The heat is rising in the MTD kitchen

johnhemming
CEO
Cirrostratus
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So, the tax people have moved Making Tax Digital into the "open pilot". So far a few selected businesses have been able to try out the new approach to submitting VAT returns, but now anyone who qualifies can do so.

The phrase “anyone who qualifies” does not mean anyone who has a VAT account. Of the 2.1m VAT-registered businesses, only around 1.1m have a turnover greater than the £85,000 and it is only those that have to follow the MTD rules.

HMRC estimates that around 600,000 of the 2.1m businesses can now try out the pilot scheme. Even if people are not required to follow MTD from April next year, they have the option of doing so.

As it stands HMRC is not allowing partnerships, those in VAT groups, and those trading with the EU to participate in the open pilot, and a number of other businesses are excluded for various reasons.

There is some confusion still about what MTD means in practice. I hope to give some answers that will explain how things will be working over the next year or so. Firstly, VAT numbers won't change.  If someone has a government gateway account which they use for submitting a VAT return, that will remain the same number. It will have the same user number and the same password.

What will change is where the information is processed. When a business joins MTD it clicks on a website and the data for that business is transferred from HMRC's old computer system to their new mainframe. Once people have been accepted through the MTD process then they have to submit data through MTD-compatible software. This process of transferring to MTD will be the same after April 2019 as it is now. If people do not sign up to MTD then they will be able to use the old website.

However, that does not mean that people can ignore MTD. It is mandatory for businesses with a turnover greater than £85,000 to follow the MTD rules. Obviously as about half of all businesses don't actually have that much turnover they won’t have to follow those rules, and there are some businesses that are marginal as to whether they have a turnover above or below the threshold, and it will not be clear at the start of the year whether or not they need to use MTD or not.

It is also important that people note that simply getting MTD-compliant software to submit the VAT return is not complying with VAT notice 700/22. What businesses need to do is to keep digital records with digital links. I tend to explain the rules about digital links as meaning that once data has been put into a computer system, which could be via a spreadsheet, desktop software or a cloud accounting system, that it is not retyped.

For a business with a June stagger (doing VAT accounts April-June) submitting the VAT return by the first week in August they will have to start keeping digital records from 1 April in order to follow the law. HMRC is expecting almost 90% of businesses to follow the law in this way to start out, with the figure getting gradually higher during the fiscal year.

It is, however, not difficult to keep the digital records. Most companies are already doing it in some way, shape or form. It is also not necessary to install a completely new accounting system.

It is, however, necessary to ensure that there are digital links between systems. As someone who has been writing MTD compliant software to upload data from a spreadsheet, I have done a short video about the digital links. Most spreadsheet users already know how to get totals from one worksheet to go into another worksheet. All that MTD requires is that there is a summary worksheet that is then available to be automatically linked to HMRC's computer systems.

With the starting of the open pilot today (16th October) the hob is being turned up on the HMRC MTD cooker. It is not that difficult for businesses to comply with this and does not require massive expenditure. However, it is not something that people should just ignore.

About johnhemming

About johnhemming

John is the Chief Executive (and main software designer) of Cirrostratus Exedra Ltd, an MTD software provider based in Birmingham. He is also the main board Chairman of JHC System Ltd.

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