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MTD: VAT regulations have been passed

6th Mar 2018
Tax Writer Taxwriter Ltd
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Houses of Parliament
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The VAT regulations are crucial to the operation of MTD for VAT, but they appear to have been passed with undue haste and with little attention paid to the many points raised during the consultation period.

The consultation on the draft MTD for VAT regulations closed on 9 February 2018, and all the major accountancy bodies made detailed representations. Here at AccountingWEB we fed in members’ comments, which I summarised on the closing date. Just 18 days later the final version of the VAT regulations (SI 2018/261) was laid before Parliament and passed with no debate in either House on 28 February. The regulations will come into force on 1 April 2019.

What has changed?

I have compared the final VAT regulations and the draft version so you don’t have to, and found only two significant changes from the draft to the final regs:

  • In reg 6: the VAT records (the electronic account) must be preserved using MTD functional compatible software unless the trade is exempt from the MTD regime.
  • In reg 7: the rules which determine what information must be kept and maintained for each transaction can be varied by HMRC if it is satisfied that the complying with the regulation is likely to be impossible, impractical or unduly onerous.     

What is not there

HMRC released a pack of slides with the draft VAT regulations which indicated that businesses would be able to mix and match accounting software in order to meet their obligations to keep digital records and submit VAT returns.

The regs said that “functional compatible software” (that MTD-compatible software) means a software program or set of compatible software programs. In the slide pack HMRC refers to “bridging software” which is not mentioned in the regs, unless we read that to be a component of a set of compatible software.

Guidance needed

Accountants and software providers need detailed guidance from HMRC on what can make up a set of software, and specifically whether this can include spreadsheets. We also need to know what relationships must exist between the software programs to allow each program to be part of a set.

The HMRC slides indicate that data could be transferred between the software programs by non-digital means (manually), but only for a limited “soft landing” period ending in April 2020. This point was also emphasised in the HMRC webinar on MTD for VAT.

HMRC appear to believe that within a relatively short period of time all the problems of communicating between different software packages will be solved, and all businesses which are mandated into MTD will have updated all of their accounting software to make it MTD-compatible. 

Outstanding issues

In commentating on the draft VAT regulations the CIOT said the “soft landing” for digital links should be prescribed by law, and it should be included in a part of the VAT Notice which has the force of law. HMRC should also provide some consistent examples of what it means by “digital links”, “software program” and “electronic form”.   

The VAT regulations require the business to record how much VAT will be allowed as a credit for each purchase. This is straightforward if the input VAT relates entirely to taxable outputs. However, where the business makes exempt supplies only a proportion of the input tax will be permitted as an input credit.

The MTD for VAT regulations take no account of partially exempt businesses which have to calculate their input credits after the end of the VAT period and may need to adjust that input credit after the end of the accounting year.

The VAT regs also require the business to record “the proportions of the total of the VAT exclusive value of all outputs for the period which are attributable in each case to standard rated, reduced rated, zero-rated, exempt or outside the scope outputs.” However, there is currently no requirement to record income which is entirely outside the scope of VAT, and recording such income will add complexities for charities.

The CIOT made a strong recommendation that the requirements of MTD for VAT should exactly mirror the existing VAT record keeping requirements, at least until MTD is bedded in. Otherwise, not only will businesses need to change their practices for digital record keeping and reporting, they will also have to make changes to their accounting systems to capture the additional information needed for MTD.

Replies (56)

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By pauljohnston
14th Mar 2018 14:27

What ever the problem we will have to fix it since HMRC wont.

My advice is to bring your clients onboard as soon as possible so that the daunting bit can be got over as early as possible. The first MTD VAT return is for the period to 30 April 2019 or later

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Replying to pauljohnston:
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By johnjenkins
14th Mar 2018 15:14

We got two weeks to go before the pilots are supposed to start. I just can't see it happening whatever Mel says.

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By EnglishRose
15th Mar 2018 16:44

I see they are now saying what software (so far) can be used in their pilot project

https://www.gov.uk/guidance/software-for-sending-income-tax-updates

had a look at Rhino - one of the two and I could see immeidately it would not be for me - all the video is about p hone and taking photographs of things. That is never goiing to work for me and my business and I can't have it creating invoices for me as I have all kinds of special laws and rules of stuff that has to go on my invoices.
The other one IRIS (for the tax pilot) they suggest does not even give a price (and I don't want to pay a single penny at all although I expect I will have to when it all comes in next year).

Also I don't see how all this scanning stuff works when so many of my expenses are divided and attributed. It all looks like 5x the usual time spent at the moment for no benefit at all.

Not liking it at all so far.... including that neither company's website had a short written description of how you use the product at a computer in an office and exactly what a one off price for it is.

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Replying to EnglishRose:
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By johnjenkins
16th Mar 2018 08:59

Don't you just love that phrase "you'll need to"?
Of course at the end there is the "get out" phrase. "Nothing to do with us if it all goes wrong, sort it out with the software people".
Sounds more and more like a Hollywood disaster movie.

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By Michael C Feltham
17th Mar 2018 12:55

I keep reading about "The Cloud"; as if this is some new universal panacea for all man and woman) ICT problems.

It is isn't: it is simply an extension of data Farms and off-site storage, where the application software resides on a remote web server/back end data base; rather than being locally hosted.

What has enabled the new approach is was it called "Virtualisation": which in simple terms of reference means dispensing with servers and synthesising the server by software.

For those with longer memories circa 20 years ago, the then "New Wave" was going to be what were then termed "Applets"; or Apps for short (A term later high jacked by by spotty script kiddies for astoundingly pointless and fundamentally useless! small applications for supposed "Smart Phones"). Ha ha!

Applets for, e.g. productivity software (Office Pro e.g.) would be sold like utilities: the user would pay per usage.

ALL the Bookkeeping/Accounting purveyors of the time, crashed: mainly since no user trusted Internet data security, a that time.

(Anyone this week pick up the "startling" news that cyber theft using contactless cards has become an epidemic? As those of us with a brain and a modicum of tech knowledge said it would...).

Just as MTD has been miss sold be deception to morons masquerading as government ministers and Whitehall clueless mandarins, "The Wonderful Cloud" has been pushed as an amazing advance: it isn't.

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Replying to Michael C Feltham:
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By dgilmour51
19th Mar 2018 16:36

Michael C Feltham wrote:

... mainly since no user trusted Internet data security, a that time.

"at that time" - I have to say, that afaiac, its actually got worse . . .
and the extra layer of 'Privacy', which is not a lot to do with 'Security' per se, doubles the amount of bad stuff.

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