HMRC lights blue touch paper on MTD letters

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After a few damp squib tweets, HMRC has finally lit the fuse under the MTD communications by writing to all businesses within the scope of MTD for VAT.

The CIOT has confirmed the first ‘wave’ of 20,000 letters to affected businesses will hit doormats on Thursday this week, followed a further 180,000 to be issued next week. There are two versions being used to enable HMRC to monitor their performance.

Why the delay?

HMRC says it held off contacting businesses directly about MTD for VAT until the pilot was ready to accept VAT returns from those particular businesses. HMRC managers apparently believe that business owners would be eager to jump straight into the MTD pool without taking time to adjust their accounting systems or to train staff.   

Thus, HMRC’s communications policy around MTD is driven by which businesses can access the pilot. As the pilot is opened up to more categories of businesses, those organisations will receive a welcome to MTD letter from HMRC.

Who is in the pilot now?

The MTD for VAT pilot was initially accessible by invitation only to the simplest businesses: essentially sole-traders. In mid-October the pilot also opened up to single companies, covering up to 600,000 eligible businesses.

All those VAT registered businesses who can now join the pilot and who have annual turnover of £85,000 or more, should shortly receive a letter from HMRC explaining how they can start submitting VAT returns under MTD, and when this will become compulsory for them. Some VAT registered businesses with turnover just below the VAT threshold will also receive the same letter.

Who is outside the pilot?

The following categories of VAT traders can’t join the MTD pilot yet, so won’t receive a MTD welcome letter from HMRC:

  • partnerships
  • trade with the EU
  • in a VAT group
  • VAT division
  • based overseas
  • use VAT flat rate scheme
  • make VAT payments on account
  • newly registered and haven’t submitted a VAT return yet
  • in the surcharge system.

Extension of the pilot

HMRC expects to start private testing the MTD for VAT system with partnerships and businesses who trade with the EU in late 2018. A selected few businesses from these categories will be invited to join the MTD for VAT pilot at that time. If those private tests run smoothly, the MTD pilot program will be opened up to all partnerships and EU trading businesses in early 2019.

Also in late 2018 or early 2019 the MTD pilot will be opened up to newly registered traders, those who use the flat rate scheme, and businesses within the surcharge mechanism. 

April 2019

MTD for VAT is mandated for all VAT registered businesses except those who have been deferred and those who qualify for an exemption on turnover or other grounds, for VAT periods beginning on and after 1 April 2019. The requirement to keep digital records starts from this date but the first VAT return, for a normal quarterly period, must be submitted by 7 August 2019.

We expect the MTD for VAT pilot to be opened around this time for the following VAT registered organisations who have been deferred: 

  • Trusts
  • Unincorporated not for profit organisations
  • VAT divisions
  • VAT groups
  • Public sector entities and companies
  • Local authorities
  • Traders based overseas
  • Large businesses who must make VAT payments on account
  • Annual accounting scheme users

These organisations should receive a welcome to MTD letter at this time

Exemptions

All businesses currently exempt from online filing for VAT will automatically be exempt from MTD for VAT, and they won’t have to apply for a separate exemption. This is a tiny number of VAT registered traders.

HMRC is expecting a small increase in the numbers of businesses who will qualify as exempt from MTD for VAT on the basis of disability, age, religion, or digital exclusion. These businesses will have to apply for an exemption from MTD.

The VAT Notice 700/22, para 2.2 says traders should contact the VAT helpline if they think they may be exempt, but that helpline has no information about the MTD exemption. HMRC will publish details of how to apply for an exemption for MTD at the end of November 2018, alongside new guidance, which HMRC hopes will reduce the numbers who will claim an exemption.    

Social media

HMRC will be running a social media campaign about MTD for VAT including twitter posts and YouTube videos. HMRC will also publish case studies of how businesses have converted to MTD filing of VAT returns, taken from real examples.

The HMRC webinars on MTD are available to view again under ”help and support for tax agents”, scroll right down under the online services heading to find the list of earlier webinars.

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

Replies

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07th Nov 2018 09:39

"HMRC will be running a social media campaign about MTD for VAT including twitter posts and YouTube videos"

*sighs*

One thing I have noticed is HMRC's web page on this is grossly misleading, as it doesn't reference excel spreadsheets as being "digital".

https://www.gov.uk/guidance/use-software-to-submit-your-vat-returns

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By djtax
06th Nov 2018 14:34

I'm still waiting for the final report from the House of Lords committee's recent hearings on MTD fVAT. HMRC is unlikely to come off lightly...

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07th Nov 2018 08:32

I must say I am impressed by the folks in the House of Lords with their comments. The comments show that they have grasped the essentials of this:

1. That HMRC have completely botched the implementation, even in the highly unlikely event that they pull up trees from now until March.

2. There is no chance whatsoever of any increase in tax yield from it. The same numbers will go into the boxes, just by a different method.

Yet it is full steam ahead from the HMRC numpties.

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07th Nov 2018 09:43

I think all of us would agree that MTD is basically a "good thing" if it results in an improvement in the quality and accuracy of a client's accounting records. MTD has been a very useful stick with which to beat client's around the head and insist that they move to cloud accounting. Fortunately I am now ahead of the curve and all my VAT registered clients are either on Xero or QBO. Mr Mischief may describe HMRC as "numpties", but that really is a tad unfair. At the very least MTD gives us a chance to increase fees, which none of us can complain about.

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to patrickcb
07th Nov 2018 10:52

Do you find there is an improvement then?

I find with our client's they just make different mistakes.

Moreover by the time its sent to HMRC its right anyway, so I don't see any improvement at HMRC's end.

I don't agree MTD is good thing, its extra red tape for no benefit for the client.

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By Dandan
to patrickcb
07th Nov 2018 13:37

MTD is not a good thing in my opinion.

It leads to 3 situations :-

1)Making cloud software companies richer
2)Giving businesses less control over their financial affairs. This is because they are told to move to inferior cloud systems compared to desktop systems.
3)Make accountancy firms pat themselves on the back ; thinking they are progressive and ahead of the times when they are not.

The truth is that MTD will not be able to cope with the true technology revolution that is happening. Bring in blockchain, P2P and cryptocurrency and HMRC will struggle collecting correct tax.

What HMRC thinks is new technology is already antiquated technology in the wider scheme of things.

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to Dandan
07th Nov 2018 12:20

I'm afraid I disagree with Dandan.

Making cloud software companies richer is neither here nor there.

I cannot agree that cloud systems are inferior compared with desktop systems. Different perhaps, but never inferior. The beauty of cloud systems is that I can easily log in, have a look around and, if necessary, correct things. All my clients like this. They feel that their financial affairs are much more up to date and reliable . Even they don't like having to rely on old-fashioned Excel spreadsheets. Mt clients' bank managers love it as relevant financial information is available almost at the touch of a button.

We are definitely being progressive.

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to patrickcb
07th Nov 2018 12:29

The beauty of cloud systems is that some joker/hacker can steal or play with all your information without you being able to do a thing about it.
At least when cash was robbed the police knew (roughly) who did it. Now you got no chance of finding the culprit(s).
Yes, we are definitely being progressive.

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to johnjenkins
07th Nov 2018 13:38

I am now using W10 (yuk, double yuk) and Office Business Premium 365, so far it's pretty good.

I do though still have a couple of PC on W7 and, believe it, Office 2003 which still does just about all I want it to, and of course, I have the discs.

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to johnjenkins
07th Nov 2018 13:38

I am now using W10 (yuk, double yuk) and Office Business Premium 365, so far it's pretty good.

I do though still have a couple of PC on W7 and, believe it, Office 2003 which still does just about all I want it to, and of course, I have the discs.

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By Dandan
to johnjenkins
07th Nov 2018 13:43

johnjenkins wrote:

The beauty of cloud systems is that some joker/hacker can steal or play with all your information without you being able to do a thing about it.
At least when cash was robbed the police knew (roughly) who did it. Now you got no chance of finding the culprit(s).
Yes, we are definitely being progressive.

I agree. I have dissuaded a client who have members of the royal family as customers as well as celebrities to go on cloud because their private info could be hacked into.

Industrial spying is also another risk. Cloud companies have already admitted "sharing" data. They claim they do so anonimously and that the companies are not identified.

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to johnjenkins
07th Nov 2018 13:58

C'mon, we're being silly now. Why is everybody looking for the negative with regard to cloud systems? Why not look for the positives (and, please, do not come back with some smart Alec comment that"there are none"). Look at all the advantages and saving of time to your clients!

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to patrickcb
07th Nov 2018 12:58

patrickcb wrote:

The beauty of cloud systems is that I can easily log in, have a look around and, if necessary, correct things.


The curse of cloud systems is that you are at the mercy of internet accessibility.
Furthermore, the GDPR compliance of these 'cloud' Processors and Controllers is not certain, neither is their control of the location of data-stores. I take it you have consents from all your clients to use [aka. pass their data to] these third parties?
Safest, really, to confine your own cloud to h/w under your direct control.
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to dgilmour51
07th Nov 2018 14:11

What on earth has got into people today. Yet another "doom and gloom" response.

Internet accessibility for me at least never been a problem. My office in Bicester: good connectivity. My home out in a small village in the very rural sticks: good connectivity. Last year I was working on clients' accounts from a cruise ship in the middle of the South China Sea: good connectivity!

GDPR? Of course I have client consents. All Xero data on EU based servers.

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to patrickcb
07th Nov 2018 15:02

patrickcb wrote:

Internet accessibility for me at least never been a problem. My office in Bicester: good connectivity. My home out in a small village in the very rural sticks: good connectivity. Last year I was working on clients' accounts from a cruise ship in the middle of the South China Sea: good connectivity!

Well, I've had terrible problems in Foindlemore, Mysore and Astana, and unacceptable responses in Manchester, Paris and Dakar.
patrickcb wrote:

GDPR? Of course I have client consents.

You say 'of course' - have they explicitly stated that they consent to Xero having possible sight of their data as Processors and Controllers [e.g. for fixing problems, using extracts of live data for development testing etc.], or just that they consent to your using Xero?
patrickcb wrote:

All Xero data on EU based servers.

My understanding is that live data is on EU servers, but what about backups etc. Development is controlled from NZ, so what about test sets for testing EU tax etc.? Can my data be accessed by a support function based outside EU if I call the Help?

You may be right, there is, in the case of Xero, absolute watertightness - and I applaud your faith ... sadly I cannot share it.

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By Tornado
to dgilmour51
07th Nov 2018 15:20

What happens if the XERO shareholders sell out to Chinese or Russian entities?

Who could be sure that the GDPR requirements are being fulfilled?

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to dgilmour51
07th Nov 2018 14:11

What on earth has got into people today. Yet another "doom and gloom" response.

Internet accessibility for me at least never been a problem. My office in Bicester: good connectivity. My home out in a small village in the very rural sticks: good connectivity. Last year I was working on clients' accounts from a cruise ship in the middle of the South China Sea: good connectivity!

GDPR? Of course I have client consents. All Xero data on EU based servers.

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to patrickcb
07th Nov 2018 17:15

Just how many offices and cruise ships have you got?

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to johnjenkins
07th Nov 2018 22:08

One main office in Bicester, one tiny satellite in Great Malvern, and at least two cruises every year - and my trusty iPad with access to all my client's data never more than 10 feet from me!!

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By Dandan
to patrickcb
07th Nov 2018 13:36

patrickcb wrote:

I'm afraid I disagree with Dandan.

Making cloud software companies richer is neither here nor there.

I cannot agree that cloud systems are inferior compared with desktop systems. Different perhaps, but never inferior. The beauty of cloud systems is that I can easily log in, have a look around and, if necessary, correct things. All my clients like this. They feel that their financial affairs are much more up to date and reliable . Even they don't like having to rely on old-fashioned Excel spreadsheets. Mt clients' bank managers love it as relevant financial information is available almost at the touch of a button.

We are definitely being progressive.

What sort of clients are we talking about here ? Are these happy clients small ones ?

I have problems with many clients who use price levels (different price lists for different types of customers ). They are staying on desktop. Even the beta price levels being introduced by a certain cloud company are very poor and not fit for purpose. In fact they are not even available officially.

More problems with the large groups with foreign head offices and I have many of those that run a smaller UK subsidiary. We cannot get anywhere near mapping their reporting systems. They report on at least 6 levels. We have poor job costing, class, dept system.

What about serious stock or stock assemblies. Desktop deals nicely with them. In the US QB Enterprise is very popular. It handles all sort of assemblies and stock and handles stock item, location and bin number (3 level of stock monitoring and you can add more. The sales invoices have extra columns to show additional stock info. In the UK , QB Enterprise stopped being available after ver 2013.

The truth is cloud software has got a very long way to go and is only suitable the the smallest of businesses.

By the way, Spreadsheets are not old fashioned. Don't you have clients that are part of a VAT group (like 20 of them in one group). What do you use to consolidate their VAT reports ? Don't tell me you use word ?

What about part exempt VAT businesses. We have many businesses that are LLPs in the property business or are facilitators . What would we do without excel ? How do you calculate the VAT ?

In addition, income and expenditure on each project has to be worked out long in advance and it involves detailed analyses on dozen of excel worksheets with high levels of complexity. Without excel , they could not operate.

People are often being mislead into going on cloud to comply with MTD when in fact thee is no need to go on cl;oud to comply with MTD.

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to Dandan
07th Nov 2018 17:22

We're from two different worlds, Dandan. I'm sure you'll be surprised to hear that no, I do not have any clients who are part of a VAT group nor do I have any clients who are partly exempt. I don't even have clients who need to analyse income and expenditure by project! As far as I am concerned, going onto cloud accounting has massively improved the accuracy of my client's bookkeeping. I am quite sure that the majority of small practices like my own (just me, no staff, no dog!) fully welcome MTD.

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By Dandan
to patrickcb
07th Nov 2018 20:28

patrickcb wrote:

We're from two different worlds, Dandan. I'm sure you'll be surprised to hear that no, I do not have any clients who are part of a VAT group nor do I have any clients who are partly exempt. I don't even have clients who need to analyse income and expenditure by project! As far as I am concerned, going onto cloud accounting has massively improved the accuracy of my client's bookkeeping. I am quite sure that the majority of small practices like my own (just me, no staff, no dog!) fully welcome MTD.

It may well work for you, based on your circumstances. I would not dispute that.

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to patrickcb
07th Nov 2018 11:45

In 1972 my the employer introduced its first computer, the size of garage, in 1984 I was responsible for the introduction of computerised sales and inventory management systems for part of a major retailer. First rule of computerisation should be to make sure the system works and is fit for purpose first, otherwise you just produce faster crap.

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to patrickcb
07th Nov 2018 16:09

This has been my experience, all my cloud clients now run over 95% of their own books accurately with hardly any input from me. Having books accurate and up to date in order to just click a mouse once a quarter has surely got to be the goal?

All this doom mongering is so reminiscent of the bleating that went on pre RTI, AE, SA etc etc. If HMRC are less than efficient in all this then perhaps it should have been the case that businesses and our profession should have been pushing it rather than sitting in conservative inertia waiting to moan when .GOV decide to drag everyonr into the 21st century?

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By Matrix
to Paul Scholes
07th Nov 2018 19:49

So I assume, given that yourself and Patrick are MTD fans and have saved your clients all this time and can file at a click of a button, you have passed the cost savings onto your clients?

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to Matrix
07th Nov 2018 22:01

You've definitely got the wrong end of the stick here, Paul. Cloud accounting means I don't have to spend so much time on compliance work. I can then spend more time on value added services for my clients - plain old business advice, if you like. So clients get a much better, more meaningful service, more bangs for their buck, as it were.

I'm 67, I've been qualified since 1974, and IMHO cloud accounting and all it brings with it is the best thing to have happened in the profession for many, many years. I am surprised at how many of the posters on here appear to be positively Luddite in their attitude. It's change. For God's sake, grab hold of it and use it for the best advantage of our clients and of ourselves. HMRC will probably mess the whole thing up, but that's no reason why we should grumble and cavil. That's not why I became a chartered accountant - I qualified to help clients using the best technology I can fund.

Just as RTI wasn't an unmitigated disaster, I don't think MTD will be either. The advantages of MTD outweigh the disadvantages.

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to patrickcb
09th Nov 2018 10:15

Hi patrick - I just spotted my name in your post, did you mean me or another?

I'm 100% with what you say (although I'm 2 years behind in age).

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07th Nov 2018 09:55

eek 'basically a good thing'....how will it improve the quality and accuracy of clients records...what because it is on software rather than in excel or on a duplex book....?!

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07th Nov 2018 09:56

What is really worrying is that the "now" portal will be closed for those that have to go onto the "new" portal. So what happens if the return is rejected and how far will the "soft" approach go to not being penalised. There doesn't seem to be a motorway escape lane.

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to johnjenkins
07th Nov 2018 11:28

The current portal isn't closing yet, so the "motorway escape lane" remains available, albeit at risk of penalty for non-compliance, which can be appealed if necessary.

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to charliecarne
07th Nov 2018 12:11

No but it will be from 1/4/19 to those that have a turnover of over £85k and are not exempt.

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to johnjenkins
07th Nov 2018 13:37

Reading between the lines of the info coming from the HMRC and the software companies. The old portal is not automatically turned off by HMRC, the VAT registered business migrates themselves to the new portal by registered for MTD for VAT. This is a conscious activity.
There is no automatic registration for MTD by HMRC.

I don't know what happens when in July 2019 when you have VAT on outputs of more than £20,000 on your technically your first MTD VAT return but filled using the old VAT portal. I expect a phone call or letter from the HMRC!

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to david.bransbury
08th Nov 2018 11:48

It will be interesting to see what happens to me. I will go on to it at the last possible moment as I don't want to do it at all and will do it from desktop based programme I will have to find and will have to force myself on to excel I suppose ( I won't use the cloud). If it does not work toward the end of May (my first VAT filing to be subject to it) I hope I can still log into my HMRC account and submit it the previous way. If instead they just turn the whole thing off if the new stuff does not work or they give someone the wrong new code number or whatever will be required to link the bridging software to HMRC then that will be a massive waste of my time and very worrying.

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to EnglishRose
08th Nov 2018 12:19

@EnglishRose, are you filing quarterly VAT returns? If so you might not need to comply for another 3 months because it's the first quarter commencing on or after 1 April that is MTD.

My understanding is the existing GOV.UK portal will remain open because (1) voluntary registered businesses (2) businesses deferred until 01/10/18 and (3) exempt from MTD but not online filing. In any case, the GOV.UK portal won't know the exempt content of box 7 so HMRC won't be able to use it as an accurate MTD turnover test. and in any case season variations mean many businesses will still be able to file for a quarter or two anyway.

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to kevinringer
13th Nov 2018 08:41

I assume my first quarter is that after April so what I would usually file the week before 31 May.I file quarterly. I am not feeling the extra month or two beyond April is that helpful although I suppose it may give HMRC 2 months to sort out problems.

If they don't turn off the old filing method for people like I am (a pretty standard sole trader, some EU income/expenses/payments, over the VAT limit) then that could be quite helpful in case I am struggling with bridging software.

HMRC have not send me these letters they say they are sending to everyone yet to tell me these changes are coming.

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to EnglishRose
08th Nov 2018 13:14

Have a look at VT (Visual Transaction). It's free for a month so you can have a play. I think you will be pleasantly surprised.

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07th Nov 2018 10:40

So for the larger, more complex businesses, the pilot isn't going to open until around the time this is mandatory.

Do HMRC understand what a pilot is?

And to all contributors in small practices rubbing your hands together because you've mandated to business owners to keep records that suit you, and not records that suit their business... *shakes head*

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07th Nov 2018 10:57

HMRC will be running a social media campaign about MTD for VAT including twitter posts and YouTube videos.

My clients who don't keep digital records are the least likely people to be using twitter, youtube or any other form of digital communication.

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to petwencal
13th Nov 2018 08:44

Exactly. I wuld never use youtube other than for how to fix the car videos, as it takes up too much time. I want a very short written letter from HMRC ideally with links to only 2 or 3 bridging software free downloads (or paid for if I have to but which aren't on the cloud) and precise details eg from April you will be unable to file your VAT on the existing portal. Instead you have to do these 3 simple steps with this new code word.
Ideally I would like them to say "and you may deduct £1000 from your next VAT payment as compensation for time wasted on this pointless exercise in 2019. Your compensatoin for future years may increase if we find more time of yours needs to be spent on this"....

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07th Nov 2018 11:05

OK, that's 200,000 - and the rest? Or will they be written to 'later in 2018'.

You simply couldn't make this up!

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By hfc1875
07th Nov 2018 11:13

.....this car is going to hit a few potholes and speed bumps ....

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By Tornado
07th Nov 2018 12:32

On reflection 'Car Crash' is a bit tame.

As per Rebecca's wry take on the situation, light Blue Touch Paper, stand well back and wait for the explosions to begin, is a bit more like it.

I think we might be well entertained by a good selection of Thunderflashes, Blockbusters, Jumping Crackers and the inevitable Rocket for the person responsible for this badly thought out project.

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07th Nov 2018 13:31

Partnerships won't be able to join the pilot until 2019 but will be mandated from 1 April? Partnerships won't even be able to do a full quarter until the pilot which means they won't be able to test the system. Surely this isn't Carter compliant. 77% of my clients are partnerships.

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07th Nov 2018 13:41

HMRC have previously announced that 1.2 million business will be in MTD VAT. HMRC have also said 3.5% won't be mandated from 1 April. This leaves 1,158,000. There are 4000 currently exempt that will receive automatic exemption. This leaves 1,154,000. HMRC is only going to issue 200,000 letters. That still leaves 954,000. A staggering 658,000 can't participate in the pilot (what sort of pilot excludes over half the population?) so that still leaves 296,000. Why isn't HMRC writing to all affected businesses?

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to kevinringer
08th Nov 2018 11:51

It will be interesting to see if I get my letter today (Thursday - our post comes at 2pm so not here yet). I theory I will get it today or next week as I a sole trader VAT person. I wonder what it will say - point me to 150 different complex expensive product cloud providers when I want it to show me the two bridging software for excel companies that might make it available free I expect. I am not using the cloud.

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to EnglishRose
13th Nov 2018 08:46

Not surprisingly my letter has not arrived (we are now on 13 Nov).

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07th Nov 2018 13:44

On the basis that a week before the last quarter end I attempte to file two VAt returns and the Acces Code call failed on both, the CHAT resulted in being told to "await further instruction that would come within 48 hours, arrived in 72), and that was just an instruction to contact VAT Online, blow me over, and the first 45 Chat ws inconclusive until it failed at 16.50 and a further 50 minute CHAT resulted in the deletion of the phone numbers.....I don't hold out muchhope for soemthing more complicated.

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to moneymanager
08th Nov 2018 11:54

I feel similarly. I am a sole trader. I have children. I am very very very busy. Some days there is hardly time to go to the loo and so any kind of change at all even if it just takes 5 minutes of my time is a massive imposition that I hate. eg I don't change utility providers even if that costs me money because I don't like change and things go wrong when you change things and the cost of my time is usually more than the cost saving of the switch.

So this is just about my worst nightmare - learn excel, find bridging software, have to pay for it, change how I interact with HMRC for VAT. I bet the chances of my end of May VAT filing going wrong are about 99.9%.

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07th Nov 2018 16:48

You should really be thinking about your clients patrickcb not just fees. Very Poor coment mate!!!

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