MTD: CIOT webinar explains how it should work

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Rebecca Cave listened to the CIOT webinar on MTD, which provided some useful insights on how HMRC will apply the MTD for VAT regulations, and where the other aspects of the MTD project have got to.

The webinar was presented by Richard Wild and Margaret Curran of the CIOT technical team, alongside Adrian Rudd of PwC, who chairs the CIOT digitalisation and agent strategy working group. The CIOT team has amassed a huge pool of knowledge about MTD as they have been in close contact with HMRC at all stages of this project.

The CIOT website has an area dedicated to MTD resources, which includes the slides for this webinar. The questions raised during the webinar will shortly be added with the technical team’s answers. All of these MTD resources are free for anyone to access.

The webinar covered these areas of MTD:

  • VAT
  • Income Tax pilots
  • MTD for individuals
  • Tax agents
  • Companies and complex businesses

I have picked out some key points to report, but I recommend listening to the entire 90-minute webinar, which can be streamed for free, and rerun multiple times so you can share it with your staff.

VAT notice

HMRC is expected to issue its definitive guidance on MTD for VAT in the form of a VAT notice, in the very near future. This notice will set out how a business will be able to claim an exemption from MTD filing on the grounds of religious believes, insolvency procedure or not reasonably practical. Once HMRC has accept the business is exempt from MTD for VAT reporting, it should also be exempt from income tax reporting for MTD.

Who is drawn into MTD?

All VAT registered businesses with UK taxable turnover over the VAT registration threshold (currently £85,000) will be required to comply with the MTD recording keeping and reporting requirements for the VAT periods which begin on and after 1 April 2019. VAT periods will not be split, so if the VAT period ends on 30 April, the business will enter the MTD regime from 1 May 2019.

Where a business is VAT registered but has turnover under £85,000 at April 2019, it is not required to enter the MTD regime in April 2019. However, those businesses will have to monitor their turnover on a rolling 12-month basis, and if the turnover breaches the VAT registration threshold, the business will have to enter the MTD regime from the beginning of the next VAT period.

Once a business is within the MTD regime, it can’t opt out even if its turnover drops below £85,000. The only way out of the MTD for VAT regime will be to deregister for VAT.

Any business which registers for VAT on or after 1 April 2019 will be required to enter the MTD regime from the start of their first VAT period, unless the business has registered voluntarily, in which case MTD reporting will not be mandatory.

Charities with trading subsidiaries, and landlords who let VAT-opted property, will fall within the MTD regime on the same terms as other businesses.

VAT returns under MTD

HMRC is committed to supporting parallel means for voluntarily registered businesses to submit VAT returns, ie by way of the current online interactive VAT form, but only until April 2020. It is possible that all VAT registered businesses will be mandated into MTD for VAT from April 2020.

All VAT returns for businesses which are mandated into MTD will have to be submitted via MTD-compatible software which uses an API to transmit data to HMRC.

What to record

As a tax agent you will be permitted to maintain the digital records required for MTD on behalf of your clients. The digital records for the quarter need to be completed by the earlier of:

  • The due date of the VAT return
  • The date on which the VAT return is actually submitted

All VAT records need to be retained for six years, but HMRC won’t require the digital records to be held in the accounting software in which they were recorded. That data can be downloaded and retained in some other form.

The webinar went into some detail about what exactly will have to be digitally recorded for each transaction, as the MTD rules are more onerous than the current rules for recording sales and purchases for VAT purposes.

Retail business and those using certain special schemes won’t have to digitally record every transaction. Those relaxations from the VAT regulations will be set out in the forthcoming VAT Notice on MTD.

How data will be transferred

The webinar contained several examples of how the VAT data may be transferred to HMRC from the software or spreadsheet where it was recorded. These examples will be contained in the VAT notice in a similar form.

From April 2019 the relevant totals for the VAT return plus any voluntary supplementary data must be submitted to HMRC via an API from the MTD-compatible software.

However, HMRC realises that businesses use combinations of software and spreadsheets, so data needs to be transferred between these different elements. For the first year of MTD, those transfers between software or spreadsheets need not be made digitally, but from 2020 such transfers must be done via a digital link.

Manual adjustments to the VAT data will be permitted to the VAT account, say for partial exemption calculations. There will be more information on this in the VAT notice.

Software availability

There is a timing issue for software production as we are only nine months away from the go live date. Currently there are very small numbers of businesses and software companies testing MTD-compatible software in the MTD for VAT trial.

Richard Wilde commented that its going be a “very tight timetable” to get MTD software ready on time. Once the software products are adequately tested, the detail of how to obtains those products will be listed on HMRC pages of gov.uk.

Adrian Rudd commented that PwC are building API-enabled spreadsheets and other MTD software. PwC has made an offer that the API-enabled spreadsheets will be available free of charge to charities to use.

Penalties

A new penalty points system for MTD will be introduced, and the draft legislation to enable this is expected to be issued this summer.

During the first 12 months of the MTD regime HMRC will not generally impose penalties for non-compliance, but this soft-landing approach will only apply to businesses who make a real effort to comply. Those businesses who make no attempt to meet the MTD requirements should expect penalties to be imposed.

Publicising MTD

HMRC’s attitude to non-compliant businesses seems a bit unfair as it has made very little effort to communicate the changes to the business community at large.

The CIOT have been urging HMRC to start telling businesses that MTD is coming in 2019. HMRC is apparently developing a communication plan, but the CIOT have not seen a draft.

Income tax reporting

As for MTD for VAT there will be a de-minimus turnover limit for MTD income tax reporting, below which MTD reporting will be voluntary. This threshold is expected to be £10,000 for income tax, but as HMRC hasn’t confirmed this figure, it could be set at a higher level in regulations.

However, we do know the threshold will be set per taxpayer not per business, as for VAT. For example, an individual with £6,000 rental income and £6,000 of trading income will fall within the MTD income tax regime, as his total turnover of £12,000 will exceed the expected £10,000 minimum threshold.

Adrian Rudd said the quarterly reporting of the raw trading results to HMRC for income tax will serve no purpose other than prove to HMRC that the business is keeping digital records.

The quarterly data won’t be adjusted for tax matters such as disallowable deductions, or for accounting adjustments such as accruals, as those adjustments will be made in the final report for the year. As such the MTD quarterly reports can’t be “wrong”, and the figures will not be enquired into.

Each business (not taxpayer) will have to do an MTD return for income tax, whereas for VAT the reporting it will be per VAT registration. The reporting deadlines for income tax and VAT will be different and separate, even if the VAT quarters align with the accounting period, as the VAT reporting period has an extra seven days.

It is possible that MTD for income tax will be mandated as early as April 2020, but the CIOT expect this implementation date to be later.

Companies and complex businesses

Partnerships will not be within MTD for income tax if their turnover is greater than £10 million.

HMRC appears to have no settled policy on MTD for corporation tax. CIOT has been told that will be a formal consultation on MTD for corporation tax “later in Spring 2018”. In theory MTD for corporation tax could be mandated as early as 2020, but that seems unlikely.

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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12th Jun 2018 16:21

What does this mean?

"The digital records for the quarter need to be completed by the earlier of:

The due date of the VAT return
The date on which the VAT return is actually submitted"

That seems so blindingly obvious, it must have some further intent. What if you receive a late invoice for instance after the VAT return has been submitted? Will that be deemed to be non compliant?

I can only think the April 2019 timing is so that HMRC can blame the costs, problems and loss of productivity on Brexit. Quite clever.

And what form of insanity has income tax and VAT returns out of alignment?

In summary, this is being rushed through on an impossible timetable.

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12th Jun 2018 17:34

"Adrian Rudd said the quarterly reporting of the raw trading results to HMRC for income tax will serve no purpose.................."

Great to know all this effort is worthwhile then.

Just chuck in any old [***] and it will do makes this a complete joke.
Looks like we can get away with "take last years data, apply a random % and file without bothering the client"

Fro VAT, its good to see they keep on backtracking about manual changes, so you can now key the data in in the first year with no penalty, and make other changes ongoing. So in turn making a mockery of the whole logic for the thing in the first place that accountants cant be trusted to key 6 numbers so the vital needs for a "digital link"

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By ABS2
12th Jun 2018 17:22

"Not reasonably practical"

Good news, I've just got exemption for all my clients!

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12th Jun 2018 20:12

This is so depressing on so many levels. I am wondering what the unrepresented trader will make of the project when HMRC finally deign to reveal this to the public. I think they have been completely dishonest about the cost of compliant software, the estimates are woefully under what the probable cost will be. I have no idea how larger traders can make their bespoke software comply. And there is no way any of this will make reporting of VAT less error prone, actually it is going to be worse. I feel helpless, and dread the extra workload and deadlines

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to Jo Nokes
13th Jun 2018 07:40

It's a great opportunity. I was talking to a couple of friends last night and interestingly they were vaguely aware of mtd although with no understanding of what, how and when. Anyway the comment was made "I suppose I am going to have to pay my accountant more". "Oh yes" I said in my best Churchill dog voice.

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By ABS2
to paulwakefield1
13th Jun 2018 14:23

Some of us like to think about what's best for our client rather than view them as how much money can we make out of them.

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to ABS2
13th Jun 2018 14:44

Some of us also have a sense of humour

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By ABS2
to paulwakefield1
13th Jun 2018 23:03

Perhaps try making it more obvious then

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to ABS2
14th Jun 2018 08:34

I thought it was but hey ho....

If Mouse was still around, perhaps I could have got him to put up one of his pictures. :-)

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By Ammie
13th Jun 2018 10:24

Why do I feel that there is an almighty sting in the tail lurking behind all this?

The "waters" are relatively calm, that's until all businesses realise what's in store. Many small businesses are procrastinating and will be shaken when it kicks off. HMRC will have their hands full and their helplines, which are already at breaking point, will become even more strained.

It will take a very lengthy period of bedding in.

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to Ammie
13th Jun 2018 11:21

It's a bit like driving down the motorway thinking "not much traffic on the road" then coming round the corner you see it all backed up.
So it would appear that from April 2019 until April 2020 you don't really have to keep digital records, although if you don't make an effort you could be fined. Sounds par for the course.

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to johnjenkins
13th Jun 2018 15:12

@JJ "could be fined"

But just like RTI, nothing happens if you dont comply. People are not stupid we are not going to go through all this pain just for a laugh.

Lots of fuss was made about filing before clients are paid, but the reality is no-one knows or cares if you don't, it just rolls up on the next filing anyhow.

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13th Jun 2018 11:59

EDIT: What representation is there on the CIOT group for smaller accountants and sole traders, where this is will felt most? PwC won't know how this affects small practices as they have all the resources....

Instead of concentrating on huge penalties for non-compliance, HMRC should be making sure people know MTD is even coming, and what they expect businesses to do to be ready.

I have many clients that don't use software, and have zero interest in learning. It would take me twice as long to fix the issues than it does now to put it all in a spreadsheet and then take the figures and use HMRC's VAT reporting section on my agent thing.

Already had a client flatly refuse to try some software- and they only issue one invoice a month.

Who will pay for the software and also the many hours of training and error correcting, because my clients have no interest in incurring this extra cost for zero benefit to themselves.

Maybe HMRC should start with an incentive instead of threats of penalties: £200 a quarter reduction in VAT liability for the first year and £100 per quarter in the second if you switch to using software and reporting under MTD. That would make it much easier to sell this to clients.

As it stands, it's a mess waiting to happen. I hope they are planning on employing a LOT more people on the helpline who have been trained to explain basic software to businesses who have never used it, and why they have to also pay for it when they don't need or want it.

Thanks (6)
13th Jun 2018 13:23

''HMRC is apparently developing a communication plan''
Well get on with it then!
The sooner the requirements are made plain to ''white van man'' the better because the politicians will ensure it is delayed or postponed because their inbox', post bags and surgeries will ne inundated with complaints.

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13th Jun 2018 13:44

Don't worry Rebbers, this time next year we'll all be Millionaire Tax Dodgers.

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By DMBAcc
13th Jun 2018 14:01

I'm just putting my one and only VAT client on to Clearbooks. Can't find any MTD button in the software. Wondering when or if they will get around to it. Perhaps if they don't then I shall simply apply for exemption as impractical? Anyone got any comments. This is a complete disaster waiting to happen with HMRC coining in penalties left, right and centre. Could we get 100,000 signtures to get this raised in Parliament with the comment that unless HMRC starts talking to the millions of small businesses and accountants in the UK they will have a Civil disobedience on their hands? Not ONCE has anyone (MPs, HMRC, accountancy bodies, software companies) listenned to me or folk like me. Everything is about BIG business in the cities. We are trying to earn a crust of bread while these people (paid by we tax payers) do everything they can to wreck our fragile lives. Not one word to the population about MTD except George Osborne's famous press of a button speech.

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to DMBAcc
14th Jun 2018 17:18

Hi there DMBAcc,

We ’re delighted you’ve chosen Clear Books as part of your answer to the MTD conundrum! We are MTD ready and are currently working with HMRC on the pilot. Our development and coding on this is complete and has been successfully tested using the HMRC testbed environment.

We expect the MTD functionality will be rolled out automatically to you and all of our clients/partners within the next month or so, but in the meantime, if you would like a sneak peek at how this process will work, then please don't hesitate to give our Account Management team a call and we can do a quick web demo for you.

Thanks again for choosing Clear Books and we look forward to working with you for MTD VAT and beyond.

Thanks

Chris

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14th Jun 2018 08:51

More and more fragmentation of the tax system into two tiers, for zero benefit.

One system for those who have to deal with MTD and another for those excluded.

It's the same with devolved taxes. Just more and more tiers and complexity for zero benefit except to keep the politicians and civil servants justifying their existence.

UK is making a shambles of everything.

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to North East Accountant
14th Jun 2018 09:28

What do you expect when you've got wishy washy politicians. I bet 95% of OUR MP's haven't got a clue about what MTD will really mean to the small business. Boris wasn't far off when he said Donald would do a better job of negotiating Brexit (what's that got to do with MTD, I hear you say. Just highlighting the difference a strong politician makes and how far we have allowed our politicians (under EU law) to stick their noses in how business should be run. The supreme court made a big booboo yesterday.)

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to johnjenkins
14th Jun 2018 10:15

You really are a scream JJ. Its bad, its the EU's fault. Of course it is.

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to ireallyshouldknowthisbut
14th Jun 2018 12:02

Many a true word.

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14th Jun 2018 12:14

Members of parliament have already done their best to get this disaster cancelled... but were ignored
See my blog dated 5 Sept 2016:
"MTD - MP's's tried their best...which confirms that MP's attended a debate on a petition that had already been presented v MTD :
"I started with the petition, the research briefing (pack) that attending MP's of the debate on the petition were given (Number CDP-2016/0015, 22 January 2016) and viewed the committee meeting debate online where MP's questioned David Gauke (now Chief Secretary to Treasury) https://petition.parliament.uk/petitions/115895."

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14th Jun 2018 12:17

and...at that debate these MP's stated their disgust...(again from my blog)
"The viewing of the debate on Parliamentary Live was fascinating. I was pleasantly surprised as to how venomous the attending MP's were. Caroline Lucas (Brighton Pavilion) went straight to the point and asked for evidence that taxpayers weren't doing it right. Peter Kowle (Hove) in particular made a powerful and heartful speech against. Sammy Wilson (East Antrim) wanted to know what was the point? A number queried the statistics saying 'it doesn’t all stack up' and nearly everyone asked for a delay."

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to Jennifer Adams
15th Jun 2018 08:45

Jennifer, nobodies really interested to do anything about it. Yes a lot of posturing, a bit similar to Universal Credit, but no substance.
We all know MTD won't work whatever HMRC say or do and whatever the software can do. There are too many small business that I call "low techies", some won't even have online banking. Government can't expect these people to be, not only agree with "computers, cloud etc." computer and accounting literate.
This time next year will make fascinating reading.

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By djtax
14th Jun 2018 13:10

Does anyone at HMRC read AWeb? Why are HMRC officials so oblivious to the real word as discussed here? It beggars belief.

To those of us who actually deal personally with small businesses (and sorry that excludes most bigwigs in the big firms and staff at the prof bodies) it is so obvious that HMRC are inadequately prepared for next April - as are we, given the continued absence of relevant software. Perhaps they think we will have time in December & January to review new systems and advise clients then!!!

The old Working Together may have had its weaknesses but at least it gave an opportunity to ensure some HMRC staff had to listen to us. Now there is no method of getting the message through (the new online HMRC Forum is a waste of time) - even letters addressed to HMRC top brass nowadays just get bland answers from ignorant juniors (I've been there & done that).

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18th Jun 2018 11:58

As I posted in a recent MTD article - there does not appear to be a documented "exemption process" that any of us can use to move Clients that will be unable to operate the technology or unable to find enough Broadband thingamy to file online, out of the need to comply with MTD.
Clients that we have filed VAT returns online for will be deemed to be digitally included because online filings have taken place prior to MTD.

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18th Jun 2018 12:45

Do you really expect HMRC tell you what reasons you can have for not complying (apart from religious, of course). No it'll be done by tribunal as HMRC will contest every excuse.
England 2 Tunisia 0. that's what my pet cobra says.

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