Making Tax Digital moves up a gear

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HMRC has issued the MTD for VAT notice alongside a communications plan for advisers to use to educate their clients about MTD. There are also now 18 approved MTD for VAT software providers.

VAT notice

This VAT notice 700/22: Making Tax Digital for VAT, expresses the law relating to MTD for VAT in a readable form and includes guidance from HMRC to fill the gaps where the law is deficient. It will be essential reading for all tax advisers and businesses who have to either advise on MTD, or who need to follow the MTD rules from 1 April 2019 or a later date.

The most important parts of the notice are part three: digital record keeping and part seven: examples of digital links (see below).

Exemptions

VAT-registered businesses with annual VATable turnover under the VAT registration threshold (currently £85,000) don’t have to follow the MTD rules, but if they wish to do so they must tell HMRC in writing. No postal address for this is given in the notice, so I assume that all written queries about MTD should be directed to the VAT written enquiries team.

Businesses that want to claim exemption from the MTD rules on the grounds of religion, insolvency, or because it is not reasonably practical to use digital tools (see section 2.2), will have to contact the general VAT helpline to ask HMRC to approve the exemption or provide “digital assistance”.

HMRC will host a webinar for tax agents focusing on this VAT notice on 24 and 25 July, which may explain what form digital assistance may take and whether a dedicated MTD helpline will be provided.

Not fully working

The VAT notice confirms that the full MTD service won’t be available from HMRC when MTD for VAT goes live in April 2019. Businesses won’t be able to submit voluntary updates or supplementary data to support their VAT return. HMRC says these features will be available at a later date.

Record keeping

Information which is required for the VAT return must be kept in a digital form within functional compatible software (see below). Only the information listed below is required; the business doesn’t have to keep a digital image of each purchase invoice.

Some permanent information about the business must also be recorded digitally such as the name, address, VAT number and any VAT accounting scheme used.

For each VATable supply made by the business it must record:

  • time of supply (tax point)
  • value of the supply (net value excluding VAT)
  • rate of VAT charged

The business doesn’t have to record the amount of VAT charged, as presumably the software will calculate this. It also doesn’t have to record transactions which don’t affect the VAT return, such as supplies within a VAT group.

For each purchase which is relevant to the VAT return the business must digitally record:

  • time of supply (tax point)
  • value of the supply
  • amount of input tax that the business will claim.

A business which is partially exempt or which uses a VAT scheme may not know how much VAT it can reclaim on each individual invoice. In that case, the business has the choice to record:

  • all the VAT paid; or
  • none of the VAT; or
  • estimated amount of the recoverable VAT.

Then once the partial exemption or other scheme calculation is done for the VAT period, an adjustment is made to the digital VAT records.

Digital links

The “functional compatible software” in which the VAT information is recorded can be a number of software programs, products, applications or spreadsheets which are digitally linked together. A digital link is an electronic or digital transfer or exchange of data between software programs, products or applications. This definition has the force of law.

The VAT notice sternly warns that the use of “cut and paste” does not constitute a digital link. However, using digital links between software to transfer data needed for the VAT return won’t be compulsory until VAT periods starting on or after 1 April 2020. This constitutes the “soft landing”, which may be explained in greater detail in the forthcoming HMRC webinar.

There are a number of examples of digital links in section seven of the VAT notice.  

Software

The suppliers which have demonstrated a prototype of their MTD software to HMRC and who have tested their products within the HMRC test environment are listed here, but the links to each supplier’s website do not always take you directly to the software product.

You have to delve around to find the product which may suit your requirements. Some suppliers such as PwC claim to supply spreadsheet-based products, but this “bridging software” is still hard to find. 

Communications

The tax profession has been crying out for HMRC to start marketing MTD to the wider business community, as some clients believe that it is all a ploy to get them to buy expensive and unnecessary software.

HMRC appears to be dodging its responsibilities in this regard, as it expects accountants, professional bodies, and software suppliers to do this marketing for them.

It has produced an MTD for business stakeholder communications pack, which contains messages to pass on to clients, customers and members, plus a link to a video explaining MTD. There is no indication of what HMRC will be doing itself to market MTD to the wider population.

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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17th Jul 2018 14:04

Can you clarify the position on sales?

if we have a client running a shop for example, they have taken sales as the Z1 read each day and then entered this into their software either as a daily total or for many as a monthly total to simplify record keeping

will they now have to:

1. record every sale separately?
2. be prevented from recording a monthly sales total? or will this still be allowable?

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to ohgoodgodno
17th Jul 2018 14:51

Read the notice, its not that long.

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17th Jul 2018 14:55

I had a good look at this earlier today.

Seems like more or less total capitulation for HMRC and a massive row back from their initial pronouncements.

1. Spreadsheets are fine, and by extension all legacy software such as VT transactions.

2. The magical "digital link" is not required for 12 months until 2020 and quite frankly unenforceable anyway. It seems much like the "on or before" filing restriction for RTI which is unenforced.

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 its "as before, different interface"

Really worth all the hassle and having to pay a 3rd party of file some VAT.

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to ireallyshouldknowthisbut
18th Jul 2018 10:09

Is anyone at all surprised?

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to ireallyshouldknowthisbut
18th Jul 2018 12:32

I don't think HMRC need to enforce the "Digital Link". If the software can't pick up the transactions linked to the totals then the return won't be submitted and fines galore.

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17th Jul 2018 15:14

Good comment in the article about the difficulty of finding the software. I had a quick look at the list (as I keep paper records impeccably now and don't want to change but will have to and I would like to spend zero cost and zero time on all this and don't hire products if I can pay once out right).......
So what I want form HMRC is not some massive long video given by someone with an irritating voice which doesn't seem to get to the point (I had to stop watchinv very quickly) but just a short list I can read in 2 minutes about what I have to do eg click here to the exact product for those who want a spreadsheet simple very cheap product - I don't even use or like excel). I do not want to be forced to watch videos or required to trawl through 18 providers' websites which offer loads of products. I want to be told the one product I must use - ideally provided free by HMRC.

As they seem to be saying nodigital link is needed for the extra year that seems to mean that I could buy the most basic product to do the upload of the quarterly data in place of the current VAT return but what needs to be on that product? Eg in year 1 can I make do with a product where I take my 100% accurate totals form the paper records, just upload the transactions as if they were one big order only and one big purchase only and put those 3 figures on the software I am forced to buy and it then transfers that to HMRC with the return for the first 4 quarters?

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By adebola
to EnglishRose
18th Jul 2018 11:40

Having read your comment, I agree with you that HMRC should publish a list of Bridging software for those who want a spreadsheet simple very cheap product(to borrow your phrase). And I believe they will be doing that very soon.

For the last 6 months we at Liquid Accounts have worked closely with the HMRC to develop the required Bridging Software for MTD. It is a simple spreadsheet upload of totals in the required 9boxes with API(program interface) connections to HMRC MTD service.

The software has been demoed successfully to HMRC 2months ago.

It is not an add-in widget that you bolt onto your spreadsheet – as you may know, HMRC require the numbers from your accounting software or spreadsheet to be unaltered in any way when filing takes place.

You simple carry on as normal recording your transactions on a daily basis. At each return you prepare a spreadsheet with your vat return totals and upload it to the Liquid Vat filer – it will prompt you for the sheet with the VAT return data. The app does the mapping for you in a couple of minutes and you do not rekey any data – the mapping is retained for future returns, so does not need setting up each time you use it.

As requested by HMRC the Liquid VAT filer will be free for 1 user 1 company - ideal for small businesses with no extra cost. https://vat.liquidaccounts.com/

For agents/accountants, a multi company, multi user version will available at the time of release – currently estimated for September 2018, well in advance of the April 2019 deadline.

For more information email [email protected]

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17th Jul 2018 15:54

Quote:
HMRC appears to be dodging its responsibilities in this regard, as it expects accountants, professional bodies, and software suppliers to do this marketing for them.

How about we simply don't, and wait for the first appeals to hit the Tribunal, where Judge Popplewell will take delight in noting that there was no publicity from HMRC to the taxpayers whatsoever.
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By Tornado
17th Jul 2018 16:55

How on earth can 'Cut and Paste' not be regarded as digital. It can only be done from one digital document to another digital document on a digital electronic device.

It is in fact the epitome of digital data transfer!

What a bunch of clowns, re-writing physics now to suit themselves.

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17th Jul 2018 18:18

Well I agree with HMRC. Cut and paste is undesirable - far too dangerous. They don't seem to outlaw the much safer Copy and paste. :-)

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By Tornado
to paulwakefield1
17th Jul 2018 18:33

"The VAT notice sternly warns that the use of “cut and paste” does not constitute a digital link."

I meant 'Copy & Paste' but if the VAT Notice does actually say 'Cut & Paste' then you are absolutely correct and I think we can assume that 'Copy & Paste' is OK.

(Well spotted)

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to Tornado
18th Jul 2018 13:32

The notice refers to 'cut and paste' three times but makes no reference to 'copy and paste'. So I recon you're right: we can copy and paste.

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18th Jul 2018 05:53

The way forward seems to be to make claims for exemption. About a third of my clients couldn't sit the right way on a toilet seat, let alone use a computer.

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to Marlinman
18th Jul 2018 10:11

Only a third - lucky you!

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18th Jul 2018 10:10

Q. How do you cut and paste between PCs? A. You send the spreadsheet by email. HMRC have said in the notice (3.2.1) they will accept a spreadsheet emailed to an agent as being digital but they won't accept normal cut and paste. I don't understand HMRC's logic.

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18th Jul 2018 10:11

HMRC say they won't accept cut and paste as being digital (because I guess, it doesn't maintain the digital link) but from what I've seen about BTC's demo for spreadsheet linking software that is purely cut and paste.

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18th Jul 2018 10:11

It's really NOT our job to make clients aware of this change to MTD and the huge extra costs we will all have to bear, or spend enormous amounts of time and effort in doing HMRC's job for them. The term 'stakeholder' annoys me, and assuming we will using the communications pack and passing on messages to clients rather than HMRC doing this is foolhardy on HMRC's part.

It's basically shovel all of it into agents hands then start fining people when they are not aware or do not comply with something which is of absolutely no benefit to them whatsoever and just creates more work for already struggling businesses.

Perhaps if more of our 'representatives' didn't bend the knee to HMRC and actually told them the truth about what a mess this will be and they really shouldn't do it, we wouldn't have arrived at this point. But no, staying in HMRC's good books was more important than telling them how it is, and this is what we end up with.

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to Ian McTernan CTA
18th Jul 2018 11:21

Yes it is your job. They are your clients. Look after them or they will leave and come to me.... mwahahahaha

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to Ian McTernan CTA
19th Jul 2018 15:51

I couldn't agree more about our 'representatives' not doing enough to warn HMRC how bad it could be. It's true that they made a lot of criticisms when posting their response earlier in the year, but I have yet to read what HMRC's reply was-probably because they didn't trouble to do so

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18th Jul 2018 10:13

Section 2.1 says 'Only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital'. Does that mean a business that had turnover of more than £85,000 in, say, 2015-16 but is now say £50,000 will have to comply with MTD?

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to kevinringer
18th Jul 2018 10:34

2.1 could imply that if a business was previously VAT Registered and over the limit but now deregistered and below the limit then they could still have to do MTD which would be a nonsense if no VAT Return needed. Presumably any business not registered in April 2019 won't need to comply. There could be mass de-registrations so let's hope there are plenty of HMRC staff to process that. De-registration won't be an answer for clients making zero rated supplies though anyway.

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18th Jul 2018 10:16

Headline 'There are also now 18 approved MTD for VAT software providers' is wrong. If you read https://www.gov.uk/government/publications/software-suppliers-supporting... none of them have actually received approval.

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18th Jul 2018 10:18

The list of software suppliers at https://www.gov.uk/government/publications/software-suppliers-supporting... doesn't include linking software eg https://www.neilsonjamestech.co.uk/mtdreturn.php. Has HMRC produced a list of linking software?

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18th Jul 2018 10:19

VAT registration turnover test grants 30 days from the end of the month the turnover was exceeded before registration must commence. I notice section 2.1.1 there is no 30 days grace for MTD: if you exceed the turnover test during November 2019 you have to apply MTD from 1 December.

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18th Jul 2018 10:21

Interesting comment in the examples:

"As an alternative to bridging software, the spreadsheet could have API functionality built into it."

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18th Jul 2018 10:22

The notice is silent on how users of industry-specific software (eg travel agents, farmers, insurance agents etc) are to comply. I've spoken to some developers of this software who say they lack the resources to make their software MTD compliant. These clients have digitised their transactions so have complied with the spirit of MTD. What are they to do? They don't want to switch to QB, Sage, Xero etc because that software doesn't include the functionality their industry-specific software includes. HMRC are silent.

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18th Jul 2018 10:25

I've yet to come across software that deals with schemes (retail schemes, FRS, margin schemes correctly - especially when switching to and from FRS). I notice section 3.8 acknowledges this and instead of demanding the software industry gets its act together, MTD fudges it by allowing the user to make the calculation outside of the software. The whole point of MTD is to improve the accuracy and in my experience the biggest areas of mistake made by clients are schemes and partial exemption so if HMRC was serious about improving accuracy HMRC should have insisted the software industry got its software to work. Retail schemes have been with us since 1973 so the software industry has had plenty of time to get this right.

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18th Jul 2018 10:29

The notice is silent on whether the existing GOV.UK portal remain open for VAT registered businesses with turnover below £85,000. If the existing portal remains open, will it monitor turnover?

Thanks (3)
18th Jul 2018 10:32

The purpose of MTD was to replace the Tax Return. George Osbourne said nothing about the VAT return. From HMRC's perspective MTD for VAT replaces one means of digital submission (GOV.UK) with another (software). So nothing changes. However from a client's point of view the requirement to digitise their transactions is huge. HMRC still seems to think clients will be better off with digitised transactions. I have digitised those clients who will benefit and are capable of digitisation but I have no intention of forcing digitisation on those who lack the time or resources to do it.

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18th Jul 2018 10:34

We act for many local clubs that are registered for VAT eg sports clubs, social clubs. These are all not-for-profit organisations. Many are registered charities. They are registered for VAT because they have an activity which helps fund the running of the club eg a bar. These organisations have very limited funds. These clubs lack the resources to employ someone to digitise their transactions for them and it would be unreasonable to expect their volunteer committee members to do it either. Will such clubs have to comply with MTD? If so, how practically are they to do it? The notice is silent which suggests there won't be an exemption for clubs or charities.

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to kevinringer
31st Jul 2018 12:05

If they've never been over then they wouldn't have to register.
I just had great fun explaining to a client yesterday that, because they were over the threshold way back in the midst of time, they would need to use MTD despite their turnover currently being c£14k (yes, I did strongly suggest that they consider deregistering, as I have done for several years) . I am wondering whether they would be able to get around it on the age basis or whether, since they have access to an agent, albeit we don't act for them for VAT, that negates that argument. The wife was definitely not keen on trying to learn software in her 70s.

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to bendybod
31st Jul 2018 12:17

Section 2.2 they can apply for exemption even if they have been submitting returns through GOV.UK. The engagement of an agent should not affect anything.

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18th Jul 2018 10:39

2.2 re applying for exemption •where "it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason ... These may apply even if you are not currently exempt from online filing for VAT." Hooray. I had feared that would not be the case.

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18th Jul 2018 10:41

2.1 re applying for exemption "If you think any of these apply to you then contact the VAT Helpline to discuss alternative arrangements. If HMRC consider that an exemption is not appropriate, digital assistance may be available to help you get online support." Q1 Can agents apply on behalf of their clients? Q2 When can applications commence?

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18th Jul 2018 10:42

"Guidance from HMRC to fill the gaps where the law is deficient".
Don't you just love that. The blind leading the blind.
However I will go through all the new stuff in detail this weekend.

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18th Jul 2018 10:48

Thanks Rebecca - clear and concise as always

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18th Jul 2018 11:12

I have clients with spreadsheets that need an ''api''
I looked at all the 18 on that list it looks like efiler is the only one that gets close
I don't want full bookkeeping

Where is the list of APIs does anyone know?

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to Tom 7000
18th Jul 2018 11:29

https://www.neilsonjamestech.co.uk/mtdreturn.php
Thank you whoever posted this above this seems to make it all easier

The clients now just pay the software company £10/qtr to send their vat returns in instead of it being free.

Well I guess its boosting the economy :)

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By adebola
to Tom 7000
18th Jul 2018 11:41

At Liquid Accounts we have developed a bridging software with API connections to HMRC MTD service. It is not a bookkeeping software and it's free for 1 user 1 company.

We have worked closely with the HMRC to develop the required Bridging Software for MTD. It is a simple spreadsheet upload of totals in the required 9boxes with API(program interface) connections to HMRC MTD service.

The software has been demoed successfully to HMRC 2months ago.

I believe HMRC will be publishing the list of bridging software soon, along with the list of APIs required.

As requested by HMRC the Liquid VAT filer will be free for 1 user 1 company - ideal for small businesses with no extra cost. https://vat.liquidaccounts.com/

For agents/accountants, a multi company, multi user version will available at the time of release – currently estimated for September 2018, well in advance of the April 2019 deadline.

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By Tornado
to adebola
18th Jul 2018 12:01

Not everyone uses Excel. Does your bridging software work with any spreadsheet program?

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By adebola
to Tornado
18th Jul 2018 12:16

It is designed to work with both Excel and CSV files

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By Tornado
to adebola
18th Jul 2018 12:33

That is very good news indeed.

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to Tom 7000
18th Jul 2018 11:35

There is no list of API/linking software. Absolute and BTC also have products. Absolute updated me this morning to say they have now created the API and a demo video and prices will be released soon.

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18th Jul 2018 13:38

Rebecca said 'However, using digital links between software to transfer data needed for the VAT return won’t be compulsory until VAT periods starting on or after 1 April 2020. This constitutes the “soft landing”, which may be explained in greater detail in the forthcoming HMRC webinar.'

3.2.1.1 says 'For the first year of mandation (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. The one exception to this is where data is transferred, following preparation of the information required for the VAT Return, to another product (for example, a bridging product) that is API-enabled solely for the purpose of submitting the 9 Box VAT Return data to HMRC. The transfer of data to this product must be digital.'

Everyone will need to file by some API enabled product (whether it is software or spreadsheet or linking tool) so wouldn't this be the 'one exception'. In other words, clients can't carry on as they have been then phone the figures to us to input into our filing-only software. Or do you read this differently?

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18th Jul 2018 14:47

Under section 3.2.1 on Digital links it says that

"HMRC will also accept digital links as:
emailing a spreadsheet containing digital records to a tax agent so that the agent can import the data into their software..."

If a client emails me an Excel spreadsheet (and I manually code it up) and I prepare the data for import into my software e.g. Sage, QB etc then that is acceptable to H M Revenue & Customs!

However, unless the agent can ‘digitally’ extract the data automatically, without human interaction, from the spreadsheet and into their own MTD software then it appears to me that there is a manual interaction.

It is my intention for all of my Excel based micro business clients that I will take their Excel cash book and with limited manual processing (e.g. nominal code up etc) I will import the cash book into my Sage 50 software. From the reading of this paragraph this appears acceptable to H M Revenue & Customs…… Even though I have manually been involved in the process of data transfer!

I am staggered by that statement by HMRC as it totally contradicts everything else about not being able to manually get involved and there must be a digital link between the spreadsheet and the accountant’s MTD software.

I am sure that there are very few accountants who can programmatically extract data from an Excel spreadsheet and import it (without manual human interaction) into any commercial software!

Under section 7, regarding digital links, in the graphic on ‘the mandatory digital link’ it states that “data must be imported / exported between programs without manual intervention – data transfer must always be digital”

Although under the ‘digital link’ arrow it permits a soft landing in the first year.

So I raise the same issue which affectively says that unless the accountant can digitally transfer date between Excel and the MTD software then they are not complying with the legislation.

This is despite what it says in section 3.2.1 ‘digital links’ that an acceptable digital link includes ‘CSV import and export, and download and upload of files’. Again, software that cannot programmatically digitally extract a CSV file from Excel and then digitally import it into your MTD software then you are failing to comply with legislation!

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to paulinleeds
18th Jul 2018 14:44

In fact, it's not too difficult importing from Excel into, say, Sage. You may need an add-in such as one of the (excellent) Adept ones depending on where the import is to go in at.

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18th Jul 2018 14:37

VAT otice 700/22 .. says. on page 17.
...adjustments, journeys and transfers outside of software
digital transfers and adjustments within an agent journey using agent’s API-enabled software
digital transfers and adjustments within an agent journey using client’s API-enabled software.

What is a 'journey' in this context?

I am thinking that this is a spelling mistake and should probably read as journal.

Any thoughts?

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to paul s&w
18th Jul 2018 14:44

I think they mean 'journey' as in 'process'.

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to paul s&w
18th Jul 2018 14:44

I have many thoughts on all of this but they are not printable!

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to paul s&w
18th Jul 2018 14:46

Duplicate post - sorry - internet crash intervened....

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