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August talk: Countdown to MTD for VAT

August Talk: Countdown to MTD for VAT

7th Aug 2018
Editor in Chief AccountingWEB
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With just over nine months to go before VAT-registered businesses will be required to start preparing VAT figures for submission under HMRC’s Making Tax Digital (MTD) regime, John Stokdyk sets the scene for an Accounting Excellence webcast to get practitioners ready.

There are some huge challenges ahead in 2019. This is probably the last chance we have to step back to review them in a strategic way and prioritise how we go about tackling them. Using the ideas and techniques that have been used successfully by other Accounting Excellence firms, we want to help you plan effectively for the next 6-12 months and beyond. 

Across the profession, the common theme has been the sheer scale of client education needed around the MTD project. Half the accountants attending HMRC’s MTD webinar in June were not confident they could prepare their clients adequately for next April when MTD for VAT goes live.

Even before July’s VAT notice gave us more detail on MTD for VAT requirements, proactive firms like Accounting Excellence Award nominee Inca Caring Accountants were already devoting time and effort to training clients and migrating them to online bookkeeping systems.

According to research from both Sage and AccountingWEB, cloud accounting has become the de facto solution to MTD’s digital record-keeping requirement. More than a third of businesses are already online, and that figure rises to eight out of 10 among 2018 Accounting Excellence practices.

AccountingWEB has already documented the MTD effect that followed George Osborne’s ambitious “death of the tax return” promise in the 2015 Budget. Not only have we seen cloud accounting usage double among Accounting Excellence entrants, there was a parallel surge in expenses capture which doubled from 10% of participating practices in 2016 to 21% in 2017.

Taking a smartphone photo of expense receipts as they are incurred and feeding them directly into a reporting platform that can prepare the necessary quarterly figures for HMRC lies at the heart of the government’s MTD vision, so it makes sense for practitioners to go down that route.

However, the expenses capture trendline dropped back to 17% in 2018, most probably in response to the relaxation of the MTD timetable in July 2017. Once VAT-registered businesses negotiate the VAT filing hurdle in 2019, the government has vowed to wait until 2020 before it makes a decision on the next implementation phase.

There are two potential explanations for this decline. Either the smartphone app has become such an ingrained part of the digital infrastructure within most Accounting Excellence firms that they don’t mention it anymore, or they’ve slowed down their roll-outs because it’s not such an urgent priority now. Which option applies to your practice?

Time to rev up MTD preparations

Taking a breather from MTD is understandable, but if you were paying attention over the past few months the advice from HMRC, professional bodies, software suppliers and AccountingWEB was not to put the project on the back burner and forget it. If MTD has slipped down your agenda, at least you have time to do something about it if you start acting now.

Any large, complex undertaking needs to be broken down into a plan for tackling the different tasks in a systematic way. For MTD, this would start by classifying VAT-registered clients who fall within the regime according to the support they will need. How well informed are they about the general requirements? Are they already maintaining digital records or will they need training and implementation help to start doing so? Or if they aren’t able to cope by themselves, will your firm be able to do it for them?

Your detailed action plan and targets will be determined by the time and resources needed to get each group to their MTD safe place. And there’s not a lot of time to do it.

MTD has been a stimulus for switching clients on to cloud accounting systems, but satisfying HMRC’s digital tax demands shouldn’t be the sole motivation for doing so. Some clients may want to avoid any extra cost or lack the expertise to move away from spreadsheet systems they know and trust, but there are very real benefits for both business clients and accountants in going online.

Doing the education and migration work around cloud accounts while things are quieter now will pay off when it comes to VAT return time next summer.

Clients and accountants should also log in and test out their online tax accounts. This is where they will confirm agent relationships about the different taxes for which the taxpayer is represented and where they will share information on what has been filed.

Progress has been slow on the MTD for VAT pilot scheme, but before long online testing will go public. At that point, clients and practitioners can start MTD filing voluntarily ahead of the mandatory deadline. Encouraging well-informed clients to go early will smooth out the transitional workload for accounts and give practitioners an opportunity to address snags that might catch out the unwary when they have to join in next April.

Beyond MTD

MTD has been a pressing issue for the past 18 months, but don’t make the mistake of thinking that it’s your destination. There’s more to being a digital accountant than having an MTD-compliant solution in place.

The VAT element of MTD is just one component of HMRC’s digital tax project, which is due to take in further online agent services, income tax and eventually corporation tax.

It also may not have escaped your notice, but according to the current timetable, the UK will officially leave the European Union on 19 March, just a few weeks before VAT-registered businesses will be embarking on their MTD-compliant record keeping.

There is no shortage of challenges the accounting profession will have to face over the next 12 months. If you want to pick up strategy and planning skills to cope whatever changes come your way pointers on how to cope, join me and technology champion-turned-Sage product director Chris Downing for our next live Accounting Excellence Talk at 11am on Thursday 16 August.

‘How do we solve a problem like MTD is a 45min video session that can be viewed on demand. It includes practical, real-life examples from practitioner Chris Gooden on how he is planning for MTD and using it as a springboard for longer-term practice development. 

Replies (11)

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By djtax
08th Aug 2018 10:53

I would love to be able to even START preparing for MTD VAT but cannot properly do so until all the software is made fully available! In common with may smaller practices most of my clients are small businesses using Excel (entirely successfully for accounts and VAT until now). I understand that there are now a few software companies on the point of issuing the requisite 'Bridging Software' but until I can appraise how it works how/when can I start to educate clients on the practical aspects of its use?

Thanks (8)
Replying to djtax:
By cbp99
08th Aug 2018 13:53

Exactly - cannot prepare meaningfully and economically with so many unknowns. And I am certainly not going to invite clients to use any pilot scheme that might backfire on them and on me.

Thanks (2)
By legerman
08th Aug 2018 13:54

Why the correlation between MTD and online accounts? This was the mantra trotted out by the online software companies, who then got their fingers burnt when HMRC dropped the 2017 deadline and pushed it out to 2020 at the earliest. You don't need online accounting software to be MTD compliant, although I concede that an online connection will be needed to submit VAT, but then it is already.

I'm not a luddite and love technology, but it seems to me that the cloudy people love to push their software as the Holy grail when in fact it isn't. Desktop is so much quicker, although I do agree that data collection (eg bank feeds) can be much quicker.

I'll continue to use VT+ to do a clients bookkeeping and use something like Neilson James to do the bridging bit. Ergo no extra cost to my clients save for a small increase in doing the VAT returns to cover the cost of using their software.

Thanks (6)
Replying to legerman:
By cbp99
08th Aug 2018 14:22

Agreed - absolutely no need to change to cloud bookkeeping software for MTD.

Thanks (3)
Replying to legerman:
By ClaireB
09th Aug 2018 10:14

Agreed too. I have tried an initial soft sell on cloud accounting to several clients and I've only had one who has tentatively agreed to give it a go - the rest are not interested, don't trust online stuff, too busy, quite happy with current arrangements, etc etc

I'm going to stick with VT+ and use bridging software as well.

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Replying to legerman:
By Andy Taylor
25th Aug 2018 11:48

I am in the market right now for accounting software and I'm appalled at the sales & marketing hype & focus for cloud applications as opposed to on-premise. MTD is not a reason to go to the cloud, on-premise will work just as well. I have researched the risks and benefits and want on-premise; one key reason being that with cloud your business is totally reliant on a working (fast) connection both at your end and the "data end." You only have to consider the access issues users experienced with TSB online banking earlier this year to realise the huge risk you take for your business by putting all your eggs in the cloud basket.

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By paulgrca.net
09th Aug 2018 13:02

Perhaps the biggest question in all this is why the hell are HMRC not telling taxpayers about what is happening!

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Replying to paulgrca.net:
By legerman
09th Aug 2018 15:43

paulgrca.net wrote:

Perhaps the biggest question in all this is why the hell are HMRC not telling taxpayers about what is happening!

Oh absolutely. Accountants/Bookkeepers have an opportunity to help small businesses implement the change and I will certainly seek to maximise that for local businesses in my area, but for medium/big businesses it may require changes to bespoke software and I can see the fan being quite mucky once they are aware.

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By EnglishRose
14th Aug 2018 09:30

I am a cloud hater (and paper lover) for all kinds or reasons from speed, need for passwords, delays, security risks and a whole host of reasons. So I will not be going anywhere near cloud products for digital VAT and we cannot buy the bridging software yet as it does not exist. HMRC have not even notified me of digital VAT yet and we are getting close to it.

It is time they started sending out a one page card by post to VAT payers just giving them a list of say 4 things they must do - buy this bridging software which costs X and will work with your excel spreadsheet. If you use paper records this is what you must do etc etc.

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By jamiea4f
17th Aug 2018 12:31

Having sat through the HMRC presentation on MTD for VAT yesterday one gets the impression that HMRC now wants to provide little, or no, free to use software for anything, having disposed of the Corporation Tax stuff a while ago (quietly). All the questions asked to the "experts" seemed to produce answers similar to "we don't know", "that's not happened yet"... etc. Wouldn't it be better to test a system that actually works, and that you can "buy and try" before announcing to the public at large that "you must comply. Even though we don't know if it works". Seems to me anything they now think of involves a structure of penalties first, then making the actual thing work properly.

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By EnglishRose
18th Sep 2018 08:02

So HMRC STILL cannot tell me what bridging software for my impeccable paper records (or the excel sheet I may be forced to learn to use) I will need and this is their 17 Sept pronouncement.

17 Sept
"If you don’t currently use software, or your software won’t be MTD-compatible, you’ll need to consider what software is suitable for your requirements."

We’ll publish details of the VAT software available later in the year, when we open the VAT pilot to more businesses...

Bridging software may be required to make spreadsheets MTD-compatible. You can read what we mean by ‘bridging software’ below.

The information must not be physically re-typed into another software package."
HMRC will give businesses until 31 March 2020 to make sure there are digital links between software products. Before that date, cut and paste will be an acceptable way to transfer information."

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