MTD for VAT: New Year progress check

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The first quarter of 2019 is clouded by some big deadlines in late March. John Stokdyk offers some light relief for those doing self assessment work by casting an eye forward to the introduction of Making Tax Digital for VAT from the beginning of April.

With Brexit and MTD for VAT hovering uncertainly on the horizon, the usual January Self Assessment rush this year looks more like a gentle curtain raiser for the fun to come. But even if the go-live date for the new method of filing VAT Returns is still several months away, the clock is ticking inexorably, particularly for the HMRC teams that are responsible for rolling out the enabling technology.

After a spurt of activity ahead of October’s Budget, things have gone very quiet on the MTD front over the holiday period. This is often the case as developers take their holidays and attention focuses on ensuring the self assessment systems work smoothly. However, AccountingWEB members did alert us to a maintenance update over the first weekend in December.

This was a slight shift from the pattern established when external contractors dictated that system upgrades only happened twice a year, but HMRC did not respond to AccountingWEB’s requests to explain what they were maintaining. Without that clarification, we can only speculate that some of the work might have been related to functionality to broaden out the MTD for VAT pilot scheme, which is still only running for 500,000 or so simple businesses.

Groups and those on annual and other VAT schemes will not be mandated to use MTD until the first quarterly return they file after 1 October 2019. HMRC’s December 2018 Agent Update provided brief details of progress so far, including links to software lists showing MTD-compatible programs for VAT that is available now; and developers currently working on MTD for VAT.

The Agent Update reported that more than 8,500 UK firms have set up their agent accounts and are ready to act for VAT clients in MTD. It’s worth remembering that the Agent Services Account is currently only used for the trust registration service, MTD for VAT and the MTD Income Tax pilot testing scheme. You will still need to use your existing Government Gateway credentials to create your ASA and access other HMRC online services.

Progress check on pilots and APIs

Making Tax Digital for VAT depends on the successful functioning of application programming interfaces (APIs) that will share data between HMRC’s MTD system and the commercial software programs used to prepare and file tax returns.

The VAT filing system is relatively straightforward and has been restricted to the basic nine boxes that are currently displayed on the existing Government Gateway online return. But that facility will go for MTD filers and they will have to use commercial software instead.

HMRC’s MTD for VAT API page shows that five key interfaces are in place for filing returns and retrieving information about liabilities and payments. A separate customer journeys document lists many of the outstanding requirements that will be delivered after February 2019, but the main elements are now working – but as beta test systems while the pilot continues. These functions include:

  • Creating an agent services account, gaining client authorisation and signing up for MTD
  • Customer/agent retrieves obligations in software
  • Submitting VAT Returns and amending previously submitted data
  • Setting up and amending payments by Direct Debit
  • Change of circumstances notifications
  • Taxpayers can view previous returns in their Business Tax Account and when their next return and payment are due

During the final part of 2018, HMRC officials were proudly boasting that they had handled more than a million API calls – most of which were coming in from well known accountancy software houses such as Sage, IRIS, FreeAgent, Wolters Kluwer and Xero that are participating in its MTD pilot schemes.

It certainly helps to encourage take up if you are a government department and can rely on legislation that forces people to adopt a particular technology like APIs.

How many developers are on board?

The October MTD announcements – and extra delay for groups and other more complex VAT entities – encouraged the perception that HMRC’s developers were struggling to keep up with the onboarding timetable.

At the time of the initial public beta announcements, 33 developers had products ready to go. The initial response may have been underwhelming, but at the time of writing 10 weeks later, that number has nearly doubled to 62 and there are another 111 programs waiting in the wings.

Because VAT returns are generally driven by bookkeeping software, it makes most sense to stick with the programs already being used. As a result our list of MTD-ready developers will start with the names accountants know best:

Bookkeeping systems: Clear Books, FreeAgent, IRIS (KashFlow), Liquid Accounts, MyDigitalAccounts, QuickBooks, Wolters Kluwer (Twinfield), Xero and Zoho are all listed in the first wave of MTD for VAT applications and several of them have announced their involvement with the public beta testing programme. Sage Business Cloud is on the list, which encompasses several product families including Accounting (formerly Sage One), Financials and Enterprise Management. But Sage 50 Accounts is not part of the MTD compliance package – users will be expected to use Sage 50cloud Accounts instead or access a separate Sage 50 VAT module to access the online filing mechanism.

Tax and practice specialists: BTCSoftware, Capium, TaxCalc and Thomson Reuters are all up and running for MTD and supporting accountants and clients through the pilot process. Nomisma is listed in the “coming soon” section.  

Mid-market and ERP accounting systems: developers including Access, AccountsIQ, OneAdvanced, PS Financials (IRIS), Microsoft Dynamics, Oracle NetSuite and SAP are on HMRC’s “pending” list but they tend to serve larger organisations that should benefit from the six month delay. Sage reports that its enterprise products are MTD-ready.

What about all the others?

Our “familiar faces” list above touches on around 10% of all the developers on HMRC’s two lists so there are a lot of other possibilities to take into account. They come from a variety of directions including smaller tax specialists, such as Neilson James, Quickfile, and Tax Systems (AlphaVAT) that were at the forefront of MTD developments.

The MTD-ready list also includes a number of accounting firms ranging from microbusiness accounting specialist Crunch to Big Four outfits Deloitte, EY and PwC.

While some of the mid-market and large company accounting developers are still awaiting recognition from HMRC, resellers including Integra Associates (Agresso and Sage X3/1000), Vanilla (IFS and Microsoft Dynamics) have entered the charts with their own MTD for VAT solutions.

One of the most interesting aspects of MTD is the way it has brought forward developers that specialise in particular vertical markets such as Coins Construction, Farmplan, Farmdata, Landmark (property) and Tyresoft – a specialist app for the tyre industry that had evaded AccountingWEB’s radar up to this point.

The road ahead

To help those seeking MTD for VAT solutions, AccountingWEB will be compiling a comparison table as part of our Software Reviews project. Unfortunately, since the public beta only opened in earnest in October, there is not a lot of user feedback available yet to really get a handle on what the different applications can do. But with the deadline looming, we will endeavour to catalogue their basic functionality in more detail than is currently available from HMRC’s list.

It’s odds-on that MTD for VAT will proceed as planned from the beginning of April, perhaps with a few hiccups, false starts and soft landings along the way.

But if Brexit goes awry, all bets are off the table. The political uncertainties that would result and need to retool tax and Customs systems would take priority, potentially pushing the pioneering dream of universal online filing into the long grass for another few years.

About John Stokdyk

John Stokdyk, AccountingWEB head of insight

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.

Replies

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03rd Jan 2019 09:45

Brexit going Awry?
Bring it on - the sooner this MTD 'merde' is junked the better.

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03rd Jan 2019 11:22

Why all the fuss? Most level headed people realise that whatever happens with "Brexit" deal or no deal, business will carry on as usual. Why? because big business need to trade. Macron and Whoever will not allow the ports to get clogged.
As far as MTD is concerned I really don't think going "live" on 1st April is viable. What is putting many business off is the fact that once you have registered for the new scheme you can't go back on the old one. It will be interesting to see if the fines kick in 1st. April 2020. This is going to be a challenging and interesting year. When China start building condos perhaps they'll invite Tinashe to the opening ceremony.

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to johnjenkins
04th Jan 2019 09:38

I think you are missing the point that the EU is heavily invested in the UK not having "cake".

The EU will want to see the political symbols of the UK struggling to go it alone (ie queues at the ports), to keep the rest of the EU on side and no more breakaways. The EU is a team sport, and you don't change the team for the 3rd or 4th best player.

Big business will of course carry on, but will continue to relocate away from those who make it awkward to do so.

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to ireallyshouldknowthisbut
04th Jan 2019 13:40

I understand your point and it has a sound logic, however the EU is under threat from within. Not from the people in charge but from ordinary folk. Merkel and Macron are on their way out. If there are queues at ports, it will affect France as well as the UK. The French lorry drivers will not stand by and see that happen. When the French don't like something they let everyone know about it in no uncertain terms. If the EU want to continue they will have to change because most of the people of Europe do not want a federal Europe.
Big business will normally go to the cheapest place so it's up to the new UK to make that happen.

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03rd Jan 2019 11:42

I have been thinking and reflecting on MTD digital for VAT and other Taxes and I think after 40 years in Accountancy I am about to witness the biggest mess HMRC could ever create. Clients will file anything unchecked and HMRC will have insufficient capacity to check all the data. This is bound to lead to a massive loss in tax revenue. Unskilled tradesman let loose on computer and claiming everything with no checks made and computers making decisions + DISASTER

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to nodrogbir
04th Jan 2019 16:24

I see HMRC are advertising today for a lot of new university students - presumably ready for when MTD moves beyond just the 9 boxes to everyone's transaction data. Until that point it may still be messy. I am worried about usingi t and certainly will not be an early registrant or buyer of software for my one person business with impeccable paper records and even in April I will make sure I keep the old and new systems in case the new does not work or is a load of rubbish for my own purposes of tracking my business.

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to EnglishRose
11th Jan 2019 09:57

I notice they're not advertising for snowflakes.

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to nodrogbir
08th Jan 2019 10:19

I'm not sure why you think traders filing their own VAT returns online will suddenly start making errors they didn't make filing manually. I don't think that's the issue at all. HMRC's biggest risk is that small businesses who file their own VAT returns will do nothing, and then in July 2019 find they can't file their June 2019 VAT return in the old way and in many cases will just give up. The impact on Treasury cashflow could be significant, and off-the-record conversations I have had suggest that some senior Treasury advisers are starting to panic!

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to nigel
08th Jan 2019 10:44

It is my understanding that clients have to sign up for MTD even when we are out of beta. Only then do their old portal get closed. I am also expecting there will be thousands of businesses that do not know that the system has changed or will completely ignore it.
In July 2019 they will submit using the old method and then they will get notified that they have done it wrong and they should register for MTD.

Does anybody know for certain that the old portal will "automatically" be closed. This would be suicide. The HMRC will be much happy if they file their figures but then threaten with penalties if they do it again.

Per the ICAEW

Filing method penalty

HMRC currently has the power to charge a penalty of up to £400 for filing a VAT return other than electronically without the prior agreement of HMRC (VAT regulations 1995 reg. 25A). This power has been rarely used but will be extended to the obligation to file VAT returns using functional compatible software. HMRC is expected to operate a soft landing where the trader has made reasonable efforts to comply.

It is only the digital link penalty that we know for sure is deferred until 2020.

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to david.bransbury
08th Jan 2019 10:48

It is my understanding that the old portal will be closed for those that have registered with the new portal. The old portal will continue for at leas 12 months when it will be reviewed. Obviously if a few million business have not registered with the new portal, HMRC have a problem.

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to johnjenkins
10th Jan 2019 18:06

I think that that it likely too. I am certainly not rushing to move from impeccable records to new stuff and spend hours even just reading though a ridiculously long list of providers when I just want to be offered one provider who is off the cloud.

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03rd Jan 2019 16:08

I agree totally the previous post. See my earlier posts on this subject, left to their own devices 90% of self-employed people will end up paying less VAT in my experience once they go on to software.

I have warned my clients to expect extra tax enquiries if they are filing from software at transaction level. Just like Business Records Checks I expect these to get increasingly desperate once it dawns on the numpties who lead HMRC that instead of £5 billion extra in revenue they have created a brand new tax gap by their own folly.

The stupidity of the way this has been set up beggars belief, even being able to file a return will be a big challenge for a lot of people.

It should have been easy peasy. They would log in as normal under their existing Gateway ID and a little box would appear offering them the option to "file under MTD" and taking them through that to the point where it is all set up and linked, and they just press submit and job done.

But oh no, this is HMRC we're talking about so the whole thing needs to be 100 times more complex and tricky than that. Obviously totally new IDs are needed, to make life as awkward as possible.

Numpties!

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to mr. mischief
04th Jan 2019 16:47

Exactly. Allowing us an option means bit by bit people can move over. Those like I am with 30 years of paper records could move gradually. Those just setting up who want to scan every invoice and store it in the cloud can crack on immediately and then HMRC can see how it is all working and decide whether eventually to bring everyone in.

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03rd Jan 2019 19:13

Firstly there was an announcement over the Christmas period (well 20 December 2018 to be precise), partnerships and flat raters can now join the pilot.

Client have always had the opportunity to submit rubbish unchecked figures either on paper or using the website. Where the problems will occur if the client has to change system to comply with MTD for VAT, manual to excel, excel to cloud etc., if they don't have training and support.

Maybe I am lucky but the vast majority of my clients who would normally pay £10k in VAT each quarter, would ask me if they had made a mistake if the new system said they had a £5k refund.

In terms of data checking, this is already done by the HMRC computers not physical staff. I am expecting automatic letters being sent to say "are you sure your VAT return is correct". If no response then a HMRC person would get involved and the opportunity for HMRC to charge higher penalties if there has been mistakes as you have not co-operated....

In my opinion, MTD for VAT will go ahead as planned, regardless of Brexit. The only thing that could stop it being mandatory from 1 April is the sign up process seems a mess as my friend Mr Mischief has already mentioned. Tried to sign up two clients so far for the pilot, first one no problem, second one has the HMRC scratching their heads.

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to david.bransbury
04th Jan 2019 16:50

I am worried about the sign up process. HMRC have chosen not to write me a letter yet to tell me about MTD coming in for me with my end of May filing. Assuming they do I still haven't been told how it will work - eg if I buy some excel bridging software will I just type my existing HMRC password and account number in? Not even sure I can remember those as they just come up on my computer when I go on line to do a VAT return or annual tax return. Or will they send me new numbers I somehow have to add in to the software I buy? I just 4 points on a card or letter from HMRC telling me what to do.

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04th Jan 2019 16:22

The comparison to come from AW will be very helpful for me.
I want the cheapest product which works with excel (nothing of course will work with my paper/Word files sadly), is not on the cloud and is bridging software. If I really do have to pay for it a one off fee would be great as I hate on going fees. One I just download and start using in a short period would be useful.

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to EnglishRose
04th Jan 2019 17:26

To the last poster, your comments are very typical of the sorts of comments I am getting from my clients. Of those who are legally required at this stage to file their VAT returns by MTD, I would say around 20% have had any sort of communication whatsoever from HMRC in the past 18 months, compared to 3 communications from me.

The ones who file their own VAT are staggered that this is now going to require separate IDs, after all most of them already have quite a few of these for standard tax, auto enrolment, Uncle Tom Cobbley. That decision alone by HMRC to not be bothered to link all this into the existing IDs will in my view bite them on the backside big time.

What I have told all my clients is that this is the worst software implementation I have seen in my 30 year career. In the very worst, a business with £500m of annual sales:

1. was unable to raise a sales invoice for 6 weeks and
2. was unable to enter supplier invoices for 8 or 9 weeks.

That's a pretty low bar HMRC have managed to get under.

If you want my specific advice to clients and others on how to cope with this with minimum cost, PM me and I'll send you a link. Site rules stop me from pasting it into this thread.

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08th Jan 2019 10:01

One of my clients has just received the HMRC letter advising that they will join MTD for VAT after October. They don't use any special schemes, etc. totally normal trading company. I don't know if this is an error by HMRC (surely not!) or an indication that in fact the deadline is actually slipping already.

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