Tax Director Ecovis Wingrave Yeats
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MTD webinar: HMRC attempts to explain the VAT Notice

31st Jul 2018
Tax Director Ecovis Wingrave Yeats
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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.

Record keeping

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.

Digital links

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.

Making adjustments

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 3.2.1.1).

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 3.2.3.1).

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.

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.

Information gap

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.

Replies (23)

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By gilderda
31st Jul 2018 17:19

There is but one guaranteed winner out of the stampede towards MTD.

It's not the government - making everything digital won't have much if any effect on the fraud and error tax gap.

It's certainly not the taxpayer, who finds another layer of complexity added to what is already a baffling system for many.

No, the one guaranteed winner out of this is the software houses, who will make out like bandits selling "solutions" to a captive audience with nowhere else to turn.

Has anyone checked the current Cabinet's register of interests, see if any have non-exec posts with the likes of Thomson Reuters or IRIS?

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By djtax
01st Aug 2018 10:04

'the webinar did not offer a better understanding of MTD for VAT than could be obtained simply from reading the guidance' - as predicted in my comments on one of the other AWeb MTD VAT discussions last week.

HMRC webinars seem to be generally about reminding the audience on what HMRC have recently published rather than answering the audience's more pressing questions eg specifics on bridging software. The audience polls set by HMRC in their webinars also avoid the hard questions- whilst there was a poll on who has advised their clients about MTD for VAT in general (which obviously gives a strong positive response) there was no poll on whether the audience believed sufficient details have now been made available to enable clients to be fully conversant with new software etc in time for successful implementation of MTD VAT next Spring.

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By johnjenkins
01st Aug 2018 11:11

Yes, Roger, I too am extremely disappointed. Where we are at the moment, with hardly any business knowing the nuts and bolts, to where HMRC want us to be in April is nothing short of "it's never going to happen". Give it a couple of more years and you might, just might, have a resemblance of something that could be worked with. As I have said before, HMRC are washing their hands off all responsibility. Their attitude is, there's the product, this is what we want, go to it.
I'm normally pretty good at working round problems but this is just going to be one big catastrophe.

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Morph
By kevinringer
01st Aug 2018 13:25

I had submitted many questions to HMRC in advance of the webinar but HMRC failed to answer most of them. I listened to two webinars hoping the second might reveal more but it did not. They added little of interest that had not already been announced in the guide. It appears that many businesses will probably be able to use the existing GOV.UK portal because it doesn't appear it will monitor turnover.

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Replying to kevinringer:
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By johnjenkins
01st Aug 2018 15:42

I think this is where the major problem might be in as much as HMRC have said that the normal gateway will be closed to those business with a turnover of over £85k unless exempted. So I presume that form 1st April there will be a turnover monitor.

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Replying to johnjenkins:
Morph
By kevinringer
01st Aug 2018 15:54

It would have to be a basic one because of season businesses etc it could not simply cut off at £85,000/4 per quarter and instead monitor cumulative turnover but it would only know quarterly turnover and not monthly - and it is monthly that triggers MTD. Also, box 6 includes taxable and exempt supplies whereas only taxable are relevant for MTD. So monitoring box 6 won't actually monitor turnover for MTD purposes.

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Replying to kevinringer:
All Paul Accountants in Leeds
By paulinleeds
01st Aug 2018 17:02

A phone call to the MTD team (available if you ring the VAT online helpline) confirmed to me that the Gateway will be closed automatically on 1 April 2019 if the LAST FOUR VAT returns filed before that date showed income over £85,000!

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Replying to johnjenkins:
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By Homeworker
05th Sep 2018 18:08

johnjenkins wrote:

I think this is where the major problem might be in as much as HMRC have said that the normal gateway will be closed to those business with a turnover of over £85k unless exempted. So I presume that form 1st April there will be a turnover monitor.


This worries me, as I have an elderly client with a substantial portfolio of commercial lettings. There are "options to tax" on just three of them, which will be below the VAT threshold but we were told some years ago that all of them have to be included in the turnover box. As most of them are outside the scope of VAT (not exempt or zero rated), they should not be included in the turnover for MTD for VAT but how will HMRC know this?
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Replying to Homeworker:
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By johnjenkins
06th Sep 2018 09:27

Anything that is "outside the scope of VAT" does not have to be included in turnover (wages, insurance etc.). However I believe that commercial lettings comes under "exempt" not "outside the scope of VAT" in which case if your clients turnover exceeds £85K they will come under MTD.

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Replying to Homeworker:
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By johnjenkins
06th Sep 2018 09:37

I should have added that you will need to ask HMRC how they are dealing with "partial exemption" with regard MTD. I believe there was an article on Aweb earlier in the year but really until HMRC sort out all the scenarios you can't plan.

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Replying to Homeworker:
Morph
By kevinringer
06th Sep 2018 13:34

I don't think the existing GOV.UK filing method will be able to have a turnover test because box 6 includes exempt transactions whereas the MTD threshold excludes them so box 6 cannot be used for the turnover test and there isn't an alternative. With widespread ignorance of MTD in the business world I expect most businesses will continue to file via GOV.UK and HMRC won't have the resources to stop them.

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By djtax
01st Aug 2018 14:32

It all makes me wonder why we waste our time attending HMRC webinars, whilst HMRC themselves no doubt regard them as a roaring success - with many hundreds in attendance and lots of 'positive' feedback on the (rather naïve) poll questions. It will give them a false sense of security....

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Replying to djtax:
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By Richardrussell
02nd Aug 2018 09:00

I came to that conclusion last year. HMRC webinars don't really answer any questions you have, they simply reinforce their message. The polls are weighted. Waste of time.

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By EnglishRose
01st Aug 2018 21:58

On this "Supplies that do not go on a VAT return are excluded from the requirement."

Does that mean my current paper records which include my VAT chargeable services and those with no VAT (publishing) will have to be kept as two separate accounts for VAT purposes (but one for tax)? So I would keep the paper records for services on which no VAT is chargeable and move to some new kind of digital product with the bridging software wheni it out for the other part of my services. That sounds horrenously complicated (two separate sets of accounts and time and effort) and awful.

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Replying to EnglishRose:
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By johnjenkins
02nd Aug 2018 08:45

The whole point of MTD is for HMRC to have access to all business transactions (to eliminate errors lol). However where business do not have a separate bank account (to save on bank charges) the software may pick up private transactions also. So unless you have an accounting package you would have to keep vatable stuff separate from non vat stuff.

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Replying to EnglishRose:
Morph
By kevinringer
02nd Aug 2018 10:09

Your publishing is still taxable albeit at zero rate so you would maintain all your records digitally. Indeed if you made exempt supplies these too would be recorded digitally because they go in Box 6 on the VAT return. Exempt expenses would also be recorded because they go in Box 7.

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Replying to kevinringer:
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By EnglishRose
02nd Aug 2018 14:00

Thank you both. That is very helpful.

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By North East Accountant
02nd Aug 2018 09:07

They will need to keep the current portal open for the digitally excluded.

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Replying to North East Accountant:
Morph
By kevinringer
02nd Aug 2018 10:10

North East Accountant wrote:

They will need to keep the current portal open for the digitally excluded.


That's a contradiction.
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By Ian McTernan CTA
03rd Aug 2018 10:20

Can't wait for the first enquiry from HMRC on some entries from clients who use their personal account for their self employed income or where costs are apportioned at the year end, etc.

HMRC will assume they (their big data software LOL) knows best and send out automated queries, involving lots more work for us and even more costs in time and money for people who are trying to run their businesses.

I guess we should all write to clients early next year (when they might start to listen) and advise of large fee increases to cover all the extra work, and encourage them all to write to their MP about it.

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Replying to Ian McTernan CTA:
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By johnjenkins
03rd Aug 2018 11:17

We have taken the decision to put every client on VT. We don't have a problem with clients over £85k as they are already on VT or have their own packages.
This will give the client a knowledge of exactly how much they will have to pay out every year (using a package that is compatible with MTD will keep the costs down and should stop enquiries.

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Replying to johnjenkins:
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By mfbrown185
03rd Aug 2018 12:25

Hi John - we took the same decision. VT is flexible and it's trial balance export can be taken into a number of packages. We use TaxCalc to file returns and final accounts.
What software will you use as an MTD "front end" i.e to submit the quarterly accounts and VAT returns?

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Replying to mfbrown185:
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By johnjenkins
03rd Aug 2018 12:41

I haven't decided on the MTD stuff. There's too much uncertainty as to submissions at the moment. I personally still can't see this happening in April 2019. If it does go ahead it's going to be a mess. There should be at least another 12 months where either gateway can be used. We then get proper feedback from smaller business that have used MTD. At the moment everybody will be going in blind.

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