Tax Writer Taxwriter Ltd
Columnist
Share this content

MTD: Turning off the VAT portal

18th Jan 2019
Tax Writer Taxwriter Ltd
Columnist
Share this content
STOP Button on Device
istock_urbazon_aw

HMRC has indicated that it will turn off the VAT portal to encourage businesses to submit their VAT returns using MTD-compatible software, but when will this happen?

The great turn-off

When accountants explain the requirements of MTD filing to their clients, a common reaction (as reported in Any Answers) is: “why should I change my processes? Can’t I continue submitting my VAT return as I do now?”

The polite answer has two parts:

  • the VAT portal (the current online VAT return form) will be closed to businesses who are required to enter the MTD regime; and
  • after the soft landing period, penalties will be applied if the business doesn’t submit its VAT return on time, and the closure of the portal will not be a reasonable excuse.

Business-by-business closure

The VAT portal closure will not happen at the same point in time for everyone, and it may not occur at all for businesses not mandated into MTD. However, if MTD for VAT is expanded to all VAT-registered businesses (and we don’t know if or when this will happen), HMRC is likely to close the VAT portal to all.

Those VAT-registered businesses which have annual turnover below the VAT registration threshold (£85,000) are not mandated into MTD, so will continue to use the existing portal to submit their VAT returns (provided they don’t voluntarily opt into MTD).

Also, all those businesses who have their start date for MTD deferred until the first VAT period beginning on or after 1 October 2019 will continue to use the VAT portal until that time. 

Who is hit first?

The first businesses to be mandated into MTD are those with VAT periods beginning on 1 April 2019. The VAT portal will only close for those businesses who have signed up to MTD.

The business should wait until it receives an email from HMRC confirming it has signed up to MTD successfully. From that point on, it must submit VAT returns using MTD- compatible software. If the business tries to submit a VAT return via the portal after it has been accepted into the MTD programme, it may find that return is not accepted by HMRC.

However, the CIOT understands that HMRC won’t close the VAT portal completely to allow for teething problems with software or the signing-up procedure.

Example

Mustard Ltd has VAT periods which align with the calendar year, so its next period starts on 1 April 2019. It signs up for MTD in July 2019 in order to submit its VAT return for the period 1 April 2019 to 30 June 2019, which is due by 7 August 2019.

Unfortunately, Mustard gets into a bit of a pickle with its MTD-compliant software and is not able to submit its VAT return using that software.

Mustard must ask HMRC for permission to use the old VAT portal to submit its VAT return figures for the April to June 2019 quarter. It needs to show it has tried to comply with MTD, but there are genuine software problems. HMRC will have to manually override the MTD system to accept the VAT return for the April to June period through the old VAT portal. 

Digital records

Mustard Ltd has an obligation to keep its VAT records in a digital format from 1 April 2019, but as long as those records are kept in some digital form, including a spreadsheet, this aspect of the MTD regulations is met.

There is no requirement for a business to keep its VAT records in the same software package that it uses to submit the VAT return, although there should be a digital link between the records-recording software and the VAT-submission software. That digital link will be compulsory from 1 April 2020 (1 October 2020 for deferred businesses).

Penalties

HMRC is planning to bring in a new system of penalties for late filing and late payment to fit better with the MTD filing obligations. However, the draft law for that new structure of penalties was taken out of the Finance Bill 2018-2019, which is now almost through its Parliamentary stages. The new penalty system is not expected to take effect until at least April 2021.

In the meantime, existing penalties will be used by HMRC to discourage flagrant abuse of the MTD rules. The following penalties could be applied to a business which refuses to engage with its MTD for VAT obligations:

  1. Failure to comply with certain regulatory requirements (VATA 1994 s 69(1)): minimum £50, but maximum based on these daily rates:
    • £5 per day if no previous failure in the last two years
    • £10 per day if one failure in last two years
    • £15 per day in other circumstances 
  2. Failure to keep the required VAT records (VATA 1994 s 69(2)): up to £500
  3. Failure to file electronically (VAT regs 1995, re 25A): up to £400

All of these penalties already exist but are not automatic, and they are rarely used. HMRC is expected to issue warnings rather than penalties where the business has made a reasonable effort to comply with MTD for VAT.   

In addition, if the VAT is not paid on time the existing VAT default surcharge system will apply. This can impose a penalty of up to 15% of the late paid VAT if there have been sufficient earlier defaults within the penalty period.

Replies (41)

Please login or register to join the discussion.

By ireallyshouldknowthisbut
18th Jan 2019 14:18

Rebecca,

This seems a bit confused.

One one hand you argue that business must do this before all these penalties are imposed

But then you explain the reality - there aren't any, other than existing ones which are never applied, and need a warning first.

As it stand HMRC will have a devil of a job identifying clients who are not eligible for an exemption [which are still unpublished, as is the method or system of agreeing one], so if they start cutting people off they are likely to cause a huge mess and the VAT take will be hit. I cant think they will be that stupid as to make it hard to pay them(?) Albeit who knows!

It makes little business sense to comply to new systems early just for kicks. If there is a business case for it, fine, But if not, and the cost of non-compliance is low, then why spend time and money on compliance?

When bureaucracy is overly complex and burdensome, the best route is to not engage with it, as it tends to either be withdrawn, simplified or just ignored.

Once the pathfinders have found the faults, HMRC have fixed them, software vendors have got their stuff working, and the sign up has been made a lot easier, then will be the time to get into this. Doing so now is just wasting time and pandering to HMRCs by expecting tax payers to work around their mess and incompetence.

Thanks (14)
Replying to ireallyshouldknowthisbut:
By Rebecca Cave
20th Jan 2019 09:05

You make some very good points. I was trying to present the position as proposed by HMRC.

Thanks (6)
Replying to Rebecca Cave:
avatar
By Open all hours
21st Jan 2019 20:06

Almost every article supports the HMRC position. The majority of replies are much more sceptical. There is a big disconnect between where many of us are and where HMRC think we should be.

No letter yet and we can’t join the pilot before 14 Feb due to direct debit being paid on the 10th. What’s that about?

Thanks (3)
Replying to ireallyshouldknowthisbut:
avatar
By Echo761
21st Jan 2019 15:08

HMRC have already admitted they can't identify those not using MTD and that no penalties exist;
https://online.hmrc.gov.uk/webchatprod/community/posts/list/30/2522.page

Question - "HMRC have pointed out that only businesses with a taxable turnover above £85K will need to use MTD. What if a business shows a turnover of £100K on its VAT returns £75K is taxable supplies and the remainder are exempt... how will HMRC know whether it should be using MTD or not. As I understand it HMRC will deny access to the online portal where a business has a turnover above £85K. But this would wrongly penalise businesses with a turnover as I have described. How will HMRC decide?"

HMRC's reply.... "A VAT registered business is responsible for checking their taxable turnover, and must sign up for the new MTD service if their taxable supplies are over the VAT registration threshold (currently £85,000). We will only close the legacy VAT service (or online portal) for a specific customer once they have signed up to MTD - until they do, they can continue using the existing service. We are using the information provided by the customers on their previous VAT returns to identify whether they are potentially in scope for MTD. We are writing to them to ensure they are aware of their new obligations. If they have not already done so, this letter will prompt them to get ready for MTD."

HMRC reply to follow up Q - "HMRC will police compliance with the MTD VAT obligations just as it does with all of the other taxation obligations that it administers. We will also use the information from boxes 3 and 6 provided in the 9 box VAT form to help identify businesses mandated for MTD.

We are writing to businesses to ensure they are aware of their new MTD obligations. If they have not already done so, this letter will prompt them to get ready for MTD. We will not block access to the portal until someone has signed up for MTD.

HMRC recognises that businesses will require time to become familiar with the new requirements of MTD. During the first year of mandation, HMRC will not pursue filing or record keeping penalties where businesses are doing their best to comply with the law. HMRC will continue to take action to safeguard VAT revenue, and sanctions remain possible in cases of deliberate non-compliance."

Thanks (1)
Replying to Echo761:
avatar
By EnglishRose
23rd Jan 2019 08:39

Yes, that answer is as I thought. They are not turning it off. So as long as I do not register (and yes I do know for my end of May VAT filing I ought to have registered) they will not turn me off and there will be no penalty. They have chosen not to write to me yet or email me either to say I come within MTD for VAT either.

I suspect as long as you do not register you may be able to carry on as now but I will wait to see. I have never once been late with a VAT filling in 20 years. I would very much like to keep my paper records and indeed will always do so even if I have to run them alongside something with bridging software. I will also not use the cloud.

Thanks (3)
Replying to EnglishRose:
avatar
By bendybod
24th Jan 2019 09:11

Your end of May VAT filing would not be under MTD as it is not a period starting on or after 1 April 2019.

Thanks (0)
Replying to ireallyshouldknowthisbut:
avatar
By djtax
07th Feb 2019 15:05

..are HMRC that stupid? Yes they are!

Thanks (0)
avatar
By thomas34
18th Jan 2019 17:41

Agree entirely and particularly with the penultimate paragraph.

Thanks (0)
avatar
By Matrix
20th Jan 2019 08:47

I also don't see why anyone would look to comply earlier, we don't need to look at this until July.

I don't know why you think taxpayers would be able to call HMRC to ask to use the old system, Rebecca. I have not spoken to HMRC about it since it is not yet necessary but my understanding is that the VAT helpline doesn't know anything so please can you provide the contact details in due course.

Thanks (1)
Replying to Matrix:
By Rebecca Cave
20th Jan 2019 09:08

My comments in this article about contacting HMRC have come from discussions between HMRC and the professional bodies, they saw my article before it was published.

Thanks (0)
Replying to Rebecca Cave:
avatar
By johnjenkins
21st Jan 2019 10:54

My understanding of the position is that anyone who signs up for the new portal cannot go back to the old portal. However HMRC are using the "soft landing" approach for a year to allow all to go onto the new portal within the year. After that, unless you have an exemption, you will be fined.

Thanks (0)
Replying to johnjenkins:
avatar
By EnglishRose
23rd Jan 2019 08:40

yes, that seems to be the case so in a sense my deadline becomes in about April 2020 not this year.

Thanks (0)
Replying to EnglishRose:
avatar
By johnjenkins
23rd Jan 2019 09:30

Unless HMRC change course, I suspect you will receive letters warning of the consequences of not registering. I also suspect that given the tribunal appeals about automated fines, there could be a case for "the fear of things going wrong with the new software etc".
I hope common sense prevails and we are given another year on the pilot, which would take us to 2021, a much more manageable task.

Thanks (1)
Chris M
By mr. mischief
20th Jan 2019 19:53

Given the expense and hassle - not to mention risk of error in being unable to use these very tricky software products properly - it seems to me that a perfectly legitimate, and cost saving measure for small businesses who currently file their own returns is just to carry on doing that.

Even if this costs them £400 per year in fines, which seems unlikely, this is likely to be substantially less than the costs of full compliance, especially when you cost in the extra time the business owner or staff will have to spend sorting out this load of drivel.

Thanks (8)
avatar
By steve.oldham
21st Jan 2019 09:55

The club I'm treasurer of already keeps digital records, already submits its VAT returns electronically, yet has to invest in upgraded software to comply with this ridiculous misguided legislation.

Haven't the government got anything better they can be doing right now than this?

Thanks (4)
Replying to steve.oldham:
avatar
By bendybod
21st Jan 2019 10:40

One interesting option that was presented on a course that I attended recently was to keep the old version of the software, export a csv and use bridging software to file. This saves the expense of upgrading whatever version of software you are already using if that software is working well for you. Whilst I have not yet tried any bridging products myself, I am led to understand that they are reasonably straight forward to use.
Just putting it out there as a possible solution if you have not already upgraded which might save your club some money.

Thanks (3)
Replying to bendybod:
By ireallyshouldknowthisbut
21st Jan 2019 11:05

@bendy, this seems to be the most sensible solution to 99% of cases.

Indeed I will use bridging software as a blanked for all client, no matter if they are using Xero or similar which ought to work directly, simply so I can dump it out into excel, fix up the problems and export it, rather than redcode transactions directly into the software.

Moreover if you do this, HRMC have virtually no way of knowing what you are doing "in the background" they can trumpet the 'success' of the project due to being in the new portal. I was however proposing not to engage with the new portal until you have to.

Thanks (2)
Replying to ireallyshouldknowthisbut:
avatar
By aland
21st Jan 2019 11:49

Just to clarify, did you mean "....as a blanket for all clients..."?
I agree about the sensibleness.

Thanks (0)
Replying to steve.oldham:
avatar
By Open all hours
24th Jan 2019 15:36

Absolutely nothing of any urgency or importance. If there was their Christmas break would have concluded early.

Thanks (0)
avatar
By Homeworker
21st Jan 2019 09:58

Given that all of this is supposed to be starting in less than three months, why haven't they sent out letters to all of those affected yet? I only have two clients who will be caught (having ditched, sorry passed on all of the others last year) but neither of them have had a letter yet! What about the unrepresented taxpayers!

Thanks (1)
Replying to Homeworker:
avatar
By Open all hours
21st Jan 2019 20:03

No letter yet. Tried to join the pilot but because there are only 20 days before the VAT DD is paid we can’t and they’ve said try again on the 14 Feb.

Thanks (0)
Replying to Homeworker:
avatar
By EnglishRose
23rd Jan 2019 08:43

Indeed. I have had no letter yet either. When I last logged on to do my normal VAT there was a sentence asking people if they wanted to sign up to the portal early (i.e waste hours of time and spend a small fortune to be able to do what I currently do now from paper records without any problem in much less time - no thanks)

Thanks (3)
avatar
By jamiea4f
21st Jan 2019 10:04

Having just looked at the prices quoted by the providers of such programmes that will run MTD compliant software I'm horrified. What I'm being quoted is almost a quarter of what I charge my clients just so that HMRC can do.. what, exactly? Are they so thick and stuck in their own bubble that they believe they can impose things like this on businesses and accountants and not even bother to upgrade their systems to cope with it? At least with RTI they gave us software to use. I'll be holding off for as long as possible, I'm afraid. I'm willing to bet they're rubbing their hands in glee at all the extra fines they'll be able to charge...

Thanks (3)
Replying to jamiea4f:
avatar
By bendybod
21st Jan 2019 10:41

See my above response to Steve as a possible answer to your problem.

Thanks (0)
Replying to jamiea4f:
By Charlie Carne
21st Jan 2019 11:35

jamiea4f wrote:

At least with RTI they gave us software to use.


I never cease to be amazed at the number of professionals who complain that HMRC hasn't provided free MTD software. Jamie implies that he liked the "Basic PAYE Tools" software provided by HMRC. In my experience, so much time was wasted using such appalling software (which I had to use to file an EYU one year), that I was more than delighted to pay a relatively small fee to use software written by experts who knew how to design a system that was efficient and easy to use. My time is a lot more valuable than the cost of software that makes my life infinitely easier.

If other accountants' and bookkeepers' main complaint about MTD is that the software is not free, they should charge a sensible fee for their services or consider a different profession. My garage doesn't complain about the cost of software to provide DVLC with my MOT details, nor my doctor about NHS computer systems that he is forced to use.

The constant shift in direction by government in introducing MTD may have been painful and its implementation is undeniably chaotic, but being forced to pay for software is not the problem.

Thanks (0)
Replying to charliecarne:
avatar
By DMBAcc
24th Jan 2019 13:28

But I have already paid for it in the £1,600,000,000 of tax payers money already wasted on this development and paid to the very companies who are going to charge us for using their software. Doesn't anyone get the irony on all of this. This is just like Nero playing the fiddle while Rome burns. Yes HMRC and this government DO have many other better things to waste our hard earned money on.

Thanks (1)
Replying to charliecarne:
avatar
By jamiea4f
24th Jan 2019 14:01

Firstly I never said I liked the RTI software, I said it was free. Secondly things like MOT’s have to be done by people licensed to do so, whereas accounts/tax returns can be done by anyone who pays HMRC enough. I’ve lost count of the number of family members, friends etc who’ve taken over accounts from my clients just because of cost, and because they can file tax returns etc using the clients personal tax log in, and no doubt will continue to do so when MTD kicks in, while us poor suckers have to dish out for more software.

Thanks (0)
avatar
By nodrogbir
21st Jan 2019 11:30

For my firm I can see me closing down. I deal with the "Partner at Home Book-keepers " who deal with the day to day admin and keep exceptional records in an analysed cash book. I have demonstrated several cloud packages and get nothing but bad comments. Even my staff hate these packages. HMRC are endorsing software providers to basically "con" the general public - two are advertising on TV making out that the Accounts are easy to do and another actually using HMRC to promote their second rate product. The evidence is highlighty when the software companies are asking me to "con" clients by using fear and selling their product to me for £x and then selling into clients at an inflated price. The point that sticks in my mind is that if MTD is so good why mandate it as you would do it anyway! If its so good why are the HoL , The business bodies and the Accounts associations condemning it ! So closing the portal would in my opinion mean that the VAT system would grind to a halt. Spreadsheets are just a temporary fix and not at all what HMRCs MTD was all about. What the difference between a paper cash book and a spreadsheet . Seems human right are even an issue with this farce lol

Thanks (3)
Replying to nodrogbir:
Chris M
By mr. mischief
21st Jan 2019 16:59

I totally agree. And I say this as a "super user" of both Sage and SAP and someone who has got Clearbooks to change its software for the better, plus highlighted flaws with Xero they have not bothered to properly fix.

Forcing people on to software - especially products sold by businesses which don't make any profits like Xero - is just a massive car crash waiting to happen. I would sooner let Prince Philip have the keys to my Subaru.

This car crash will, in my view, rebound badly on all of those accountants curently putting clients on to this stuff where those clients and their staff don't really know a debit from a credit, how to post basic stuff correctly, VAT coding, etc.

HMRC top brass really are a bunch of uttely clueless numpties and nothing demonstrates this more than MTD. The list of rubbishy blunders is already a long one and we've not even gone live yet.

Thanks (7)
Replying to nodrogbir:
avatar
By Open all hours
21st Jan 2019 20:12

Excellent common sense response. The world as it is. Shame there aren’t enough people of influence who can be bothered to try and understand it.

Thanks (1)
7om
By Tom 7000
21st Jan 2019 12:19

I just got bridging software to work on the pilot scheme with our in house spreadsheet... yay!

Main issue was having pennies in boxes 6,7,8+9 which is changed now

500+ clients going to be very happy

Anyone want a copy of the spreadsheet or instructions etc email is : [email protected]

Thanks (2)
avatar
By Dandan
21st Jan 2019 20:36

In spite of seemingly having no 'raison d'être' , MTD was thrust upon us and ,like it or loathe it, it is not going away.

However, it was a golden opportunity looming on the horizon for accountants.

They could have developed the bridging software internally. Even a small firm can invest in getting a software consultant to write the MTD bridging tool for using in house. I am not talking about writing an accounting system but just a tool to click and submit VAT Return , Tax Return, Quarterly account and retrieve info . That was the reason for all those API that HMRC put in place.

Tax and accounting is an accountant's territory and they should protect it .

I found it fairly simple to create my own MTD tool for VAT.

Thanks (1)
Replying to Dandan:
avatar
By DMBAcc
24th Jan 2019 13:55

Any chance you can share your details with the wider community?

Thanks (0)
avatar
By chasmeehan
21st Jan 2019 23:08

Is there perhaps a "boiling the frog" risk being highlighted by Rebecca ? Its all taking so long to come into play for various entities that initially they "wait and see" and then over years it is forgotten, until finally non-compliance is noticed by HMRC and penalised big time under a successor regime

Thanks (1)
avatar
By AndrewV12
28th Jan 2019 13:13

A good article Rebecca, advising us when our time is up, the fines look a bit scary and thats just the current ones.

'Also, all those businesses who have their start date for MTD deferred until the first VAT period beginning on or after 1 October 2019 will continue to use the VAT portal until that time.'

Thanks (1)
avatar
By Matrix
30th Jan 2019 13:15

Rebecca please can you ask HMRC for clarification on the issue raised in this thread?

If an agent signs up to MTD then can they still submit VAT returns for their non MTD clients through their existing login?

https://www.accountingweb.co.uk/any-answers/help-needed-with-mtd

Thanks

Thanks (0)
Replying to Matrix:
By Rebecca Cave
12th Feb 2019 13:38

At present the tax agent should sign up his/ her clients individually to MTD, only when each particular client is ready to file under MTD. So the method of filing the VAT return will vary for individual cleints. Whether the VAT-return filing software can cope with this two-track approach is another matter.

Thanks (1)
Morph
By kevinringer
12th Feb 2019 12:00

Rebecca, HMRC said they were going to publish the exemption criteria in November but it's now February and we're still waiting. Do you know when it is going to be published? Also, why are HMRC setting the criteria? They're acting as judge and jury.

Thanks (0)
Replying to kevinringer:
By Rebecca Cave
12th Feb 2019 13:27

The professional bodies are working with HMRC on thier guidance on the exemption process. A draft of this guidance seen by the professional bodies in Janaury was not acceptable.
The criteria for exemption from MTD are set down in the VAT regulations : SI 2018/261 reg 32B.

Thanks (0)
Replying to Rebecca Cave:
Morph
By kevinringer
12th Feb 2019 14:16

Thanks Rebecca. The regulations grant exemption 'for whom the Commissioners are satisfied that it is not reasonably practicable to make a return using a compatible software return system for reasons of disability, age, remoteness of location or any other reason'. These are too vague eg what age? Surely that depends on the person and their IT competency/experience. And what does 'or any other reason' mean? If a business has to spend an extra 100 hours a month solely to input into software, would that qualify 'for any other reason'? If so, would 50 hours qualify, or 20, or 10, or 5? I have farming clients in the middle of lambing who currently work 20 hours a day so 1 hour would not be reasonable. That's why we need the criteria and the lack of criteria at this late stage is not helpful. I'm glad the professional bodies are challenging HMRC and in a way the fact that HMRC have not published anything suggests HMRC are actually taking notice. But come on HMRC, you can't now expect this to be mandated from 1st April.

Thanks (1)
Replying to kevinringer:
avatar
By johnjenkins
13th Feb 2019 09:23

I've got to stick up for HMRC on this one purely because they don't even know what could be deemed "any other reason". We know religion is going to be one, however the rest will some from tribunal cases (more expense). Unfortunately the "big boys" doing the negotiations won't have all the answers. This is why I have, from the start, advocated that with a couple more years of practise we might end up with something that is workable. This is just VAT just wait till they want to put the under vat threshold on to MTD.

Thanks (1)