MTD for VAT software cranks into action

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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.

Replies

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19th Jul 2018 12:26

So a >3 column Spreadsheet, for each client
{
the columns being:
o VAT Reg. Nr
o Invoice Nr
o Tax point
o Net value excluding VAT [1 Column per VAT Rate]
}
is the minimum requirement,
+ arrangements to transfer said data from Invoices
is all that is needed to 'go digital' ?

I await HMRC making it more difficult/complex in the near future.

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19th Jul 2018 12:31

Have HMRC announced whether they are writing directly to VAT registered businesses or have they passed the buck to agents?

What about unrepresented VAT registered businesses? Are they assuming that everyone regularly reads all the latest HMRC updates or, alternatively, that when the first return after 1 April 2019 is due for submission those businesses will suddenly hit a brick wall and then will learn all about MTD!

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19th Jul 2018 12:33

hmm if you adopt you get 10% growth and 27 free days. Where on earth does this come from??

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to why always me
19th Jul 2018 13:06

Government statistics. They're always wrong. Or perhaps he meant to say 10% less growth and 27 less free days.
Now where have I heard a similar scenario just lately.

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19th Jul 2018 13:07

Mmm. So does every single invoice have to be listed ? I do the VAT for a garage client who has literally hundreds if not thousands of invoices from motor factors each quarter, often for just a couple of quid.

No way am I going to list all these, life's too short. And why should I or the client employ someone just to do this work ? At present I use the monthly statements as they're all standard rate VAT and also account for credit notes (often virtually indistinguishable from invoices so easy to miss otherwise).

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to Eddystone
19th Jul 2018 13:15

From what I can gather HMRC need the date of supply. However I would think that in order to get returns in HMRC will have to compromise.

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to johnjenkins
19th Jul 2018 16:28

Strictly speaking, the date is supposed to be listed now, if I remember rightly, but VAT inspectors have never had a problem with using the statements. One in fact agreed that it seemed a more accurate way of doing things, with less room for error with credit notes being missed.

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to Eddystone
19th Jul 2018 16:36

Initially a HMRC officer told me that you would use your phone camera to take a photo of the invoice and the software would do the rest automatically so it would be dead easy. In practice I don't know anyone who has got this working satisfactorily.

What you propose is a practical solution which will result in the correct amount of VAT and given there's going to be massive non-compliance with MTD I feel HMRC will be happy you've got the right totals.

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to kevinringer
19th Jul 2018 16:55

Thanks, Kevin. Well, that's one way of doing it, I suppose, but methinks by the time you've photographed the invoice and transmitted it to the software, it would be far quicker to just list it on Quickbooks or whatever. Might have a word with one of the factors and see if they could somehow make the invoices available to download direct to the software.

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19th Jul 2018 13:13

Duh, managed to psot this twice ! Any way of deleting it?

Mmm. So does every single invoice have to be listed ? I do the VAT for a garage client who has literally hundreds if not thousands of invoices from motor factors each quarter, often for just a couple of quid.

No way am I going to list all these, life's too short. And why should I or the client employ someone just to do this work ? At present I use the monthly statements as they're all standard rate VAT and also account for credit notes (often virtually indistinguishable from invoices so easy to miss otherwise).

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19th Jul 2018 13:18

AW have already published an article on this at https://www.accountingweb.co.uk/comment/664592#comment-664592. Some of the questions raised have been answered on that thread eg HMRC will be writing to businesses.

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By Tornado
19th Jul 2018 13:34

“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’.”

As has been pointed out in another thread, 'cut n paste' is unlikely to be the way that people digitally transfer data from one spreadsheet to another as this destroys data in the first spreadsheet. The majority of people use 'copy n paste' which is a wholly digital transaction and leaves the original spreadsheet intact.

As HMRC have only outlawed 'cut n paste' then it seems we can assume that 'copy n paste' is perfectly acceptable as a digital link of data.

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to Tornado
27th Jul 2018 12:58

the problem with cut and paste is it leaves a dirty big hole in the screen!

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19th Jul 2018 13:35

So . . . . . does anybody know how much money HMRC have spent in order to achieve ‘as before, different interface’?

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By Tornado
to lh3f9764bg1g
19th Jul 2018 13:45

The MTD budget was 1,200 million pounds. Your guess is as good as mine as to what this has/will be spent on.

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19th Jul 2018 14:48

What's happening with VT? I recently got an email saying they would continue to support the software and that interfaces would be available for MTD. But website is still unavailable.

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19th Jul 2018 15:25

I'm worried about MTD generally but the one bit that particularly stands out for me is that I understood businesses currently voluntarily registered for VAT (i.e. trading under the threshold) were exempt but if they went over the threshold in the future they would come into MTD and couldn't just opt out of it if their turnover fell below the threshold again as in they were stuck in the system until they deregistered for VAT etc. What I now read is that MTD applies to any VAT registered businesses who have ever traded over the VAT registration threshold! Surely that is crazy - they may have had a large contract 20 years ago which took them over the threshold, but not since, and they decided to retain their VAT registration status for various financial reasons. How is that going to be 'policed' by HMRC - I definitely wouldn't have access to that information especially if I took the client over from another agent.

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to Southwestbeancounter
19th Jul 2018 15:35

I have the same concern: I too thought it only applied to turnover post 01/04/19 but read the guide that it applies to past turnover. How are we to know if a client has exceeded the threshold at some point in the past? Because I was concerned I've submitted this question to HMRC to cover in their webinars next week.

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to kevinringer
19th Jul 2018 16:56

I'm glad you've submitted it to them kevinringer - please keep us updated on their response (if it is forthcoming!)

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By djtax
to kevinringer
23rd Jul 2018 18:25

What's the betting that the forthcoming webinars will only repeat what we have all now read on the newly released VAT Guide with no further practical help?

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to Southwestbeancounter
27th Jul 2018 13:48

Per the latest HMRC webinar that part of the VAT Act is wrong or at least misleading - it is apparently going to be re-written - the bit that says that MTD relates to any VAT registered businesses who have ever traded over the VAT registration threshold should mean from the point MTD for VAT registered businesses is brought in next April and does not relate to any time before then. It basically would then read as we have understood it all along!

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By ABS2
19th Jul 2018 17:34

Neil Jameson Technology solution will be best for my excel VAT jobs, add an extra worksheet to my spreadsheet linking to my workings as to how box 1-8 is arrived at then use their software to submit. Slight cost but nothing major thankfully

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to ABS2
20th Jul 2018 14:03

Which software is this? What's the name of the site? I'd like to have a look at it.

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to lh3f9764bg1g
23rd Jul 2018 08:49

https://www.neilsonjamestech.co.uk/mtdreturn.php BTC also have a similar product out and Absolute are about to release theirs.

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19th Jul 2018 21:56

When MTD was first mooted I was horrified but now I'm thinking I have used Sage for years to submit my VAT returns and it would seem this will still be acceptable.
Have I missed something here?

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By ABS2
to Pingsquitch
19th Jul 2018 23:24

If you mean Sage desktop, I'm pretty sure you can't submit directly from that anymore come MTD but happy to be corrected

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By Alf
to ABS2
20th Jul 2018 09:29

I think that if you have Sage 50 V24 or above you can use it for MTD

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to Alf
23rd Jul 2018 08:53

Sage have assured me that Sage desktop will be MTD compliant and because v24 is subscription it means users will have MTD compliant software though it might be v25 by the time we get there.

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