 2018 20:16

"What's a spreadsheet but a sheet of analysis paper on a TV screen ?"
You obviously do not know how to keep bank records in a list in excel. Download the bank trans, split out vat in a column, another column for ac code. Then sort and subtotal and job done!! Should be really quick for you as accountant

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to iain.mcgregor
16th Aug 2018 22:45

Missed the point a little bit there.

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By SXGuy
26th Aug 2018 09:49

I think all you can do is judge each client by their ability and offer a price structure based on what they can do themselves or if they want you to do it for them.

That's all you can do.

I have different types of clients. Luckily those who are vat registered already use a computer to write up invoices, it wouldn't be a big step to use accounting software to generate those invoices. All you have to do then is reconcile them with payments by importing bank statements or from a feed.

There is always the option to import excel sheets listing supplier, customer details as well as invoice/receipts.

Once the initial supplier/customer based has been added, it will reduce the workload in future quarters because its just a case of selecting info prior to invoice creation or matching supplier details with imported purchase ledgers.

I've recently started using quickfile and I must say its great, does pretty much everything automatically once initially set up.

If I could get the client to make the switch from creating invoices in word to using quickfile, half the job is done.

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