MTD webinar: HMRC attempts to explain the VAT Notice
Roger Morgan reports on the latest MTD webinar aimed at tax agents. He was disappointed that HMRC offered little more information than is provided in the VAT Notice.
Making Tax Digital for VAT, the first step of HMRC’s ambitious drive to digitise all aspects of the UK’s tax system is by all accounts proceeding at full speed ahead of the 1 April 2019 launch for businesses with a turnover above the VAT threshold. VAT Notice 700/22 was published on 13 July, supplemented by a list of software providers currently supporting the new requirements which was last updated on 25 July.
MTD adds to the basic record-keeping requirements as set out in VAT Notice 700/21. Records must be kept in a digital form in MTD-compatible software which can communicate digitally with HMRC through an Application Programming Interface (API). This now includes designatory data such as the name of the business, the address of the principal place of business and the VAT registration number, as well as details of any VAT accounting schemes in use. In addition, the time, value, rate of VAT charged, or amount of input tax to be claimed must also be recorded. Supplies that do not go on a VAT return are excluded from the requirement.
Once recorded in compatible software, the information must only be transmitted by so-called ‘digital links’: electronic or digital transfers between software programs, products, or applications without manual intervention – that is without copying over information from one system to another. A digital link includes linked cells in a spreadsheet.
For the first year of MTD until 31 March 2020, not all digital links will be mandatory. This is in accordance with the soft landing. But from 1 April 2020, all transfers of data must be via digital links. Worthy of note, although it was absent from the webinar, is that other forms of transfer will also be accepted by HMRC as a digital link, including but not limited to: transferring data to a portable device and physically handing it over to an agent to import into compatible software, and XML and CVS imports, exports, downloads and uploads of files (VAT notice 700/22 section 3.2.1). The webinar offered no insights into how the MTD software or HMRC will trace these links.
Adjustments to VAT returns submitted through MTD must be recorded in and submitted through, MTD-compatible software. However, only totals need to be included and if calculations are required for the adjustments, these can be completed outside of the compatible software. Crucially, the background calculations do not need to be imported into the software, only the net adjustment is shown. There is also no need to amend the digital record.
Soft landing and penalty points
The year running from 1 April 2019 to 31 March 2020 will be a ‘soft landing’ for the enforcement of digital links. This is meant to give businesses more time to put digital links in place between all parts of their software (VAT Notice 700/22, section 18.104.22.168).
The webinar reiterated that digital record keeping and an API product must be in place for all businesses covered by MTD for VAT from 1 April 2019 without exception. Although a 12-month suspension of late filing penalties has been advertised, and a new points-based system for late filing penalties suggested, there has been no word on penalties for failures to comply with the digital record keeping or the digital link requirements. No further information was offered in the webinar: agents and businesses will no doubt continue to monitor this with interest.
Missing software solutions
Soft landing aside, the API requirements will doubtless leave agents across the UK currently not using an MTD-compliant software vendor sit up a little straighter. HMRC is expecting most businesses to use an API-enabled software to both keep digital records and file VAT returns from 1 April 2019.
However, the VAT notice does make allowances for tools such as bridging software, which is said to use relevant APIs to connect software to HMRC’s systems (VAT Notice 700/22, section 3.2.3), as well as API-enabled spreadsheets (VAT Notice 700/22, section 22.214.171.124).
Although 22 software suppliers are already on HMRC’s list of MTD software providers (with a further 13 expected to join before 1 April 2019), in the webinar Q&A section it emerged that at present there is no bridging software or API-enabled spreadsheets capable of fulfilling the requirements of MTD: all suppliers on the list only offer all-encompassing systems.
While agents and businesses with the ability to move swiftly might be able to wait for further announcements on that score, smaller practices or businesses might look to change to an approved supplier sooner rather than later, if their current accounting software provider is not expecting to be MTD-compatible by 1 April 2019.
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The administrative cost of complying with MTD might for some businesses, therefore, be considerably higher than suggested unless the full range of products envisioned by HMRC becomes available in good time before 1 April 2019.
After the webinar, 32% of participating agents stated that they still felt unsure of how to best implement MTD for their clients. As the webinar did not offer a better understanding of MTD for VAT than could be obtained simply from reading the guidance and notices, this is not altogether surprising. All eyes will be on HMRC to provide further information in the coming months.
Roger Morgan is a Tax Director at Ecovis Wingrave Yeats in Central London, where he advises inbound businesses on a wide range of tax issues. Ecovis Wingrave Yeats is a UK member of the Ecovis International network.