MTD consultation: Known facts and regulations

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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.

Start date

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.

Software

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.”

Digital links

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.”

Voluntary registrations

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.

MTD education

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.

Replies

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10th Feb 2018 14:48

It seems to me that HMRC are looking for solutions to problems that don't exist, and making a half-assed job of it in the process.

Their existing IT systems don't work (look at teh very lengthy list of SA filing exclusions for 16/17, including some which are relatively simple calculations failing at HMRC's end).

They should concentrate on fixing what's already broke before they try to introduce more broken carp.

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10th Feb 2018 17:13

HMRC top brass are a bunch of incompetent numpties and I for one will not be dancing to their stupid tunes.

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By dl100tr
12th Feb 2018 11:05

I'm probably being thick here but I don't understand how this is supposed to work for someone like myself who maintains the accounts for a VAT registered client. As long as my software is MTD compliant do I carry on as normal or do my clients have to have their own software and now keep their own accounts and file their own VAT returns?

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12th Feb 2018 11:19

"Without this overview, software producers will be forced to produce VAT-only packages, which may well have a limited life-cycle,".

Which is precisely what I wrote some time back!

Logically, if the final parametric specifications for full-blown MTD is not yet finalised, then it is utterly impossible for ANY software house to properly script the blocks of code for each module, which remember, has to be intensely interactive with all other blocks!

The System Architect is being asked to lay out a plan for a building of unknown size; unspecified number of floors and has zero knowledge of the site area!

The usual approach is to both leave space in the code - for changes - and provide "Hooks", which can properly react to internal process interrogation.

Once again, as I have already stated, software which is intrinsically stable goes through Alpha, Beta and Gamma test phases. There clearly is no time!

As I also wrote some time back, a dedicated stand-alone VAT only MTD module would have a very short life cycle (As Rebecca states); therefore the selling price would have to seek a sufficient mark-up to amortise the total projected sunk costs, provide for support, production, distribution and training.

This aint gonna be cheap!

Oh I am going to laugh my socks off at HMRC's red faces in April 2019!

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to Michael C Feltham
12th Feb 2018 12:19

Michael C Feltham wrote:

Oh I am going to laugh my socks off at HMRC's red faces in April 2019!

Such is the mendacity and duplicity of HMRC that not only will they not have 'red faces', they will claim it all to be a complete success, universally welcomed and lauded by all and how we eagerly consume the 'savings' it has brought about.

They did this with the "IR35 in the public sector" stuff where what they reported seemed at variance with the on-the-ground experience and observation.

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to Michael C Feltham
14th Feb 2018 17:35

Yes. I do a lot of software contracts and negotiations and I cannot see this going well at all and I don't see why I should be a guinea pig for it next year as a very small business with so much else to do and that I also have to pay for a productthat does not yet exist and I do not want when I already pay all VAT due and am meticulous with recording income and expenses every day of the year.

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to Michael C Feltham
14th Feb 2018 23:24

Michael C Feltham wrote:

"Logically, if the final parametric specifications for full-blown MTD is not yet finalised, then it is utterly impossible for ANY software house to properly script the blocks of code for each module, which remember, has to be intensely interactive with all other blocks!


As much as HMRC are inept the software houses who write software without a specification are equally stupid. Sadly there are many of them; they’re easy to identify - they’re the ones trying to sell MTD compliant software! Compliant with what?
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to D V Fields
15th Feb 2018 07:57

Exactly. So there is no product I can buy yet (not that i want to change anything) and yet I am a careful cautious VAT payer who likes to take a lot of time to get things right so for me if I have to pay for software not something I often do (I do have Word but I certainly don't hire it or pay to updtae it except every 10 years or so when I replace a computer) then I want it to be a one off purchase that will last me for ages. Also if I am going to have to take time away from earning money to learn something new and perhaps run it along side my current systems for a year before it goes live I cannot even do that - I have less than a year to compulsory digital VAT and no product I can try and buy which is compliant as far as I am aware. Also every change is expensive including of time for small businesses. Even my last employer always ensured they had the second latest software so it was cheaper and that the errors you get with latest products could be tired out on some other poor mug (very wise principle). Why a small one person business like mine should be the category at the forefront of this (I am the only person in my firm including secretarial staff - I am that staff too) just seems a bit silly of HMRC.

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12th Feb 2018 12:27

100s and 100s of new bookkeeping clients about to turn up in April 19. I suggest you recruit a couple of trainees now.. pop them on the apprenticeship scheme and the govt will pay the majority of the acca/ aca training costs.

By April 19 they will be one year in and clever enough to battle the tidal wave that is currently January rush but now its going to be 5 times a year.

You are looking at probably trebling existing fees

Thank you government :)

You will also need this

https://www.bentleymotors.com/en.html

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12th Feb 2018 12:42

I've been studying MTD for some time now and I have come up with this conclusion. Eventually it could work for VAT registered business but I cannot see it working on a quarterly basis for the smaller entity.
I don't think April 2019 is realistic either. My view is that HMRC will make it volutary from April 2019 and, depending on software progress, mandatory by April 2020, which is, of course, when the smaller entity with an unspecified turnover is supposed to come on board.
I really wish HMRC would have a meeting with the likes of us (not the Institutes) so that a proper plan of action can be put into place which may work, rather than this charade which has no chance of doing what HMRC are expecting.

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12th Feb 2018 13:39

Cant possibly happen on that timetable.

It will be withdrawn around this time next year, if not before.

We have seen this so many times before.

I refuse to do anything about it until its real and its actually happening.

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12th Feb 2018 14:01

I think MTD is doomed to failure and hope they scrap the idea.

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By Locutus
12th Feb 2018 14:14

I'm still struggling to see what problem MTD solves.

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to Locutus
12th Feb 2018 14:31

I think the original intention of HMRC was to get the small entity on quarterly then monthly submissions so that monthly tax payments (effectively putting the small entity on PAYE) could be collected.
HMRC were gobsmacked at the amount SE brought in so they thought "let's have another go" - perhaps.
Or make it so difficult for the small business that they all went on PAYE anyway.

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12th Feb 2018 15:19

Hello

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to cmackie1958
12th Feb 2018 15:37

Welcome

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By DMBAcc
12th Feb 2018 23:49

can we have just a couple of civil servants to run a small business for a year to show us all how easy and cheap MTD is going to be?

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13th Feb 2018 09:41

The only benefit I can see from MTD is when dividends have to be recorded & reported online. That will ensure no more "time travelling" by the less reputable clients can happen and will make life easier for Tax Returns.

Unfortunately that benefit is probably so far off that all the ridiculous mess for the rest of the system will likely result in cancellation of the whole project before then. Oh well!

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to alan.rolfe
13th Feb 2018 13:09

We had that.It was called ACT (Advanced Corporation Tax). It then moved on to Pray and Fail, which is what we got now.

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15th Feb 2018 10:26

Listened to the latest VAT seminar update. I could list many things but really we are in the same position as this time last year except Mel Stride has stated that MTD is going to happen so all had better pull their fingers out. Good luck with that Mel.

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22nd Feb 2018 08:34

I am confused: does this start date apply to only non-company business or do companies now fall under it. From what I recall the original initial MTD was aimed at non-companies, but 'businesses' means different things to different people and I'm now confused.

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to Claire Whiter
22nd Feb 2018 09:39

I am not sure. All I saw was "businesses" (and as I am a VAT paying sole trader know it wil apply to me). I was assuming it would also apply to limited companies but it does not say one way or the other here - http://www.parliament.uk/business/publications/written-questions-answers...

If limited companise were excluded those of us who do not want MTD for VAT could incorporate to get out of it I suppose.

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