MTD for VAT: Supplier statements now acceptable

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HMRC’s latest MTD policy update means that supplier statements can now be used to record expenses for input tax purposes: a big time saving for many businesses that adopt spreadsheet accounting. Neil Warren has the details.

Recording purchase invoices

MTD for VAT was introduced for all UK businesses making annual taxable supplies of more than £85,000 for VAT periods beginning on or after 1 April 2019.

A controversial policy of HMRC has always been that a business using, for example, the cash accounting scheme and spreadsheets to digitally record their expenses had to record every single purchase invoice in a digital format, even though the business might make a single payment to a supplier based on a statement covering perhaps 40 or 50 different invoices.

It would be sensible for the business to just make a one-line entry on the spreadsheet based on the payment total. With the cash accounting scheme, input tax is only claimed when payments are made to suppliers. That policy has now changed.

Updated public notice

VAT Notice 700/22 has been updated a number of times this year as HMRC’s policy on MTD has evolved but the latest update on 5 May 2019 is very welcome because it means that supplier statements can now be used to record expenses for input tax purposes – a big time saving for many businesses that adopt spreadsheet accounting.

However, if the statement comprises invoices at more than one rate of VAT, the individual totals relevant to each VAT rate within the payment must be recorded separately (see VAT Notice 700/22, para 4.3.3.1).

Example

Gary the decorator buys all of his paint from ABC Paint (standard rated). He also buys decorating manuals from the same supplier (zero rated). In April 2019, the supplier statement showed a total payment due of £1,300, consisting of £100 of manuals and £1,200 of paint.

Gary is VAT registered and uses the cash accounting scheme and he records his expenses on a spreadsheet, which tracks the entries on his bank statements (he does not deal in cash). Following HMRC’s change of policy, he can make a digitally accounting entry as follows:

  • Paint £1,000
  • Manuals £100
  • VAT £200
  • Total payment £1,300

Petty cash expenses

The updated notice has also confirmed that petty cash expenses can be posted as a single total, as long as no individual receipt within the posting exceeds £50 and the total of all receipts does not exceed £500 per entry. Both figures are VAT inclusive (see VAT Notice 700/22, para 4.3.3.2)

To be honest, I have always told accountants I advise that this approach with petty cash expenses is fine because there is a clause in the legislation which says that MTD accounting is not necessary where it is ‘impossible, impractical or unduly onerous’. This definition perfectly fits petty cash expenses. And, in reality, HMRC rarely shows an interest in petty cash expenses – officers are much more interested in, say, fixed asset additions or land and property transactions.

MTD progress report: Where are we now?

I have been getting feedback about early MTD return submissions and quite a few clients have had their initial submissions rejected by HMRC, with a comment such as it “failed HMRC data checks” but then persistence has paid off with the return eventually being accepted. One client raised a more worrying point:

“Despite registering the software with HMRC and doing everything else I thought needed to be done there was one final verification that HMRC needed before it would accept the return. It wasn’t easy to find and the support from the software company was woeful – I had to work it out via google and my own wits.”

Hopefully, by the time that the first compulsory returns are due by 7 August (for businesses on quarterly returns and covering the June 2019 quarter), these teething problems will be in the past. But I suggest that you encourage clients to submit returns a few days before the August deadline to avoid any last-minute problems. And if it does go wrong, they should still make sure the VAT is paid on time to avoid any default surcharge horrors.

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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By AW71
10th May 2019 09:34

Hoorah, common sense prevails for once.

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10th May 2019 10:24

Best news in ages but I pose the question that sales invoices and sales receipts should be relaxed also . If a sensible approach was taken then I would welcome MTD across all Taxes but this messing around with the vision of Hmrc is in my opinion not what MTD was intended to do . To be clear I support MTD if used properly and indeed we were one of the first accountants back in the 80s to use computers . Too many younger accountants are using it as a marketing ploy when I suspect in they too think it wrong .

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By GW
10th May 2019 15:37

Unusual to see common sense from HMRC.
I'm not sure I follow their reasonong in prefering individual invoices to totals off statements:
"In HMRC’s view, it is best practice to record digitally the individual supplies as this means less risk of invoices either being missed completely or being entered twice - once as an invoice, and once as part of the statement"
Isn't there less scope for omissions in entering twelve statement totals rather than an unspecified number of individual invoices each month - or are they hoping for underclaimed input tax?

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By CJaneH
10th May 2019 16:20

From A VAT point of view great unless private purchases included!

From An accounts point of view dangerous to permit client to think that they do not need invoices. Analysis of expenses and identifying capital items not possible from statement.

Also for cut off, invoice may indicate time of supply different from invoice date.

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By Tornado
10th May 2019 16:38

The special VAT schemes introduced by the Government a long time ago were designed specifically to REDUCE the amount of book-keeping required by people in business, and for many years, that has been the effect.

It is an obvious anomaly that MTD for VAT imposed much more onerous book-keeping requirements on people using such schemes, and made these schemes a nonsense, so I am not surprised that HMRC are back-peddling on this type of situation.

I think there are still many anomalies in the system and there will be much more back-peddling to follow, so that MTD for VAT end up nothing more than what we had before expect the figures are submitted a different way.

Making Tax Digital, what a joke! This is nothing like the grand plans originally conceived by HMRC and is definitely NOT Making Tax Digital.

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10th May 2019 17:33

Hmm, bit of a U turn there.

I'm certainly not knocking the concession but I tend to get a bit peeved when someone (anyone for that matter but especially peeving when it's a public body spending our money) swears blind that something has to be X but then come out at the 11th hour and pretty much 59th minute and announce that, actually, it can be Y after all.

Then HMRC wonder why accountants and businesses aren't keen to commit to all this MTD drivel when they (HMRC) are forever moving the goal posts and pulling the rug from underneath anyone who has tried to get ahead.

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to adam.arca
11th May 2019 13:32

adam.arca wrote:

I tend to get a bit peeved when someone (anyone for that matter but especially peeving when it's a public body spending our money) swears blind that something has to be X but then come out at the 11th hour and pretty much 59th minute and announce that, actually, it can be Y after all.


Large organisations cannot behave like individuals who explain what they are doing and the reasoning and can be argued with. They end up having a communications department that communicates the message. Any feedback is not handled there, but has to go into the decisionmaking process. At some stage if a decision is made to change then that is also communicated.

It cannot really operate in any other way as there has to be some point at which a decision is made and there is a limit as to how information feeds to the point at which the decision is made.

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10th May 2019 17:49

If people do not sign up to MTD what can HMRC do in reality. If they charge penalties and then people appeal they have all those appeals to deal with. At the moment every one piece of correspondence I send to HMRC is in turn creating two or three more letters to them as their replies are of a nature "oh we can't deal with this query for what ever reason or look at gov.uk or join this webinar. When I use their online help almost every answer is of no use at all and you just go round in circles and get more frustrated .

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10th May 2019 19:24

My policy of carrying on with the most sensible system on a client by client basis, and ignoring all HMRC drivel on accounting, continues.

After all, anyone who has tried to figure out how much PAYE or NI a client owes using HMRC's accounting system online knows just how rubbish they are. Indeed their statements are just about the poorest quality statements anyone sends out, I am sure we all waste time trying to explain them to clients.

I will be keeping my clients well under the HMRC radar, in any case they simply are not up to the job of coping with all the data coming their way.

The day I feel the need to have HMRC tell me how to do book-keeping and accounts is the day I quit.

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to mr. mischief
13th May 2019 09:27

Well quite.

HMRC dont care about bookkeeping so long as the tax is right.

Once all of this has bedded in, I cant see that changing on the ground. There is little incentive for HMRC to hound business for not jumping through hoops if the tax is right. We are repeatedly told this will be treated as 'light touch'. All my clients are keeping existing systems and processes, and the only adjustment is going to be between my clients data and the final squirt of data to HMRC.

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11th May 2019 12:26

And to think there was a lot of criticism aimed at accountancy practices a year or two ago that we weren't preparing ourselves and our clients for the MTD revolution.

As it turns out, those of us who hung back and waited have been proved right. I hate to think what my clients would have thought if I'd strong-armed them into changing systems, paying for expensive cloud "solutions" etc., only to find out at the 11th hour that it was all a waste of time and effort and costs.

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to Ken Howard
11th May 2019 15:42

I tried the you must do approach and guess what both have changed to another Accountant . The other clients I have told to wait and see are very happy . If this is pushed more my Hmrc I suspect a lot of poor record keeping will result .

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to Ken Howard
11th May 2019 17:55

Although it is possible to be fully compliant and not do anything (if on the April/June quarter) until July 1st or even later, I think it is worth making some steps now.

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By AW71
to johnhemming
11th May 2019 18:19

Definitely, I didn't take part in any trial, but now as each client falls into the MTD window I'm getting on with it. No point holding off until the last minute and stressing about signing them up

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to johnhemming
11th May 2019 18:24

I have contacted Hmrc and they are waiting for responses from me for exemption . Unfortunately despite the fact that I have been dealing with each client for 20 years Hmrc suddenly can’t deal with and can’t explain why they can’t or tell me etc I should despite having a linked ASA and myself being AML checked . I’m ready not sure Hmrc are ready . In the meantime I’m educating each client on what MTD is about . This is costing the clients in worry and time. So I doubt anyone could say we weren’t ‘doing our best’ in an extremely chaotic roll out .

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11th May 2019 15:36

Isn't these a classic case of bringing in an overburdening requirement then rolling back on a couple of tiny aspects to give the impression of a concession just to gain acceptance by those who have to comply with the overburdening requirement?

Seen this sort of tactic used before.

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By JD
13th May 2019 10:41

When will the government (of any colour) learn to start with the ''minimum viable product'' and build from there, rather than wasting everybody's time. They really do not seem to understand the massive distress and cost caused to those that have to deal with this Cr%p, only to find that they step back at the last minute.

At least my decision to stick with bank feeds/cash accounting has proved to a good one.

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By Janski
13th May 2019 12:13

Using supplier statements, this being allowed is very good, but HMRC wording is:

The following rule has the force of law:
Where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown.

Most supplier statements just show the total value of the invoice, it is rare for the VAT included to also be shown, and indeed the VAT rate charged (as this info is already showing on the individual invoices issued separately).

Then presumably such 'limited detail' statements would not be eligible for this dispensation, in which case individual invoices from these suppliers would have to be continued to be separately listed?

Individual invoices could be attached to the statement as evidence of VAT rate and VAT charged, but this option isn't given in the actual wording of the rule. But am I being unduly concerned with HMRC's habit of being stickler for the precise wording of rules?

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By aland
to Janski
14th May 2019 10:15

I think it depends how you interpret "and the total VAT charged at each rate is shown."
I assume that it means "is shown in your digital record". This is implied in the explanation in the article.
I would agree and recommend that the invoices be attached to the statement and kept, particularly if more than one VAT rate. This is how petty cash and expenses are commonly dealt with.

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13th May 2019 12:15

Interesting, when I discussed this with HMRC at ACCOUNTEX they said that the statements would only be acceptable (over entering say 40 or 50 individual invoices) if the statement included the actual VAT split per invoice. This some what contradicts the information above. Do we know if there are any specific information requirement on the statements for them to be acceptable for MTD ??
Crazy state of affairs.

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13th May 2019 13:22

Looking at the comments I see there are still uncertainties. I must question the timing of this announcement. MTD started on April Fools' Day and those of us trying to comply with the rules will have spent time trying to explain to clients about recording invoices etc. How much time we could have saved if we did nothing. Wait a minute, I didn't do anything. In fact my policy with MTD has been leave it as late as possible and it seems to be paying off.

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13th May 2019 13:31

Obviously welcome and typical of HMRC to give this guidance some 5 weeks after the start of MTD for VAT with the usual total disregard of what taxpayers have been told must operate from 1 April. It also makes a mockery of the so called reasons for MTD for VAT. The purpose of the new system was to risk assess a return based upon the ability to know each line item that made up the 9 boxes (unless I've totally misunderstood HMRC's propaganda). Accepting that one can now combine say 50 items in one payment (on the cash basis) this rather shoots down in flames HMRC's reasoning for MTD for VAT in the first place.

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By Janski
13th May 2019 13:43

Use of Supplier statements.

The following rule has the force of law:
Where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown.

There's also the issue of what invoices are listed on the statement. The 'Law rule' states that all supplies on the statement must be for the same VAT return.

So if there's a disputed invoice left on there relating to an earlier period then the statement is ineligible for this dispensation. Plus if the statement includes anything for a later period (e.g. invoices for the 1st of the following month [next VAT period] being included then again it's ineligible.

So even if you have eligible statements one month, some months they may not be eligible, then you are looking at different recording scenarios for the same supplier as you go through the year, which would be a nightmare.

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to Janski
13th May 2019 15:05

As I understand it this was mainly about cash basis VAT and recording a single entry in the bank control against a payment for vat purposes. Hence what matters is that there is a single payment for the statement.

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14th May 2019 11:11

Brilliant news for those of us in the pharmacy sector, where every time a shop orders a box of paracetamol (say) from a wholesaler, that generates a tiny invoice.
Each wholesaler issues a statement summarising the lot at the end of the month, with maybe 500 invoices on each statement. So 500 entries vs 1 entry (well 4 to account for std, reduced, zero and exempt lines)
We'd already decided to ignore the rule and see how it played out (we'd have to employ a new person to comply) so I'm delighted common sense has prevailed

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13th May 2019 17:27

Brilliant news for those of us in the pharmacy sector, where every time a shop orders a box of paracetamol (say) from a wholesaler, that generates a tiny invoice.
Each wholesaler issues a statement summarising the lot at the end of the month, with maybe 500 invoices on each statement. So 500 entries vs 1 entry (well 4 to account for std, reduced, zero and exempt lines)
We'd already decided to ignore the rule and see how it played out (we'd have to employ a new person to comply) so I'm delighted common sense has prevailed

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14th May 2019 09:28

Very welcome news for me as a bookkeeper. I always ask clients to ensure they have all invoices as listed on a statement anyway, but up until the last few weeks, if all invoices were present, I was happy to enter the statement totals onto whatever software/spreadsheet is in use for that client.
I had already considered how much additional time I might need to process every single transaction for some clients, and what that would do to their bookkeeping costs.

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By cfield
14th May 2019 10:05

Nice of HMRC to bow to common sense for once and allow people to run their own businesses as they see fit, but there are dangers in posting from statements that non-accountants tend not to appreciate.

Firstly, it is easy for carried forward items to be posted twice within the statement balances if the last one was paid after the next one was printed. Someone needs to check they are all new items.

Secondly, there could be unallocated payments, round sum payments on account or instalment payments that show up as credits and end up getting posted to P&L.

Thirdly, if you have a costing system allocating invoices to specific jobs, you need to analyse the statement so the job totals can be posted separately. This is more likely to affect larger firms with 50+ line statements.

Then there are the issues mentioned by previous posters re disputed items and statements spanning 2 quarters.

Hence, you need to review statements carefully if you're going to adopt this method, but I suspect a lot of firms won't bother, leading to untold misery at the year end when the poor old accountant has to make sense of it all.

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to cfield
14th May 2019 11:29

Will be worse than the current way as it’s giving a free for all to use statements and then non accountants will enter the invoices as well . Hmrc are showing they don’t understand what we Accountants actually do and yet we seem to be the target .

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