MTD for small VAT clients: Get on track and get ready for April

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Neil Warren attended the MTD for VAT AccountingWEB conference on 1 November, and shares some important practical tips he picked-up there.

So far with MTD, we have largely focused on the general principles that will apply from 1 April 2019 – the who, what, how, and when. This event gave accountants a chance to look at some of the practical issues that will apply, with specific solutions highlighted by the speakers.

Key messages

Tax titan Rebecca Benneyworth emphasised that we should never forget the key difference between VAT and income tax, namely that VAT is a transactional tax. We need to be aware of the VAT issues of every transaction we process and this issue will be even more important with the introduction of MTD.  

Benneyworth highlighted that there are many quirks within VAT that HMRC didn’t recognise as a potential challenge with MTD at first: capital goods scheme, partial exemption, margin schemes and TOMS. VAT is not the easy tax for MTD that HMRC might have anticipated.

Matt Flanagan, a cloud business systems specialist and managing director of Bluehub, surprised me with the revelation that the average age of UK business owners is currently 51 but this would fall to mid-30s in eight years’ time. This is an important statistic for the future development of accountancy practices, knowing that most new clients will have been fully brought up in the digital age of modern technology.

Four stage process

Flanagan’s session highlighted a four-stage process for dealing with MTD:

  1. Identify clients who are within the scope of MTD – ie businesses trading over the VAT registration threshold.
  2. Review the current accounting systems of each client – are they MTD compliant?
  3. Define client requirements after April 2019 – this might involve the adoption of new accounting packages.
  4. Offer an MTD solution to each client – acknowledging the skills and mindset of each client.

Points based system

Flanagan suggested we give each client two marks out of five – one for the quality of the client (1 being low and 5 being high), recognising the client’s mindset and therefore likely reaction to the challenges of MTD. The second mark recognises the quality of the client’s accounting system. For example, is he relying on an old system from the 1990s that could collapse at any moment?  

If all of your clients score 25 (5 x 5), then MTD should be a piece of cake. But a mark of 1 to 5 indicates more challenging times.

Dealing with clients

The client liaison theme was extended by Phil Sayers, founder of Proten Sales Development, who considers that “clients need to work with processes adopted by practices”, which would often need some time spent with the client ie an MTD conversion effort. He considers that a standard letter notifying clients about the introduction of MTD might not be effective, so a simple note in red along the lines of: “I need to speak to you in the next two weeks about something urgent – will you please call me” might generate better results. I like that idea.

Digital links

Benneyworth gave an example of a farmer using Farmplan software to raise its sales invoices. A journal might be raised to enter the monthly or quarterly totals from Farmplan into Sage. This would be fine for the first year of MTD during the soft-landing period. But from 1 April 2020, this software link from Farmplan to Sage would need to be done digitally using import tools, so there must be no re-keying of data, cut and pasting, or manual journals.

Software presentations

There were presentations from Receipt Bank, FreeAgent and BTCSoftware, all of which made me realise how far we have come in the last 10 years. An example was quoted of a sole trader bookkeeper who had the capacity to act for 120 clients rather than 30 after he adopted Receipt Bank.   

Final tips

Benneyworth gave three final tips in her session:

  • Encourage clients to join the HMRC pilot scheme, assuming they are one of the 500,000 businesses now eligible to do so.
  • Suppress VAT codes in accounting software that are not needed eg a business would not need a reverse charge VAT code if it does not buy services from abroad.
  • Examples of letters that can be sent to clients can be found on the ICAEW MTD hub, along with other useful information.

Conclusion

With the introduction of MTD less than five months away, we now need to be interested in some of the finer details. As the conference chairman John Stokdyk rightly commented: “It is time to get on track and get ready for April.”

About Neil Warren

Neil Warren

Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.

Replies

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08th Nov 2018 17:56

Being a partnership and on the flat rate scheme we don’t even qualify for the MTD letter. This is no longer funny.

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to Open all hours
12th Nov 2018 15:13

I should be within MTD but have not had the letter!

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By puzzel
08th Nov 2018 19:55

Slowly getting very confused on this MTD4VAT.
If a trade is standard + 20% VAT and at or above the £85k threshold, then you are in the scheme.
If you are VAT registered and below the £85k threshold, then you are outside the scheme.
If you are VAT registered and on a flat rate scheme, partnership or group at the moment you are outside the scheme for MTD4VAT.
Q. What period are they using to say that a business should be within MTD4VAT?
If any business within the construction industry, undertook work in a 2 year period, part could be 20%, 5%, 0%. So within this trade, how can they determine who should comply with MTD4VAT or not.
Is there a chance to appeal that they should not be involved in the earlier periods of MTD4VAT.

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to puzzel
09th Nov 2018 08:55

"If you are VAT registered and on a flat rate scheme, partnership or group at the moment you are outside the scheme for MTD4VAT."
No. These businesses are currently not permitted to take part in the PILOT for MTD4VAT.
The flat rate scheme user will be required to join MTD for VAT periods begining on and after 1 April 2019 , if thier turnover for the year to 31 March 2019 is over £85,000.
The group qualifies for deferral of MTD, so will be required to join MTD for VAT periods beginning on and after 1 October 2019
The rate of VAT charged by the business is immaterial.

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By AndySCL
to Rebecca Cave
13th Nov 2018 12:22

Hi Rebecca
Could you clarify how things will work for companies on the Flat Rate VAT Scheme, of course they pay lower VAT percentage however it's levied on the VAT inclusive turnover and they can't set input VAT against it. You talk about them being eligible for deferral of MTD til Oct-19?Are these companies not expected to comply with the new rules from Apr-19 and will software be able to cope with the way VAT is actually calculated. Must the client use accountancy software or can they submit themselves?

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By NH
08th Nov 2018 21:17

Finding it hard to fathom out the predicted dramatic fall in average age of business owner, seems a bit far fetched to me

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to NH
09th Nov 2018 09:17

I imagine it was a dubious stat being used to sell software as clearly everyone loves software and is a complete dunderhead if they don't get stimulated by the thought of turning a simple manual process into a complex automated routine, just because you can.

Either that or they predict all business owners over the age of 50 are going to put 2 fingers up to MTD and just take cash in hand to stay under the VAT threshold.

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09th Nov 2018 09:18

I think in all of this it is worth remembering the space pen.

The Yanks spend millions of dollars developing a pen that would write in space

The Russians took a pencil.

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By Ammie
to ireallyshouldknowthisbut
09th Nov 2018 10:29

Excellent!

Never heard that one before. Made me chuckle!

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to ireallyshouldknowthisbut
09th Nov 2018 12:06
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to Russell51
09th Nov 2018 14:07

@Russell, shhs, don't tell 'em, it makes the point too well!

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09th Nov 2018 10:18

Does anyone know if HMRC's online VAT filing portal will still be available after April 2019 for VAT registered clients with a Turnover below the VAT threshold?
Under current proposals these clients will be exempt from MTD for VAT but I'm sure that I read somewhere that the HMRC will be removing the option to file VAT returns directly.

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to Jamesm2705
12th Nov 2018 15:22

I believe despite early indications they would pull the plug on the on line fililng in April they may be keeping it up. I hope so as if my end of May MTD filing fails it would be good to have a backup.

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By djtax
to Jamesm2705
13th Nov 2018 10:29

Yes the current system will remain for the time being - if only for those VAT registered but below £85K turnover for whom MTDfVAT is not compulsory (yet....)

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09th Nov 2018 10:21

I have only one sole trader who is affected by this, but he has had a massive stroke. My understanding is that he should have grounds to claim exemption on this basis, but I have absolutely no information on how to go about claiming this. Anyone have any ideas?

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09th Nov 2018 10:25

I have only one sole trader who is affected by this, but he has had a massive stroke. My understanding is that he should have grounds to claim exemption on this basis, but I have absolutely no information on how to go about claiming this. Anyone have any ideas?

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By djtax
to whiteways
13th Nov 2018 10:31

As with so much about MTDfVAT this still remains unclear.

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09th Nov 2018 10:52

For a small business turnover say £80 to £90K and cash accounting, is the VAT threshold based on dates of invoices or dates income is received as these are certain to be different.

Hughc

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09th Nov 2018 11:32

I'm considering putting some of my clients into the pilot scheme and I have one of those Agent Services Accounts (along with several other Government Gateway Accounts, some of which I have no idea why I have them). The problem is the Agent Services Account doesn't actually do anything. I've tried numerous times to get it to link up with clients in my ordinary Agent Government Gateway Account but I cannot find a way of doing it. What's more when I read other people's comments about what they see when they go into their ASAs it appears that we are all looking at different things. Shouldn't all ASAs look the same on the Home Page? It seems that even the simplest things about dealing electronically with HMRC are now becoming impossible to fathom so what's it going to be like next April.

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to anthonystorey
09th Nov 2018 13:36

Took us 43 days for HMRC to get us connected. Found it best to go on Twitter and then to The Daily Telegraph. Otherwise suspect we’d still be waiting. Good luck.

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to anthonystorey
09th Nov 2018 14:10

Be a bit careful with the pilot.

There are still people stuck on the original MTD pilot as there is no backdoor.

I'm keeping well away myself until it works first time, and I have two closing clients with nil VAT returns we can use as dummies.

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09th Nov 2018 12:21

Does anyone know if my desk top version of Sage Line 50 will be complaint for MTD , I ask SAGE and get no reply , when I ring I get a different answer from each telephone representative, I have asked HMRC about the email exchange and they have failed to answer stating they are a "small team behind with everything " . Now I have clients taking time up with SA and will be deluged with queries about MTD with no clear answers , if HMRC are reading this please can you give a helpline number to call. Accountants reading this I suggest you all email the MTD email address and ask the question listed on numerous threads. BTW whats happened to the House of Lords report . HMRC have had it too easy for too long with RTI - AE lets make the MTD road more bumpy !

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By NH
to nodrogbir
09th Nov 2018 12:54

In all fairness you have had a good couple of years to prepare for this, I don't think you can complain at this late stage that you are not ready!

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to NH
09th Nov 2018 13:07

@NH

"In all fairness you have had a good couple of years to prepare for this, I don't think you can complain at this late stage that you are not ready!"

What a great shame HMRC aren't ready, isn't it!

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to nodrogbir
09th Nov 2018 13:06

@nodrogbir

"BTW whats happened to the House of Lords report . "

Their Lordships are still musing...

If you would like to see how confused Middleton and Stanier are, then watch here...

(P.S. I was one of the written evidence witnesses)

https://parliamentlive.tv/Event/Index/99ca5180-ad74-4833-bb81-fdc8612f53ed

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By Tornado
to Michael C Feltham
12th Nov 2018 00:36

"If you would like to see how confused Middleton and Stanier are, then watch here.."

Confused? Not really. More like a complete lack of knowledge about what they are doing . It seems as though they have been briefed on what to say, but they have absolutely no understanding of what it is that they are saying.

With so called Strategic and Tax Design people like this .......

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to nodrogbir
09th Nov 2018 18:34

Investigate Bridging software as it will do the link between Sage and HMRC if Sage doesn’t. It’s not expensive and should do what you need. I’m using it for my Spreadsheet Clients to do MTD after April 2019.

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By djtax
to nodrogbir
13th Nov 2018 10:37

Older versions of Sage will not be compatible (and it appears Sage have no intention of offering any basic upgrade tool other than signing up for the newer versions of Sage). Only the current 'perpetual licence' version(s) will work (including in particular the cloud based Sage offering) - ie the licences where you are committed to a monthly payment in perpetuity.

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09th Nov 2018 12:59

"Matt Flanagan, a cloud business systems specialist and managing director of Bluehub, surprised me with the revelation that the average age of UK business owners is currently 51 but this would fall to mid-30s in eight years’ time. This is an important statistic for the future development of accountancy practices, knowing that most new clients will have been fully brought up in the digital age of modern technology.".

Specious nonsense and simply hope; I wonder who carries out his Market Analysis and Demographics research?

The obvious corollaries are:

1. What is going to happen to all these older business owners when they are 59? Dead (From sheer frustration in dealing with the ever-increasing load heaped upon by an insane government?);

2 Retired, to starve? We are told, by Government, Pensions experts, ONS et al, that the average retirement age is increasing; not decreasing!

3. They will all become Civil Servants?

4. On the Dole?

Every time I read sales puffs from "Cloud Experts" I am minded to recall the old saying:

"An Ex-Spurt is a cross between a Has Been and a Drip Under Pressure!

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By tedbuck
09th Nov 2018 13:02

I like the idea of making the road bumpy for HMRC.
They rely on us not bothering to do this and just sorting things out. I have got just a bit p****d off about it so now complain officially each time they do something stupid. The last effort was them processing a paper return and producing a liability of £6000 instead of £1600 by ignoring the annual cgt exemption and charging the gain twice. Not bad for one tax return processed is it?

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By Dandan
09th Nov 2018 13:02

From article wrote:

Matt Flanagan, a cloud business systems specialist and managing director of Bluehub, surprised me with the revelation that the average age of UK business owners is currently 51 but this would fall to mid-30s in eight years’ time

Seems like dodgy statistics to me. For this to happen , there would need to be an unexplained and substantial increase in the death rate of anybody who is currently 27 or over .

Also , there is a misconception that people born in the digital age have a better understanding of how it all works. It is the usual cliché of mum and dad asking their 8 year old son or daughter to help with using the PC.

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09th Nov 2018 13:36

Best laugh of the day was the bookkeeper being able to handle 120 clients instead of 30 due to receipt bank. Anyone with experience of clients using anything to input receipts and assign categories to these knows that they add to the time taken to process, not subtract, as you then have to spend twice as long resolving all the issues the client created in the first place. It's faster to input them yourself. I guess if you don't check the entries then you can process hundreds of clients- but then why do they even need a book keeper?

MTD is going to be a mess. Forcing people to adopt different methods in how they run their small businesses isn't the way to bring it in- remember the incentive schemes for when they brought in other schemes, much better take up and gradual pull until we're all in it?

They should have adopted the same model here- if you had said there is a £100 incentive per quarter for people registered below the threshold, £200 up to £250,000 turnover, £300 above that, you would have people knocking on my door asking to be put on MTD.

Imposing an unpopular system on people which has zero benefit to them and involves them in more costs and a lot of effort and wasted time isn't the way to do it.

There is still time for HMRC to see the light and encourage adoption with incentives and make it a soft introduction rather than the current cliff edge approach.

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to Ian McTernan CTA
09th Nov 2018 13:42

There’s far too much common sense in here. It would involve HMRC acknowledging what many of us have been telling them for the past 3 years. It would also involve them showing some humility and that’s simply not going to happen.

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09th Nov 2018 14:14

I have one client, who is using, apart from standard rate VAT, also retail scheme for part of the business, also reverse charge scheme and second hand goods rate for some other. When he would get a letter to join MTD4VAT?
English is his second language, most employees are from his homeland, no one want any involvement with any accounting system, they believe paying accountant fees should put everything right, they will deliver documents at their convenience.How to prepare such a client for MTD?

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By btk
09th Nov 2018 14:16

"A journal might be raised to enter the monthly or quarterly totals from Farmplan into Sage. This would be fine for the first year of MTD during the soft-landing period. But from 1 April 2020, this software link from Farmplan to Sage would need to be done digitally using import tools, so there must be no re-keying of data, cut and pasting, or manual journals."

So from 1 April 2020, are no journal entries allowed in sales nominal? Do all sales entries have to be automatically generated, i.e, sales invoices must be generated by the software? What about purchase invoices, how are they going to be recorded without "manual" entering of the invoices from suppliers in sage?

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to btk
09th Nov 2018 14:58

I don't think the "no journals" thing is right.

What the regs say is you can essentially keep your records who you like, so long as its "digital".

The only bit they don't like is you typing in the 4 numbers at the end, so this has to be a "digital link"

You cant create accounts with typing. Moreover HMRC simply cant have the resources to check such things. They can have all the rules in the world, but if they are not checked or enforced, who cares?

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09th Nov 2018 15:11

So how is partial exemption going to be done? We have an outside consultant who calculates the VAT for the Group which is then entered online by us. So it’s 2 steps away from the 2 VAT reports generated by the Sage Software, neither of them digital.

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By sueber
09th Nov 2018 15:14

Working for an incorporated charity with an individually negotiated partial exemption special method scheme I have no idea how to implement this and HMRC seem unable to find the time to answer my queries.
All I know is that our current version of our software won't work and it is going to cost money and time (that we can ill afford) to upgrade, just for a few hundred pounds rebate each quarter.

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09th Nov 2018 15:45

Is veryone at HMRC asleep - I have no reply to this email:

This is a very serious email when HMRC are bringing in a new Law and are not helping Accountants to implement this Law. I list the issues as follows:

The companies on your approved list are not ready and are not helping us at all , they are only interested in the monthly fee and offer no back up – the ones I have hands on experience are Xero, Sage and Clearbooks.

Xero is expensive and aimed at trained users.
Sage50 do not reply to email and are unable to answer my questions.
Clear books programme froze and after 5 days are unable to answer questions.
My 25 clients are on a mix of Sage line 50 and paper records – those we have trialled have come up with records that are nonsense – they are either claiming VAT on everything , allocating to the wrong place , unable to understand how to move to the next step.
We have offered to do the books for all clients which we will have to charge for and they all say NO.
Not one of the 25 clients has received any notice of any change.
I am unable to use the ASA ( its just not user friendly and we have no one to call for help )
About two thirds of the clients are unable to use the piolet which is totally unfair.
With this becoming Law how on earth are HMRC, Accountants and Software Companies going to cope with the immense demand.
We are not even privy to the information you are sending to clients.

Perhaps you could explain what is expected of us when our telephone lines will be deluged with calls at our busiest time of year ?

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By NH
to nodrogbir
09th Nov 2018 16:13

[quote=nodrogbir]

Is veryone at HMRC asleep - I have no reply to this email:

They probably are asleep, and I am in no way defending HMRC but in all honesty you cannot blame them for everything!
we started using Sage One, Xero, QBO and FA over two years ago, we were able to negotiate reasonable deals, have spoken to clients, improved their book-keeping and systems and increased our revenue slightly, it all works well filing directly through the software, whats not to like?
If I had left it until now, yes I would be panicking but that would not have been HMRCs fault.

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to NH
09th Nov 2018 16:54

Reasonable deals - still more costly than a client who keeps exemplary books on paper and records in less time than it takes using software
Why can people still complete paper SA Returns if they so wish - some 20 YEARS since Self Assessment came in, but compulsory dictation for how records are kept for VAT?

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09th Nov 2018 18:30

"My 25 clients are on a mix of Sage line 50 and paper records – those we have trialed have come up with records that are nonsense – they are either claiming VAT on everything , allocating to the wrong place , unable to understand how to move to the next step.
We have offered to do the books for all clients which we will have to charge for and they all say NO."

>> a couple of mine have gone further and taken notice of the Quickbooks advert and left me (not really sad to see them go as they were a pain or rather their not -very -good bookkeepers were).
Those who do things themselves always get things wrong and asnodrogbir says it takes an age to rework and get things right. If I heard the words 'its OK you wont have to do much Sage has it all balanced'! I've heard it a thousand times. And they dont understand if you charge the going rate for rework.
I've also offered to do it all for them and they also say no.
So I've taken a bold step and decided to no longer take on any client who does it themselves - I do the lot or not at all. I'm too old to take the grief!
I started getting ready for MTD over a year ago. Changed software etc but its not been an easy journey. I'm just waiting for the deluge of new clients post April 2019 who do it themselves, find they cant do it and walk through the door asking for help.

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10th Nov 2018 16:18

Has anyone tried and implemented any software bridging packages for spreadsheet?

If so:
who ?
Was it easy?
What does it cost?

Did you then pass this onto the client and tell them to get on with it or explain you would have to do it and mark it up.

As most of them expect help for free I am considering saying ... use this and get them to help ... or if you want us to do it each quarter it's going to be £xx each go.

I take the articles point point about giving marks out of 25.... except if you have 400+ on spreadsheets, well it's all a bit time consuming and a waste of resources as none of them want to pay.

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to Tom 7000
12th Nov 2018 15:38

That is what I want to know too. I just need to know the best bridging software from excel which is very cheap ( or free) and just takes a short while to download. I still have no idea what the steps will be in May however.
I presumabloy have an excel spreadsheet which has some extra column or something within it which will link it to HMRC. Presumably HMRC send me some new code word or account number before April. I then open the spreadsheet which has all my turnover on it and click send this box to HRMC and it sends HMRC the total turnover and then I go to a spreadsheet with expenses on and click on the total - send this box of expenses total to HMRC?

Is that the gist of a bridging software from excel?

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By djtax
to EnglishRose
13th Nov 2018 10:51

There a couple of providers who have set up recorded demos showing how it works (the demos are freely available - no need to commit to their products) - eg have a look at BTC. Whilst clearly it is in their interests to make it appear simple, it really does look very simple to use the bridging software to pull the relevant 7 figures from an Excel spreadsheet to submit the Return. The joke is that it doesn't seem to do anything different to what we already do on the current system (albeit currently inputting the same 7 figures manually).

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By DJKL
to EnglishRose
13th Nov 2018 11:05

Cannot see it picking up each figure as a distinct uplift.

I have vat schedules in my excel books where day book totals already update from takings sheets and expenses sheets, the vat sheets also do say retail scheme calculations. What I envisage is the AP linking to the box total figures on these sheets.

However as I cannot readily overcome the excel cashbook payment issues I suspect I will totally drop my few clients where they infill the preformed workbooks which I correct on excel and only continue do work where I get to do all the data input.

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12th Nov 2018 15:12

My paper records system which presumably has been around since about AD500 is not at risk of collapsing at any moments. It is very good.

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By djtax
13th Nov 2018 11:09

I am still confident that the Lords committee's report, once issued, will have noticeable repercussions over what happens next year including the possibility of relaxing the mandation date (perhaps making it voluntary at first, to allow for a longer and more effective trial period).

Together with two of the other regular AWeb contributors I was one of the accountants invited to the Lord's committee's round table discussion three weeks ago - we were all saying largely the same points everyone on Aweb has been raising and I felt we were pushing against an open door. No one is saying digitalisation per se is a bad idea - just that HMRC have seriously botched the way they gone about delivering it so far.

If in doubt have a look at the recording of their session with HMRC, as per the link given in Michael Feltham's post above.

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