HMRC’s VAT notice setting out guidance for MTD for VAT was accompanied by a list of software applications to support online filing and a number of programs designed to bridge the gap between MTD and spreadsheet digital records.
VAT Notice 700/22 Making Tax Digital for VAT stipulates what information needs to be recorded and retained digitally for each VATable supply and claim made by the business, which in essence includes the time of supply (tax point); value of the supply (net value excluding VAT); and rate of VAT charged or claimed.
The VAT notice also addresses the issue of what constitutes a digital record. Digital records of the required information can be kept in a range of compatible digital formats, but the transfer of that data must be digital.
The official guidance is accompanied by a list of 18 software developers offering MTD for VAT solutions and documentation describing seven different scenarios or “customer journeys” describing how spreadsheet users would plug into MTD systems via application programming interfaces (APIs). Information can only be submitted to HMRC via application programming interfaces (APIs) from commercial software, bridging software or API-enabled spreadsheets, HMRC explained.
VAT adjustments such as partial exemption “are not part of the MTDfB journey”, the accompanying document explained, and “can be calculated separately outside the digital records of the organisation and transferred in digitally or manually”.
Cutting and pasting does not constitute a digital link, the notice warned, but the restriction will not be enforced until the initial “soft landing” introductory period ends after the first year of MTD for VAT after 1 April 2020.
The MTD for VAT customer journeys look comprehensive enough, but the only way to be sure all the bases are covered is to subject the system to extensive testing to discover untested scenarios that may need to be accommodated.
‘Big step forward, but still more steps to go’
According to BTCSoftware founder and director Rob Ellis, the VAT notice is a big step forward for agents and their software developers, but there are still a lot more steps to negotiate before the profession is ready for the April go-live.
BTCSoftware has been working with HMRC to develop a bridging tool and demonstrated its online MTD solution at Accountex in May. As a practice software specialist, BTCSoftware is creating a submission engine rather than a record-keeping tool. The software draws data in digitally from a spreadsheet into an MTD for VAT-friendly format and validates it for submission to HMRC at the touch of a button.
“We have digital links to other products that HMRC wants, so they’re happy with it and it links to spreadsheets and VT Software,” Ellis said. “We’re comfortable with what we’re getting from HMRC in terms of documentation, but not so much with the environment we get for testing as an agent.”
HMRC has a complicated schedule of rules governing who can participate in the private phase of the MTD for VAT pilot scheme. At some point later in the year, that will become a public pilot in which any business can participate, but the HMRC development team is taking longer than expected to extend the pilot categories, which currently doesn’t allow clients who pay by direct debit to participate.
“Because we can’t find anyone who fits their rule, we’re having to test as individuals rather than agents. I’m confident our software will support the process, but it would help to get one agent onto the system. My concern is whether they’ll be able to get everybody on to the platform in time for them to be comfortable by April,” said Ellis.
Notable for those not on the list
The list of MTD for VAT software developers is also notable for the larger software developers not on it, commented IRIS product marketing director Nick Gregory.
“Small businesses are taken care of. But if a mid-size firm has clients using Oracle or SAP, those developers are not on that list. The companies most exposed are already using complex spreadsheets to calculate their VAT and file the HMRC gateway. Come April, how are they going to file this stuff?” he asked.
Successful tests and submissions
Chartered accountants Rowleys completed a successful MTD submission using IRIS software in February. “We are delighted to be the first accountancy practice to file a quarterly submission and hope this provides evidence to other practices across the UK that both HMRC and software providers are collaborating to make MTD a reality,” said Rowleys tax director Mark Hook.
Sagars followed suit in April using QuickBooks Online for Accountants, which connects via HMRC’s APIs to the MTD filing mechanism.
Intuit QuickBooks UK head of product management Shaun Shirazian said the VAT notice was useful in answering many of the frequently asked questions about what records needed to be kept and what was accepted as compatible software. But he was keen to emphasise that MTD for VAT was more than just about the final step of filing returns.
“The filing piece is one of many customer problems out there for accountants and small business owners,” he said. “Accountants could use bridging software to solve that problem, but to solve all the other problems such as bookkeeping in real time and being confident the numbers are correct. All those pieces need to be in place before you get to filing, which is where we think software like QBOA can add value.”
Xero also recently completed successful pilot tests with two accountant partners: Gibson Whitter and CH Accountancy & Bookkeeping.
Clear Books, meanwhile, is encouraging users to use its MTD-ready online accounting software as part of the pilot scheme. Clear Books CFO David Carr told AccountingWEB the company has been liaising closely with HMRC for “many months” and had access to a draft version of the new VAT guidance.
“It’s a really good process to get VAT data through Clear Books into HMRC in three steps,” Carr said. “We have Clear Books Micro, which is a cloud solution for spreadsheet customers. Anyone who is doing complex adjustments that might require calculations outside our software can do whatever they want and include that in Clear Books to become part of their submission.
“We submitted some of the first digital VAT returns in 2009. This is bread and butter for us. We’re super confident we’ve done everything we need to be MTD-compliant.”
The company has so far only been testing its tools in HMRC's sandbox environment. It has nominated a dozen users to participate in the private pilot testing scheme, but participating is “quite restricted”, Carr said.
Sage released a statement welcoming the VAT Notice for giving “much-needed clarity for accountants and businesses”.
The company added: “We hope it’s a step closer to shifting focus from the short-term challenges of adopting a new submission process, to understanding the fundamental productivity benefits MTD and going digital will deliver in the long-term. Businesses that adopt digital processes are twice as likely to report higher than 10% growth, and moving to digital accounting saves an SME an average of 27 days a year.”
Word on the high street
Presenting a practitioner’s eye view from the high street, AccountingWEB member Ireallyshouldknowthisbut interpreted the VAT notice as HMRC acknowledging: “Spreadsheets are fine, and by extension all legacy software such as VT Transactions+.
“The magical ‘digital link’ is not required for 12 months until 2020 and quite frankly unenforceable anyway… Quite what they have against ‘cut ‘n’ paste’ I really don’t know. Anyone would think it exposures the emperor’s lack of clothing rather acutely in that it’s ‘as before, different interface’.”
About John Stokdyk
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.