The details of how MTD for VAT will be implemented are still being hammered out, and it’s possible that the draft MTD regulations will be amended before they become law.
I have summarised below the AccountingWEB community reactions to the draft MTD for VAT regulations, which forms our response to that consultation. I have also included notes on where to look for further information on MTD.
MTD for VAT is due to commence for VAT periods starting on or after 1 April 2019. Thus, all businesses with VAT quarters ending on the last day of March, June, September and December, will be required to comply with the MTD regulations from 1 April 2019.
Those businesses need to make a decision very soon about the accounting software they will use for their next accounting period. For example, a business with a 30 June 2018 year end will need to use MTD-compatible accounting software from 1 July 2018, or face the complication of changing its accounting software (and possibly its software provider) part way through its accounting year.
A more gradual transition to MTD would be achieved if the commencement date was the start of the first accounting period beginning on or after 1 April 2019. In that case, business with 30 June year end would not have to use MTD-compatible software until 1 July 2019.
Businesses which keep impeccable manual records can’t see the point of changing to recording transactions on a spreadsheet or in accounting software, as this change of process will add to their costs without a foreseeable tangible benefit.
‘EnglishRose’ voiced the fears of many taxpayers about cloud-based software:
“I feel HMRC should fully indemnify me against all loss and liability caused if there are data/confidentiality breaches caused by their forcing me into this system I do not want which is in the cloud and thus hackable.”
The examples given in the addendum to the draft VAT regulations illustrate how data may be transferred between software and spreadsheets by manual and digital means. In most of those examples, the manual links are envisaged as a temporary solution to fill the gap until April 2020, when it is expected that businesses will have upgraded their systems with end-to-end MTD-compliant software (assuming such software is available). However, the manual transfers of data in example 6 are not flagged as being temporary, which appears to undermine the ethos of the MTD regime.
Cost to business
Accountants who can’t see the value to businesses of MTD will have a hard time persuading their clients that they must transfer to digital systems. One AccountingWEB member summed it up as: “All they are doing is changing the submission end, and making us pay for it, rather than the free bit we get now.”
Member ‘thacc’ commented: “How is changing software systems and the training involved not going to cost time and money for me, you, our clients and HMRC. To what benefit? none that I can see. We will just be filing the VAT returns in a different way.”
Businesses who are voluntarily registered for VAT won’t be required to file their VAT data using MTD-compatible software. AccountingWEB members want to know whether the facility for a tax agent to log into a VAT client, and then file a VAT return for that client, will be withdrawn. It is implied in the MTD proposal that this will be the case. Clarity is required over how VAT-registered businesses, who are not in MTD, will be able to file their VAT returns after MTD is implemented.
Time for testing
The parameters of what corporation tax-related data will have to be submitted by companies under MTD have not been defined. Indeed, there has been no consultation on MTD for complex businesses (companies and large partnerships). It is therefore impossible to know how MTD for VAT will fit in with MTD for corporation tax, or MTD for income tax.
Without this overview, software producers will be forced to produce VAT-only packages, which may well have a limited life-cycle, if MTD for income tax and CT follows on swiftly. However, the APIs to enable submission of VAT data have still not been released as of 9 February 2018. Every day of delay shortens the period for adequate testing of the MTD-compatible products.
Although the MTD for VAT pilot program to run from April 2018 is welcome, it is not clear that the MTD-compatible software will be ready in order to submit a full one-year cycle of VAT reports, before MTD for VAT becomes compulsory in 2019.
There has been little publicity about MTD directed towards the business community. HMRC assumes that tax agents will provide this education service to their clients. However, tax agents need to first educate themselves as to the details of MTD.
The professional bodies are doing their best to give their members informed. The CIOT has an MTD resource page, and the ICAEW Tax Faculty has created an MTD hub, ICAS also has an MTD all you need to know page. These institutes are also running face-to-face and online seminars for members.
Next week HMRC will be hosting four webinars on MTD for business, directed at tax agents. This is one hour-long presentation which will be run four times at 12.30pm and 3pm on 13 February, and at midday and 2pm on 14 February.
Here at AccountingWEB, we have a hot topics page for MTD, which collects together all the articles and questions on the subject. So if you have an MTD question or comment, please ask.
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.