MTD client case study: How to submit the VAT return

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The actual submission of VAT returns under MTD needs careful thought. Neil Warren considers the options available to a business and the potential risk of adjustments being done incorrectly before the return is submitted.

Client tale

I act for a one-person limited company and, with MTD approaching, the owner/director decided to adopt digital accounting software rather than continue with Excel accounting.

This was despite the 30% fee increase for the extra time I would need to spend and the fact that her spreadsheet reporting has been immaculate for the last seven years. She felt that the accounting software would enable her to get up-to-date information about how her business is performing – a fair comment.

However, her most recent email to me highlighted the difficulty that clients face when they enter the world of double-entry bookkeeping for the first time:

“I know that I owe corporation tax but account 802 says I’ve got a credit balance. Does that mean I’m owed a rebate?”

“No,” I replied, “a credit in 802 means a liability is owed to HMRC. If you look at account 502 you will see a debit for the same amount.”

Journal risk

Many businesses need to make VAT adjustments on either a quarterly or annual basis. This will be the case with partial exemption, the capital goods scheme, and some retail schemes require an annual adjustment as well. The calculations can be done outside of MTD-enabled software, eg a handwritten calculation on paper is fine, but then the amount being adjusted needs to be posted into the accounting software (usually by journal) or entered on the spreadsheet.

In my opinion, if clients who are new to accounting software do these journals themselves, there is a real risk they could post them the wrong way round, ie the debit and credit confusion expressed by my client. There is also a risk they could post the journal with the wrong date and miss the VAT period for the return completely.  

Pilot registration

My client’s company will be joining the pilot scheme for her January 2019 VAT return, six months ahead of her first compulsory MTD return in July 2019. She warmed to the pilot idea and is clear about the need to register with HMRC, and fully understands that she will submit her returns through a completely different system after she joins MTD.

However, before you encourage your clients to join the MTD for VAT pilot, it is important to check they are not one of the 3% of businesses that cannot join MTD until October 2019, eg those using the annual accounting scheme.

Return options

There are basically three ways for clients to submit returns under MTD, and the chosen route will depend on the VAT complexity of the business and the client’s own level of accounting skill and tax knowledge:

  1. Client input only – a direct submission is made by the client using their own accounting software (or bridging software with spreadsheets) ie no agent involvement.
  2. Client and agent share software – eg cloud-based arrangement, and the agent checks the VAT return before the client submits it. This is the crucial opportunity to ensure that any important VAT journals have been done correctly.
  3. Client transmits data to agent via digital link – and the agent checks the return and submits it via their own software and their agent services account with HMRC (VAT Notice 700/22, section 6).

MTD strategy

Going back to my client, I have a clear MTD strategy in place for her. She is joining the pilot scheme to get in a couple of dress rehearsals. I will be adopting option 2 above when it comes to the submission of her returns. I will check very closely all transactions with a risk of posting errors. I also have a particular concern about the way she is using her director's loan account to deal with her expenses.

There is definitely extra work for me, hence the 30% fee increase I mentioned. Perhaps I should have made it 40%?

About Neil Warren

Neil Warren

Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.

Replies

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By mg200
11th Dec 2018 11:50

Using your option 2. Why would you not submit the VAT return?

I am expecting no extra fees. After all, we currently check the VAT return along with the bank recs and the rest of the balance sheet before confirming with client. We then choose to transpose the 9 boxes onto the VAT return (although arguably we should just submit on the cloud based system). If anything this is a small time saving exercise.

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11th Dec 2018 14:56

If your client pays by direct debit remember to get the application in to join the pilot scheme well before the deadline.

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By cbp99
11th Dec 2018 16:18

Presumably, in addition to higher accountancy fees (by 30%), client will also have the extra monthly cost of software.

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11th Dec 2018 22:25

For many accountants and bookkeepers that already check a VAT return and submit I really can't see that any more time will be taken up. Clients moving to cloud, generally means time savings on bookkeeping and ultimately a lot of time saved on the preparation of year-end accounts. I guess a lot of accountants may take MTD as an opportunity to increase fees, but it should not be necessary. Ultimately (while not immediate), a lot of time savings will be made that will equate to an increase in hourly rates for those that have fixed fees in place for monthly/quarterly services.

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to AshBeetson
12th Dec 2018 06:54

AshBeetson wrote:

Ultimately (while not immediate), a lot of time savings will be made that will equate to an increase in hourly rates for those that have fixed fees in place for monthly/quarterly services.


Some accountants are aiming to do deals with MTD providers which enable them to bundle up MTD software as part of a monthly/quarterly service contract.

Some MTD providers are quite happy to have this sort of arrangment where the first level support is provided by the accountants/book keepers, but a smaller fee is charged to the accountants/book keepers so that they can maintain a margin on the service.

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12th Dec 2018 09:43

This is a very good article and highlights the difference between Accountants who are up and ready with the digital age and the Accountant who is not. I have been saying this for ages, there can be a big gap between high techies and low techies. The more we get into MTD, the more this will become apparent.

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12th Dec 2018 10:40

I once took over a client who had posted a full year of bank payments as " Bank Receipts" because she was holding the receipt in her hand!

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12th Dec 2018 16:49

interesting article, as I have yet to try the "Beta"

Q1. does cloud software mean that ALL transactions get uploaded to HMRC, not just the box totals?

Q2. if yes, doesn't that prejudice cloud software, as Bridging software presumably just submits the box totals?

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to yaakovgrant
12th Dec 2018 17:28

yaakovgrant wrote:

Q1. does cloud software mean that ALL transactions get uploaded to HMRC, not just the box totals?


No.
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to johnhemming
13th Dec 2018 08:40

They will eventually cos that is the whole point of MTD.

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13th Dec 2018 11:22

I think it is inevtiable that 2019 will see a significant increase in tax enquiries for VAT-regsitered businesses which are on the cloud. The facts:

1. The reason for MTD is the perceived tax gap of £5bn in this sector. Now we all know that is for the fairies, but HMRC don't.

2. HMRC are rubbish at selecting businesses for tax enquiry.

3. HMRC will be getting transaction level data from the cloud people but the same 9 boxes from the likes of me.

4. HMRC are writing software to trawl that transaction level data for anomalies.

5. HMRC are rubbish at writing software.

6. HMRC are under massive pressure from above to deliver the goods on this controversial project.

In my view cloud businesses can expect more tax enquiries in the coming year. I for one can't see a valid reason to volunteer for that.

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to mr. mischief
13th Dec 2018 15:42

mr. mischief wrote:

The facts:

3. HMRC will be getting transaction level data from the cloud people but the same 9 boxes from the likes of me.


I know the details of the current technical specification. That is not the case on the specification.

SAF-T is the OECD specification for transaction data. This is being implemented in other countries. It is not being implemented on the UK as yet. It may be in the future and it could be handled with bridging software (plug plug). However it is not accurate to say that the cloud will submit transaction data for VAT.

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to johnhemming
13th Dec 2018 17:48

John

Interesting I didnt know about SAF-T and that quite a few countries on the continent have already been doing this for a number of years!

But your answer to my question should then be "Not yet" , rather than "No" and in the mean time, I would be wary of Mr Mischief's warning that Bridging software is a safer bet.

The question we should be asking ourselves is how did the tax authorities in these other countires (France, Portugal, Austria etc) manage to successfully impose transactional level disclosures on a national scale so quickly?

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14th Dec 2018 16:04

She seems a keen guinea pig. I am going to wait until nearer April and then find the cheapest bridging software I can find.

Today's news - HMRC announce further delay to MTD (for tax not VAT) due to Brexit. I hoped it might be for VAT too but I am wrong.

I am still hoping HMRC might point us paper records people to the simplest cheapest bridging software product for excel which is not in the cloud rather than list of masses of all kinds of companies it would take us about £2000 of time to plough through just to work out what is bridging, cheap, non cloud.

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02nd Jan 2019 14:16

I need help! What do we do with an elderly VAT registered client who is incapable of keeping any sort of records digitally. He has income from commercial property and is over the VAT threshold. Do I just wait until the last minute (as we don't have any instructions yet) and see if I can get him an exemption (I suspect this is unlikely), or do we just carry on picking up the figures from his handwritten records and send it in on his behalf, which does not meet the digital requirements.
He is too far away for us to pick the records more than once a quarter.

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to Homeworker
03rd Jan 2019 11:42

The first port of call is applying for exemption.
Make sure your case is well documented as it is highly likely it will go to appeal.
If that does not bare fruition then try VT.

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