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VAT Margin Scheme, can you use cloud accounting?

Margin Schem relief and accounting software

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aAyone any luck on "normal" accounting software that does the margin scheme.  By normal I mean cloud based non industry specific and not Sage.  Kashflow Quickbooks and Xero have all just told me they do not support it and have no plans too, but I have three clients who next year under MTD will need it?

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RLI
By lionofludesch
01st Mar 2018 16:15

There was some HMRC pronouncement about six months ago saying that some businesses might need to make journal entries to deal with Flat Rate - amongst a dozen or so other situations (retail schemes, partial exemption, TOMS, second hand cars, fuel scale charges etc etc)

They seemed surprised that more than a handful of traders would be affected.

The mechanics of it all, I couldn't advise you on. It'll depend on your software. Not sure why you think only cloud software is affected, though. I'd say it'll affect any software.

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By timothyvogel
01st Mar 2018 16:27

I am sure all software is affected, but we are looking for a cloud solution that allows Margin scheme and none seem to.

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By lionofludesch
01st Mar 2018 16:52

You're going to have to do it using traditional fag packet techniques.

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By timothyvogel
02nd Mar 2018 09:44

But HMRC (who were closed yesterday) insist that it will not be possible to submit VAT returns if over the threshold and not using an approved program or" a certified bespoke system".
So illegal not to use Sage? methinks a restraint of trade and state enforced monopoly?

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By lionofludesch
02nd Mar 2018 10:08

Not so.

You can make journal adjustments.

How would Sage cope with - say - a retail scheme that wasn't based on point of sale identification ?

Journals.

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By Pygmy
02nd Mar 2018 16:09

It is probably quicker journaling as Lion suggests but I believe that Xero's flexibility allows the possibility of a work-around:

1. Create a single SALES Marginal VAT rate of 16.67%
2. Deal with one car at a time -considering those sold at profit only for marginal VAT
3. Use fact that 1/6 of (Sale price -Purchase price) = 1/6 of Sale Price - 1/6 of Purchase Price

Sale Invoice for vehicle bought at £12000 and sold at £15000 is as follows:

Date of Sale

Sale Price of vehicle 1x£15000 at marginal VAT rate (VAT exclusive) = £17500
Plus -£2500 (No VAT) posted to Marginal VAT Expense Account
=£15000 sale price for vehicle

and for Purchase

Date of Sale

Purchase of vehicle 1x£12000 at Marginal Rate (VAT Exclusive) =£14000

Plus -£2000 at No VAT posted to Marginal VAT expense account
= £12000 paid for vehicle

Marginal VAT = £2500 - £2000 = £500
Marginal VAT expense = -(-£2500) + (-£2000) = £500

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By lionofludesch
02nd Mar 2018 16:14

Phew !

I'll stick with spreadsheets and fag packets, thanks.

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By Annie Turner
27th Feb 2019 10:18

Try telling that to the client it will only confuse them I am trying to get a cloud based software that deals with the margin scheme for second hand cars so the client can use this. Not bridging software

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By timothyvogel
05th Mar 2018 09:56

that journaled system will, I think, work, but there is no way on earth any client is going to follow it or get it right every time. and I am not sure from the little play I have just had with it that it correctly reports the total sales in the last couple of boxes on the VAT return.
Also we have the issue of invoicing looking very odd to customer. now again there is a work around on that (do not use the system generated invoices for issuing) but it does make the point that this MTD which is meant to cost businesses almost nothing will in fact cost them a lot of time and technical advice costs, or a significant software cost

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By timothyvogel
05th Mar 2018 09:56

that journaled system will, I think, work, but there is no way on earth any client is going to follow it or get it right every time. and I am not sure from the little play I have just had with it that it correctly reports the total sales in the last couple of boxes on the VAT return.
Also we have the issue of invoicing looking very odd to customer. now again there is a work around on that (do not use the system generated invoices for issuing) but it does make the point that this MTD which is meant to cost businesses almost nothing will in fact cost them a lot of time and technical advice costs, or a significant software cost

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By lionofludesch
05th Mar 2018 10:39

I'm reminded of the Life of Brian.

"What problems can there be with MTD??"

"What about margin schemes ?"

"Well yes, but apart from margin schemes, what problem can there be with MTD?"

"What about partial exemption?"

etc etc

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By muppet1903
21st Mar 2018 18:26

Hi, late to this thread but thought I’d add something. Listening to an hmrc webinar the week before last and I asked about the margin scheme, and how it would work with MTD. The reply was that the vat would have to be recorded digitally per unit, and would not be part of a one line adjustment, I.e journaled in. This was just a posting by hmrc during the webinar following (I think) quite a few questions about it. I know the spreadsheet itself can be linked digitally, but for me it begs the question as to how are we to know which adjustments hmrc seem to think will be part of the digital record and which they will accept as a one line adjustment? Hopefully more clarification as time goes on!

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Replying to muppet1903:
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By lionofludesch
21st Mar 2018 18:40

muppet1903 wrote:
The reply was that the vat would have to be recorded digitally per unit, and would not be part of a one line adjustment, I.e journaled in.

By this I take it that you mean that if, say, a car is sold for £6000 and the VAT on the margin is £100, you'd enter £6000 received, £100 VAT, £5900 net.

How's that going to work for a Global Second Hand Scheme ?

Is this another of those points where HMRC say "Oh, aye - we didn't think of that."

Retail Schemes based on apportionment, Partial Exemption, TOMS - just a few examples of entries where you may not actually know the VAT content at the time of receipt (or payment, whichever it is).

It's just not been thought through.

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By muppet1903
21st Mar 2018 18:59

You are absolutely right, I just don’t think that anyone has thought of the adjustments required - and how they can be incorporated into each record digitally. I am looking at xero for some clients, but I can see the digitally linked spreadsheet option for my two motor trade clients. I had thought of invoicing with the vat adjustment - so that I could get the vat into the digital record, and then journaling it back out on the debtors side to match the monies received, but of course, as someone else has already mentioned, the invoice wouldn’t look right for the customer, so whichever way around you think of it (apart from the journal option) more workarounds will be required. No doubt we will sort it out on Aweb!

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By atleastisoundknowledgable...
21st Mar 2018 18:52

My understanding was that HMRC only got the final 9 vat return figures, so who are they to go around saying that you can’t do a 1 line journal? I think they got their wires crossed and meant each unit had to be TREATED separately rather than a global profit/loss.

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By muppet1903
21st Mar 2018 19:02

Hi, I haven’t got the detail to hand, but I’m sure they commented that it would be per record. But, in this instance, no doubt, it just hasn’t been thought through, and hopefully hmrc will realise before April how much extra work it could be.

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By lionofludesch
21st Mar 2018 22:08

I think it would work for the car - but there's plenty of other stuff it wouldn't work for.

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By timothyvogel
21st Mar 2018 21:48

I think that webinair is the same one I also watched. they certainly SAID that each item had to be digitally correct, but I agree I hope the MEAN treated.
I think the problem is eventually they ant access to each individual record but at the moment they only have legal access to the global records ... unless they inspect
I really think that they have just not thought about the work involved. yes you and I can do clever journals, but clients will not and certainly not get it right every time. MTD was specially intended to reduce processing costs and professional fees.
How can we as a profession make sure they get the message?

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By atleastisoundknowledgable...
21st Mar 2018 23:23

“MTD was specially intended to reduce processing costs and professional fees.”

No, MTD was designed to i) attempt to make people declare their income & taxable profits correctly, and ii) make everyone pay tax monthly, to spread HMRC’s income throughout the year.

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By atleastisoundknowledgable...
21st Mar 2018 23:23

“MTD was specially intended to reduce processing costs and professional fees.”

No, MTD was designed to i) attempt to make people declare their income & taxable profits correctly, and ii) make everyone pay tax monthly, to spread HMRC’s income throughout the year.

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By Aliceb
29th Nov 2018 13:54

I am in the same boat - really don't want to use sage.

I have asked for this facility for kashflow. Can we get as many votes as possible it might make them add it!

http://www.kashflowcanvass.com/

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By chariot4info
20th Feb 2019 14:02

I posted on another thread about handling VAT Margin Scheme in Quickbooks Online while doing research for setting up a new car dealer client.

https://www.accountingweb.co.uk/any-answers/how-do-you-record-margin-sch...

The main reason companies like quickbooks are not supporting these work arounds is simply a case of protecting themselves. If they suggest it and you end up making mistakes while using it, they could be liable.

My view on the MTD reporting for margin scheme is that as long as you keep a spreadsheet of your margin stock (as per VAT notice 718/1) reporting the margin portion via cloud software for MTD should mean you are compliant.

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