MTD for VAT: Where are we now and who will be affected?

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The amended Making Tax Digital timetable announced in July shifted its focus to VAT. So what do we now know about who will be affected and when?

Draft legislation

The draft legislation issued so far focuses on income tax issues. While the draft Finance Bill 2017-2019 deal with income tax matters, we don’t have sight of any VAT regulations yet, as HMRC has only issued an overview document of ideas about what the VAT regulations may contain.

We do have draft regulations for MTD which deal with the general matters which should be common to all taxes:

HMRC has also issued an explanatory note on the MTD notices which will be issued to taxpayers to require them to comply with the MTD regime.

Who will be affected and who won’t?

The first businesses to enter the new MTD regime will be those who are VAT registered (in the UK) and have turnover equal to or in excess of the compulsory VAT registration threshold (currently £85,000).

This is a lobster pot requirement, as once the business is within the regime it won’t be able to exit, even if its turnover falls below the VAT registration threshold at a later date.

Businesses with wholly exempt income, or that only have small amounts of VATable income, will not be drawn into the MTD for VAT regime, which will be a relief to medical practitioners, dentists, and residential landlords.

Businesses that have voluntarily registered for VAT (those below the VAT threshold or that are not required to do so – such as local authorities) will not be required to make MTD reports but will be able to do so voluntarily.

Overseas businesses that trade in the UK need to register for UK VAT, even if their UK turnover is very small, but (depending on their trading structure), those businesses may not have to register with HMRC for other taxes (eg corporation tax).

Such businesses will be exempt from MTD reporting if their UK turnover is below VAT registration threshold, and may also be exempt from the MTD requirements on the basis of digital exclusion, as they may not be unable to interact with HMRC’s systems from outside the UK.

What must businesses do?

Businesses within MTD for VAT will have two obligations:

  • keep digital records of all transaction details, within software that is capable of linking directly to HMRC’s systems; and
  • report the VAT return data via that software directly to HMRC, within five weeks of the end of their VAT quarter.

Only the totals for each of the nine boxes on the VAT return will need to be reported. The business can voluntarily report supplementary information on its transactions and the calculation behind each total for the nine boxes, but this will not be compulsory.

The submission deadline for MTD for VAT aligns with the current VAT return filing deadline, but it will not align exactly with the MTD for income tax deadline, which will be exactly one month after the end of the quarter for which the MTD report is being supplied – ie one week earlier.

A business will be able to submit the voluntary supplementary information for VAT (ie to align with income tax deadline) and send the final VAT return later.

Traders who use the annual accounting scheme for VAT will only have to submit the MTD for VAT report once per year, as is currently the case for that scheme. Which begs the question: what is the point of those traders being with MTD for VAT? It is possible that the annual accounting scheme will be phased out.

When will it start?

The overview documents for VAT regulations state that it will come into being from 1 April 2019. But before then we need to get through a period of consultation on the draft regulations, and a full year of testing of systems for VAT reporting – which has not yet started.

The changes to VAT and customs duties brought about by Brexit may well apply from 1 April 2019, which is exactly the same timing as the commencement date for MTD for VAT. Is it reasonable that businesses will be expected to cope with these two huge changes at the same time?

Challenges

As around 12% of VAT-registered businesses use accounting software to submit their VAT return directly from their accounting software to HMRC, with no intervening step (as required for MTD), the software producers have got a long way to go to bridge that gap.

There will be particular issues for VAT groups that need to combine accounting information for a single VAT return from several companies, and for businesses who use any type of VAT scheme which requires adjustments to the accounting figures such as:

  • Flat rate scheme (FRS)
  • Tour operators margin scheme (TOMS)
  • Cash accounting
  • Capital goods scheme.

At present, there is no indication from software providers that one product will be able to deal with the MTD for VAT filing and the MTD for income filing, so businesses face the prospect of using two or more software products to complete their MTD obligations.

All of these draft regulations and the overview document for VAT regulations are open for comments until 10 November 2017. Please post your comments below and we will form them into a response from the AccountingWEB community, alternatively send your comments on the draft law regulations directly to: [email protected]

Rebecca Cave appeared in the AccountingWEB webcast ‘MTD - What you need to do for April 2018’. You can register to watch the session on demand by visiting the Practice Excellence Live site and clicking ‘book your session’.

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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By Tornado
21st Oct 2017 11:47

"The changes to VAT and customs duties brought about by Brexit may well apply from 1 April 2019, which is exactly the same timing as the commencement date for MTD for VAT. Is it reasonable that businesses will be expected to cope with these two huge changes at the same time?"

The added complication is that the EU are significantly changing the way that VAT works both within the EU and outside of the EU and anticipate some of these changes to start in 2019.

https://ec.europa.eu/commission/news/towards-new-and-definitive-vat-syst...

I think it will be impossible for software developers to create software by April 2019 that has even the slimmest of chance of dealing with all of these changes and it is obvious to me that the the most sensible way to proceed with MTD for VAT is to postpone its introduction for several years.

The biggest danger here is that businesses will not be able to cope with the massive changes required by April 2019 and VAT revenues will fall dramatically as they grapple with software that does not work, leaving the Government with a shortfall of monies to pay the bills.

As Theresa May has pointed out, the Government has no money and relies on taxation to pay the bills.

Mandatory MTD for VAT simply will not happen in April 2019 in my opinion.

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By DJKL
20th Oct 2017 22:33

The only sensible response to their plans and their proposed timing that needs submitted,

"The lunatic is in my head
The lunatic is in my head
You raise the blade, you make the change
You re-arrange me 'till I'm sane
You lock the door
And throw away the key
There's someone in my head but it's not me.
And if the cloud bursts, thunder in your ear
You shout and no one seems to hear
And if the band you're in starts playing different tunes
I'll see you on the dark side of the moon"

If they want an actual suggestion rather than commentary on their sanity, as they want Brexit to start at the same time as MTD why not just go the whole hog; we could shift on 1/4/2019 to driving on the right, change the currency to lsd and again start weighing our spuds in stones, pounds and ounces with speed limits in kilometres.

Thanks (6)
to DJKL
22nd Oct 2017 08:23

Don't mix systems. Driving on left and miles per hour were always British, but please do bring back imperial measurements and currency

Thanks (1)
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to DJKL
23rd Oct 2017 11:42

There's no dark side of the moon really.
As a matter of fact, it's all dark.

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to Agutter Accounts
26th Oct 2017 15:42

Agutter Accounts wrote:

There's no dark side of the moon really.
As a matter of fact, it's all dark.

Certainly all dark from what HMRC continue to pronounce on us all from on-high. Isn't the UK going through enough forced stress without this continuing to add to business' woes?

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to DJKL
26th Oct 2017 15:40

"The lunatic is in my head
The lunatic is in my head
You raise the blade, you make the change
You re-arrange me 'till I'm sane
You lock the door
And throw away the key
There's someone in my head but it's not me.
And if the cloud bursts, thunder in your ear
You shout and no one seems to hear
And if the band you're in starts playing different tunes
I'll see you on the dark side of the moon"

Ahh, a sensible dose of Pink Floyd to help things along!!

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to rockallj
26th Oct 2017 15:55

I have found an archive of thousands of Grateful Dead gigs on the net to help along the process of coping with satisfying the insatiable demands of HMRC.

It provides for a long strange trip, that's for sure.

Still, I keep on truckin' on.

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By juzza07
23rd Oct 2017 10:43

Govt should just kill off MTD, in terms of accountancy submissions, now.
What a complete and utter waste of time to put procedures and systems in place to duplicate what HMRC already receive from VAT Returns.

Thanks (6)
avatar
23rd Oct 2017 10:54

Well it is abundantly clear to me, as most of us stated right at the beginning, Government and HMRC haven't a wee bloody clue what they are doing!

I fear, as Rebecca states, those captured by these inane regulations will require two separate and disparate software packages; one, originally, to cope with VAT MTD, stand-alone; and another, later on, to deal with it all, where VAT calculation and filing is simply part of the whole records keeping and analysis functionality.

Next question: how many software developers would be prepared to develop, trial and gain HMRC approval for a dedicated VAT filing only package, with such a short life scale? and, furthermore, since the developers will have to recover their not insignificant costs plus profit and amortise sunk capital costs over such a short time to product redundancy, how much will the package cost to the end user?

A lot!

"An extra £289 per annum"............... remember?

ROTFL...

Thanks (7)
By DJKL
to Michael C Feltham
23rd Oct 2017 15:02

And I thought HMRC discouraged the keeping of two sets of books!

Years ago (early 1990s) I had explained to me how Italian retailers then worked, each employee had two salaries, one from the books for the Italian tax authorities and one from the other set.

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to DJKL
24th Oct 2017 10:39

The way the Italian businessmen kept their books was explained to me thus....

1. One set for himself - what actually happened:

2. One set for his partners justifying what he maintained happened:

3. And one set for the tax authorities to show what he told them happened!

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By DMGbus
23rd Oct 2017 11:08

Add to the following list:
" There will be particular issues for VAT groups that need to combine accounting information for a single VAT return from several companies, and for businesses who use any type of VAT scheme which requires adjustments to the accounting figures such as:

Flat rate scheme (FRS)
Tour operators margin scheme (TOMS)
Cash accounting
Capital goods scheme. "

Partial exemption where in some cases (eg. Opticians, landlords with both residential and opted to tax properties, Members' Sporting Clubs) additional computations beyond the capabilities of typical bookkeeping software are required. Whether any MTD capable software will have Partial Exemption computational abilities is yet to be seen.

Thanks (1)
avatar
23rd Oct 2017 11:08

This is the draft of my own response

I wish to oppose the regulations given at: https://www.gov.uk/government/consultations/making-tax-digital-reforms-a....
The HMRC regulations are intended allow it to withdraw the HMRC Government gateway VAT portal for VAT return submission. This portal is how my accounting business currently submits its VAT returns, using software which is shared by hundreds of others. My business uses MYOB/Accountedge software to keep our records digitally. We use this software for business management, cash control and invoicing reasons. The software also produces our VAT return information.

It is unreasonable is to expect our software to link directly to the HMRC via an API. This would require us to shift software. There would be a variety of disruptions and unreasonable costs to doing this.

There is a concession which is itself unreasonable. If our digital bookkeeping does not link directly to the API the HMRC expect us to use a second piece of software that does link to the HMRC’s API to submit the VAT MTD submissions. This is not reasonable because it would require quarterly transfer of data to a second piece of software. Red tape.

My company is entitled to use VAT annual accounting. We do not need to submit quarterly as the new regulations require, for us to determine our liability. You are wasting our time by forcing us to make these submissions –particularly as you are doing this merely as a way of confirming that we are using digital recordkeeping; which we are.

The MTD idea is flawed. It claims that there is some advantage to my business, the taxpayer, to file data more frequently. There is none. We do not want or need to submit data to the HMRC more frequently in order to fulfil our obligations. We do not want to have to use separate software to complete this unnecessary red tape. I demand that the HMRC removes the compulsion inside these regulations and reverses its threat to remove the VAT return webpage. We intend to continue to use the digital record-keeping software on which my business depends. And we expect the HMRC to make it easy for us to pay our VAT, not place obstacles in our way.

Thanks (6)
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23rd Oct 2017 12:25

"Such businesses will be exempt from MTD reporting if their UK turnover is below VAT registration threshold, and may also be exempt from the MTD requirements on the basis of digital exclusion, as they may not be unable to interact with HMRC’s systems from outside the UK."
what does "may not be unable to interact" mean?

Thanks (0)
avatar
23rd Oct 2017 13:12

There are people within HMRC policy divisions who, privately, have expressed surprise at the timetable for implementation of MTD, in particular given the other impending changes due around the same time, as noted in earlier posts.

It is inconceivable that even 80% of businesses will be able to implement the necessary accounting/software changes by April 2019. However, if HMRC think otherwise they must be put to proof and asked to publish what research they have undertaken which makes them believe it is feasible. If they don't and they implement anyway then, inevitably, there will be significant levels of involuntary non-compliance: such businesses will undoubtedly be penalised even though their inability to comply may be out of their hands.

Whoever is behind the MTD initiative should be required to spend three months going out to businesses across the spectrum - in terms of size, complexity and sector - to understand first-hand what the challenges are. Perhaps then they will be able to formulate a sensible approach to implementation of MTD. Further, rather than applying what is a fairly blanket approach to who is obliged to operate MTD and who is not, further thought must be given to what it is that the government/HMT/HMRC want to achieve from its introduction and to then target its implementation accordingly: the current proposals are akin to the proverbial hammer being used to crack a nut.

Thanks (4)
By Tornado
to Taxbreak
23rd Oct 2017 18:40

"further thought must be given to what it is that the government/HMT/HMRC want to achieve from its introduction"

I think the ultimate goal is to make us all use 'approved' MTD software that will transmit ALL transactions to HMRC so that they can see what every business is doing right down to the last penny.

Thanks (1)
By DJKL
23rd Oct 2017 17:34

It is really simple, this is a Conservative government, accordingly are they not believers in the free market?

If they believe in the free market then if the benefits to business are as they state business will flock to use the systems they put in place, if the benefits do not exist business will not.

So lets see them place their (our) money where their mouth is, if I set up a business I have no guarantees re customer volumes so let them set up MTD, spend the money, and be accountable for the money; live or die by their decision making.

Set up a voluntary system and let the market decide, by its adoption, if it was money well spent. Set it up April 2019, if they do not have x voluntary users by 2022 election (if we last that long) then all those voting for the system can fall on their swords, resign from office and not seek re-election; we hear enough from them re company directors etc, if they really believe in accountability back it with something meaningful.

I will not even make them go into a study and blow their brains out with a service revolver, but they can renounce office for ever if they are wrong.

I predict a lot of new faces in 2022.

Thanks (1)
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23rd Oct 2017 16:26

Nearly all of the comments regarding MTD when the idea was first mooted were that it cannot work, mine included.
Would all of the people who have expressed reasonable and measured doubts on the proposed system be brave enough to be prepared to join together as one body to make such views known in no uncertain terms to the Administration by whatever (legal) means possible? From the comments I have read (and there have been many!) there are far more that question the sanity of the proposals than those that seem to be prepared to let the steamroller of MTD just roll on over them.

Thanks (2)
By DJKL
to david wilks
23rd Oct 2017 17:45

You can try but it did not help, last time I wrote to SNP and Conservatives re the issue, they were not interested.

Having said that, when your popularity has melted maybe the voice of reason (voters) suddenly gets heard.

The only person I heard across the political divide in any way against was Jeremy Corbyn, however he really only objected re those below vat threshold which he has pretty much now got.

But it is simple in theory, ask that they drop it or we all mailshot our clients/ take to social media to get people to sign a petition to trigger a debate, the key is the wording of the petition and the timing/ coordination.

Enough signatures and they have to debate , enough expressed disquiet and those MPs in marginals might have second thoughts.

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23rd Oct 2017 22:23

We still keep our records on spreadsheets as the business is very simple, we calculate our vat within those spreadsheets and submit our returns via the vat return on the HMRC portal. Our business is struggling to stay in profit in the current climate and cannot afford the expense of implementing and operating accounts software, let alone additional MTD vat return software so it looks like we will have to close down and the government will lose our revenue and the paye of our employees

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24th Oct 2017 10:43

And at the same time we read about poor productivity growth in the UK economy. I suspect the boys and girls at the coal face are doing OK but have to carry an ever increasing level of back office burden.
I recall the maxim from my computer studies at uni: sort the system first then automate...otherwise all you do is speed up the mess! Still sounds good; UK tax system anyone?

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24th Oct 2017 11:04

On another tack. Corporation tax submissions affected last week. Tried to submit a return three or four times last Wednesday but it would not go through. Phoned HMRC (big mistake) only to be asked if I had used commercial software or HMRC software. I suggested to the call centre person that perhaps he should listen to the message that plays when phoning them that says one can only use commercial software for accounting periods after 31 December 2015! I hung up. Anyway, thought I would try the following day. Hey presto, it went through and email duly received to say submission had been successful subject to processing. One hour later received another email to say it was unsuccessful as it had failed HMRC data checks but it did not elaborate. Phoned online helpdesk to be told, after they had looked into it, that the submission had in fact been successful and that the second email referred to the previous day when they were having problems! That wasted 1 hour of my time.
HMRC are in a mess (not to mention the tax calculation fiasco). Please don't try to change things. Everything works ok as it is so. I am wondering, what exactly is the hidden agenda pushing towards MTD? I normally don't go along with conspiracy theories but I am geting very suspicious.
I suppose artificial intelligence would be a boon if it replaces the total lack thereof of those behind this digital car crash.

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By DJKL
to david wilks
25th Oct 2017 12:13

david wilks wrote:

I suppose artificial intelligence would be a boon if it replaces the total lack thereof of those behind this digital car crash.

"What is this great task for which I, Deep Thought, the second greatest computer in the Universe of Time and Space, have been called into existence?"

Anyone else noticed that higher rate tax plus Class I employee's NI comes to 42?

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26th Oct 2017 16:19

I have said it before and here it comes again------- I will not be doing anything remotely connected with MTD until such time as they stop b.........g about. I shudder to think of the money that has been wasted by those good minded people who have taken on software which may now be obsolete. You really could not make it up. Never mind the book - I will wait for the film. Talking of films, Game of Thrones has given me some ideas of what to do with the instigators of MTD!!!!

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By DJKL
to david wilks
26th Oct 2017 22:00

Though I have not yet watched it from what I have read "Gunpowder" might also be required viewing if you need even more ideas.

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04th Nov 2017 10:47

DJKL says that "The only person I heard across the political divide in any way against was Jeremy Corbyn, however he really only objected re those below vat threshold which he has pretty much now got".
Actually MP's have been fighting behind the scenes for MTD to be withdrawn completely for some time now but have been ignored (see my blog https://www.accountingweb.co.uk/community/blogs/jaadams/mtd-mps-tried-th...)
In this blog I wrote: "The viewing of the debate on Parliamentary Live was fascinating. I was pleasantly surprised as to how venomous the attending MP's were. Caroline Lucas (Brighton Pavilion) went straight to the point and asked for evidence that taxpayers weren't doing it right. Peter Kowle (Hove) in particular made a powerful and heartful speech against. Sammy Wilson (East Antrim) wanted to know what was the point? A number queried the statistics saying 'it doesn’t all stack up' and nearly everyone asked for a delay."
I echo Davids stance that he will not be doing anything about telling clients about MTD yet. Me neither - (again see my blog "https://www.accountingweb.co.uk/community/blogs/jaadams/mtd-thank-goodne...)
and we are not alone. I went to a networking event a few days ago (all non accountants attending) where MTD was mentioned. One attendee came up to me afterwards looking a bit shocked and said that his accountant had not told them about this and asked whether it was true. I said to ask him.
Also David makes a rallying cry to "those prepared to join together as one body to make such views known in no uncertain terms to the Administration by whatever (legal) means possible" – this is already being done... his name is Tony Margaritelli (ICPA).

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