The first MTD for VAT return deadline has now been and gone. Jennifer Adams examines the issues raised in the first tranche of submissions and asks what lessons have been learned.
Nearly four years have passed since we first heard the phrase 'Making Tax Digital'. When George Osborne announced in the November 2015 Autumn Statement that annual tax returns were to be abolished, he was met with cheers. It’s fair to say a lot of water has passed under the bridge since then.
There have been webinars, beta testing, comments, blogs, monthly reminders on social media, Youtube videos and letters. However, many taxpayers still remain unaware and only know that 'HMRC is changing the way you file your taxes' via the QuickBooks advert on TV.
Whether the effort has been money well spent will only be gauged by the number of letters for non-submission of VAT returns and/or non-submission via MTD that HMRC will be posting to those who did not submit in the proper way for the first stagger.
It would be interesting to learn how many of those taxpayers were represented or not: unfortunately, a figure we will never know.
Again, it would be interesting to find out how many submissions were made via the larger software providers and how many via the linked spreadsheet ‘bridging software’ option so that the effectiveness of each could be gauged.
For AccountingWEB members and their clients, the first stagger submission on 7 August appears to have been relatively trouble-free and for those who had issues, it is a relief that no penalties will be levied.
Problems that did arise appear to fall under one of three headings:
- The fault of the agent (or rather the agents' client not clicking the link sent to authorise – there is no way of knowing without actually asking the client).
- Where clients who pay by direct debit signed up in the seven working days before their filing deadline or the five working days after.
- HMRC's fault where the VAT return 'obligations' were not populated on their side rather than being the fault in the submission software itself.
Accountants like to know the reason why things work the way they do and so rather than just listing what needed to be done to join the system, more explanations would have been helpful around the use of ‘obligations’, the non-working of which produced the third set of errors.
It would possibly have been useful if there had been a way of testing that a submission was OK to go through, testing that obligations were in place for each submission so that could have been sorted before the first stagger (but that obviously would have been a nicety).
An obligation is generated on the first day of the VAT period, whether the previous obligation has been fulfilled or not. HMRC sends a period to the software provider on request via the authorisation provided by the Agent Service Account. Once this is done a list is generated and placed on the site of the submitter as VAT returns to file.
In some instances for this first submission, HMRC was not sending over any dates and as such, the software was unable to populate the list.
MTD-compliant software allows the software to search for obligations based on a start and end date range and an obligation status: O for open, F for fulfilled or blank for both.
Software can search for previous open or fulfilled obligations within a 366-day date range but can only call the next obligation.
The use of obligations can be viewed in a useful flow diagram plus other useful information can be found here.
Incidentally, the setting up of an Agent Services Account can be viewed in diagrammatic form (click here or see below):
There is also a video that explains the step-by-step process for creating an agent services account:
Annoyingly, when ‘lack of obligation’ errors occur, some software providers just state that there is an error and advise getting in touch with HMRC. Others actually give you the error code number generated so you can delve further into the problem.
Helpline constantly engaged
Contacting the VAT helpline has been impossible for some weeks now as the phone is constantly engaged. While HMRC has increased the number of staff taking calls, the hours of opening have not lengthened, which is very unfair to those 'customers' who are in need of advice.
Clients who have tried phoning themselves have found it confusing as to which number to ring, going through the usual questions only to find that they have been transferred to the main helpdesk rather than any specific MTD helpline.
Check missing obligations
AccountingWEB members RedFive and John Hemmings have suggested a couple of ways agents can check whether accounts have been signed up or which clients might be missing obligations. You can either open a Business Tax Account for each client and check the obligations listed there or download free software such as Easy MTD VAT which details the types of error.
Either method enables the user to distinguish between accounts which are not signed up (error 403) and those which have obligations missing (error 404).
John Hemmings has produced an excellent video which should be viewed by all accountants wishing to understand the 'obligations' system in more detail and the error codes being generated.
Again, to be fair to HMRC, they have included agents in their project as far as possible, including issuing specially targeted notices (although these can easily be missed amongst the flood of emails received every day from www.gov.uk.). The current update for agents being the 'MTD Update for Agents #8'.
Hopefully, by the next second stagger, such issues will have been ironed out and attention can be turned to the more complicated problems such as the ones encountered when setting up for clients who had previously submitted themselves but now want an agent to take over.
If anyone has encountered problems other than those given above or have any suggestions as to how the process could have been handled more effectively please comment and we will submit to HMRC on members' behalf.
It will be interesting to learn how much clients have depended upon agents to make the first submission, which might give some indication as to future client needs when the 'real' MTD happens (if it does, of course).
It will also be interesting to hear how accounting firms have fared in the process. For example, AccountingWEB member keninringer commented that MTD4VAT has cost his firm 200 + hours already.
Everyone who was required to submit by 7 August will now hopefully have learned from the problems of the first stagger. Let's just hope that what appears to be the relative success of the first MTD for VAT submission has not lulled HMRC into a false sense of security that the same relatively smooth process will happen when MTD for other taxes is implemented.
About Jennifer Adams
Jennifer Adams is Consulting Editor of AccountingWEB and is a professional business author specialising in corporate governance and taxation. She runs her own accounting and consultancy business with offices based in Surrey and Dorset.