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a bridge too far
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Where is the bridging software to plug the MTD gap?

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30th May 2018
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One of the unresolved mysteries of Making Tax Digital is how and when tools will become available to let businesses transfer spreadsheet-based VAT calculations into the new end-to-end MTD for VAT system.

With the VAT pilot scheme now in its early stages and mandatory online filing less than a year away, the spreadsheet question cropped up again and again in the recent Accounting Excellence Talk on MTD.

During the live webcast, panellist Rebecca Benneyworth explained, “One of the key bits HMRC emphasises in the regulations is that it must be end-to-end digital. It’s fine to take data from some software and then push it through a spreadsheet. If your VAT affairs are extremely complicated, you probably will still have to do that.

“But HMRC says is that is not to be rekeyed. It’s got to be electronically transferred and then submitted from the spreadsheet, or from the spreadsheet back into the product and submitted from that.”

The spreadsheet question is of equal importance to practitioners advising small businesses and large groups with complex VAT arrangements, she continued.

When VAT came up on the rails, she suggested officials visited some large companies to see how they did VAT. In one instance, a company had 23 linked spreadsheets to work out its partial exemptions across the group.

“It was at that point HMRC realised they would have to allow data to pass through spreadsheets,” Benneyworth said.

What is MTD bridging software?

The initial digital taxation proposals cut spreadsheets out of the loop. However, after encountering complex issues such as those described above and intense lobbying from accountants, professional bodies and various select committees HMRC comprised, coining the snappy term ‘bridging software’ in the process.

When HMRC talks about bridging software, this is more than likely to come in the form of an add-in widget that you bolt onto a spreadsheet to transfer the data without rekeying.

Such a solution has been tested on the income tax side, and as the MTD for VAT pilot progresses in the next few months, more such bridging tools are likely to come forward, Benneyworth said.

May accounting excellence sponsors Intuit QuickBooks

Companies coming forward

Webcast participant David J asked the panel: “When will HMRC approve software providers' bridging software for those many many (mostly smaller) clients who rely on Excel spreadsheets for their VAT records and returns?”

HMRC’s answer is that commercial developers will provide the bridging software in time for the April 2019 go-live. Companies such as Clear Books, TaxCalc, Wolters Kluwer and DataDear are beginning to come forward with solutions.

Clear Books Micro, for example, replaces a client’s Excel spreadsheet with an equivalent, free online grid program to record sales, cash in and expenses, while the £75 TaxCalc VAT Filer app will import VAT data from a spreadsheet to feed an online MTD for VAT submission.

A public sighting at Accountex

MTD bridging software proved to be an elusive creature at last week’s Accountex in London, but some intrepid seekers found their quarry at the stand of DataDear.

An add-on developer for Xero and QuickBooks Online, DataDear starts from the premise that the business will operate its spreadsheet records in tandem with one of the main online systems. Once a basic ledger has been created for the organisation, it will be able to push data from DataDear’s validated spreadsheets to Xero or QuickBooks Online and filed with HMRC from there (the validated sheets will be filled in by the business user/accountant).

Big Four intrigue

For seasoned MTD watchers, one of the more intriguing aspects of the programme is how the Big Four accounting firms will bridge the spreadsheet gap. Serving the richest, most complex multinational clients across a multitude of different tax regimes, they cannot simply adopt a plug-and-play solution and hope for the best.

Rumours have reached AccountingWEB’s ears that at least two of the four are testing bespoke bridging solutions, although no one was available to comment for this article.

John’s ‘Stok-take’ - Bridging software

When the government changed horses from MTD for income tax to MTD for VAT, it seriously wrong-footed almost all of the developers serving the accounting profession. Specialist tax and practice developers understand how to build code around HMRC specs and regulatory requirements and had invested millions in retrofitting their compliance programs for MTD for income tax. All that work is “effectively redundant” in the words of Xero UK managing director Gary Turner as attention turns to VAT.

VAT invoices and returns are normally recorded in bookkeeping applications like Xero, Sage, QuickBooks and the rest. They tell us that all MTD for VAT needs is a little tweak to swap in the MTD equivalent of the VAT 100 return. But with a few exceptions, these developers don’t really get all the workflows, tracking and data queries that go on within a typical accountancy practice.

Specialist practice developers, meanwhile, are all trying to work out how they’ll link to the VAT bookkeeping engines to access filing dates, tax totals and payment details that should be available via HMRC’s emerging application programming interfaces (APIs). Sage, IRIS, Wolters Kluwer all have feet on both sides of the VAT fence and should be able to cater for all requirements. BTCSoftware and TaxCalc have made the necessary arrangements, while Forbes Computer is said to be courting VT Transaction+ users with a spreadsheet bridging tool.

On the ledger side, QuickBooks Online has a two-way interface with Taxfiler (now owned by IRIS), while Xero is working on a partner strategy with the likes of Thomson Reuters and IRIS.

FreeAgent already handles self assessment returns from its bookkeeping platform and has been an MTD enthusiast for years. Like Clear Books, FreeAgent has confirmed it will have an MTD-ready VAT return output option before too long.

As we have seen from the varied bridging tools that have surfaced so far, such a complex combination of situations and applications is spawning all sorts of different technical approaches. Keep an eye on AccountingWEB as the MTD for VAT pilot progresses, when we hope to compile a more detailed guide to the available applications.

For a detailed look into the mechanics of MTD for VAT and how to prepare your firm and clients, see the May Accounting Excellence Webcast, What’s ahead on the road to MTD?

Additional reporting from Tom Herbert.

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Replies (92)

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Replying to adebola:
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By djtax
11th Jun 2018 17:31

Thanks - that is useful to know. However issuing it not until September is still leaving it rather close to the April 19 date:

Provided it is available in September I would have say one VAT quarter to test it for my own understanding. As with most other accountants I will have 'other priorities' for all of Dec & Jan so there will be no spare time to experiment on new systems then. That would leave just about one more quarter to set it up with clients before having to go live for real. Is that really going to give adequate preparation for all those affected?

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Replying to djtax:
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By Edward Taaffe
23rd Oct 2018 17:08

Perhaps this is a convenient time to introduce another option. I have been exploring the potential for organising groups of industry comrades to share the cost of developing something exactly how they want it and then having it license free forever or even earning a little off licensing it to others. I believe there is a model here if approached right and there might be significant value for accounting firms at a time like this. My personal background id in software development and complex integration and API challenges and doing sexy things with Excel that go a little beyond Macros.
Am I talking out of turn?
Does anyone have an opinion on the idea?

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Replying to Edward Taaffe:
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By johnjenkins
24th Oct 2018 09:46

Nice try Ed.

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Replying to Edward Taaffe:
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By Sylvia01352
25th Oct 2018 10:03

Amid all the speculation as to how and when MTD will happen this sounds like a very sensible solution. I look forward to hearing more about it.
Thank you.

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By adjadj
04th Jun 2018 14:59

If HMRC want individual transactions that would require millions of records to be sent each reporting period and may also require HMRC to understanding how manual adjustments (e.g. for partial exemptions) are handled by each individual company. This might indicate that individual transactions are not feasible.

Have HMRC specified whether they require summary totals or individual transactions? If they have what is the source of that requirement?

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Replying to adjadj:
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By johnjenkins
04th Jun 2018 16:33

My understanding of MTD is that HMRC would have all transactions in order to give the tax payer a clue of their tax bill. So if that isn't incorporated in MTD for vat, then we will have two MTD's. One for vat that only requires totals and one for tax that requires all transactions. Or is it that HMRC only want to be able to recognise that the "customer" has used a digital bookkeeping system and only want summaries

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By libraBE
04th Jun 2018 19:55

Why do posts keep saying that April 19 is the obvious start date? Where we have a client with a July year end, if it is preferred that the whole year's accounts are completed under just one accounting system, then that MTD start date is August 2018.
If not, the client will face additional work and costs when merging 9 months of his current system with the last quarter on the new, MTD-compliant one and that burden should have been considered, too, when timetabling this issue.

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By Ian McTernan CTA
06th Jun 2018 12:45

HMRC seem to think all clients and others filing VAT returns will magically transfer onto electronic systems in time for April next year AND know what they are doing to ensure correct entries.

Pure pie in the sky thinking. I have several clients who wouldn't know how to even start doing that, and have even less inclination to try. Invoices are done on Word or excel and a pile of receipts and bank statements arrive at the end of the quarter.

I then use my own excel sheets to record the expenses and income and calculate the VAT. These sheets are not in any standard format. I won't change them just so some app can attempt to pick figures off it.

Can't wait until people start to realise HMRC want details of every single transaction- and then wait for the fun when HMRC start querying individual entries and opening enquiries based on entries submitted.

Oh the fun in store!

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Morph
By kevinringer
12th Jun 2018 09:44

Several posts say HMRC want details of all transactions for MTD. That is not true. Currently MTD VAT 'only' requires the 9 VAT box totals and MTD Income Tax basically wants the P&L and Balance Sheet from the SE schedule quarterly. I say 'only' because to get these figures HMRC require digitisation of all transactions and that is the crux of the problem: HMRC seem to think digitisation is easy and will save time whereas practitioners know from experience that for most established clients this is not the case.

HMRC will be replacing the existing VAT return digital submission process via GOV.UK with a different digital process via software. HMRC are doing this because they are convinced it will reduce the error rate but having seen the mess some clients make using software I expect the error rate to increase.

Until February users of older versions of Sage could submit VAT returns via Sage but HMRC have now disabled that facility. The whole purpose of MTD is end-to-end digitisation so I don't understand why HMRC disabled it.

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Replying to kevinringer:
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By johnjenkins
12th Jun 2018 10:32

I must be getting thick in my old age because I cannot see the point of changing anything unless HMRC have access to all transactions, which they can only do in a digitised bookkeeping and submission process. The fact that they only want 9 boxes at present is a scam.
I just wonder if HMRC are allowed to see all transactions without opening an investigation. Of course they won't tell anyone what the end product really is but I can't see them spending that sort of money and being totally committed unless they get the access they want.
Reduction of errors, helping "customers" know their tax bill, I've never heard such a load of rubbish.

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Replying to johnjenkins:
Morph
By kevinringer
12th Jun 2018 11:22

It wouldn't surprise me if eventually HMRC do get access to all transactions through MTD but currently they will only see VAT boxes 1 to 9. I've been told by someone from one of the institutes that last summer HMRC were intending that MTD sends blocks of transaction data from which HMRC will calculate boxes 1 to 9 but the institutes successfully persuaded HMRC that would not be feasible and HMRC went back to just boxes 1 to 9.

But would it be so terrible if HMRC did see all the transactions? HMRC can't cope with RTI even after 4 years - and the volume of data reported by RTI is tiny compared to all transactions. Only today there's been a news report about the police being unable to process all the data in criminal cases. I suspect we'd have little to concern ourselves if MTD did report all transactions because HMRC wouldn't be able to cope. No, my big concern is the digitisation of transactions in the first place because existing clients have neither the time nor resources to do it.

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Replying to kevinringer:
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By johnjenkins
12th Jun 2018 13:42

I agree to a certain extent. A lot of clients will not have the time or resources. I certainly don't have any problems with HMRC seeing all business transactions. However a lot of small business will use just one account (maybe a joint account) which could contain private (legal) transactions that they don't want anyone to know about. It is this area of digitisation and HMRC's need to control that is the really worrying factor. You wouldn't even know they were doing it.

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Replying to johnjenkins:
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By 0098087
12th Jun 2018 13:58

Human rights breach? Oh hang on, we are supposed to be coming out of the European Human Right legislation. Coincidence?

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Replying to johnjenkins:
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By 0098087
12th Jun 2018 13:58

Human rights breach? Oh hang on, we are supposed to be coming out of the European Human Right legislation. Coincidence?

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Replying to kevinringer:
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By Smalltalk
25th Jun 2018 12:26

kevinringer wrote:

Several posts say HMRC want details of all transactions for MTD. That is not true. Currently MTD VAT 'only' requires the 9 VAT box totals and MTD Income Tax basically wants the P&L and Balance Sheet from the SE schedule quarterly. I say 'only' because to get these figures HMRC require digitisation of all transactions and that is the crux of the problem: HMRC seem to think digitisation is easy and will save time whereas practitioners know from experience that for most established clients this is not the case.

HMRC will be replacing the existing VAT return digital submission process via GOV.UK with a different digital process via software. HMRC are doing this because they are convinced it will reduce the error rate but having seen the mess some clients make using software I expect the error rate to increase.

Until February users of older versions of Sage could submit VAT returns via Sage but HMRC have now disabled that facility. The whole purpose of MTD is end-to-end digitisation so I don't understand why HMRC disabled it.

oh, we use older version of Sage which suit us just fine. didn't realise it was HMRC that diabled submission via Sage until read your post.
it would cost us extra £70 a month to update Sage just to be compliant with MTD. insane.

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By 0098087
25th Jun 2018 13:00

It's all about increasing revenue and getting fined. We are still awaiting our user id for money laundering compliance.
Have emailed at least 7 times. Have written to Southend. Phoned this morning. All they can do is send an email with a 15 working day reply time. How is MTD going to work? We don't even know what will replace VAT once we Brexit..if we even do..

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Replying to 0098087:
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By johnjenkins
25th Jun 2018 13:50

We had VAT before Brexit so that won't change much. If we have to charge VAT to other EU countries will probably be in the "all singing all dancing" no deal Brexit agreement. That's another farce. Brian Rix and Syd James would have made a fortune out of these two "carry on farces"

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By philfromleeds
01st Aug 2018 23:03

If your VAT quarter straddles your year end then you need to align your VAT quarter to your year end.

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Replying to philfromleeds:
Morph
By kevinringer
02nd Aug 2018 10:15

No you don't. MTD does not require you to align your VAT quarter with your year end because even when (if?) MTD for Income Tax is operational businesses will still be required to make 4x MTD VAT submissions and 4x MTD Income Tax submissions followed by 2 further ones making a total of 10 submissions a year. If the business also has a rental property there will be a further 4x MTD Income Tax submissions (because each business makes its own submissions). So MTD will replace the existing 1xTax Return and 4xVAT returns with 14 MTD returns. It reminds me of RTI which replaced the 1xP35 with 54xRTIs. And HMRC recons that's so much easier for businesses.

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By philfromleeds
01st Aug 2018 23:03

If your VAT quarter straddles your year end then you need to align your VAT quarter to your year end.

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By johnjenkins
02nd Aug 2018 08:50

One thing that truly amazes me is when you read comments on MTD and Brexit about a year ago, nothing really seems to have changed apart from more people are aware of the disaster ahead.

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Replying to johnjenkins:
Morph
By kevinringer
02nd Aug 2018 10:31

johnjenkins wrote:

One thing that truly amazes me is when you read comments on MTD and Brexit about a year ago, nothing really seems to have changed apart from more people are aware of the disaster ahead.

HMRC are aware of Brexit (that's why HMRC have cancelled so many IT projects) but HMRC seems completely ignorant of the MTD implications for the typical small business.
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By philfromleeds
12th Aug 2018 22:05

I don't know if I am mad, but I have been preparing accounts and doing VAT returns using Excel for 20 years and before that I was using paper analysis sheets and analysis books. Its a real liberty to say I cant use these skills any more. In fact its got to be against my human rights. As far as I am concerned the VAT man should employ more inspectors like they used to do. Is'nt this what it comes down to. The VAT man has not got the staff so we have to fit in with their business plan.

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Replying to philfromleeds:
Tornado
By Tornado
12th Aug 2018 22:38

"s far as I am concerned the VAT man should employ more inspectors like they used to do"

My experience of HMRC Inspectors in general is that they will be totally unable to deal with the near Real Time basis of MTD. More used to taking weeks, months or even years to deal with some enquires, how on Earth are they going to deal catch up with the Express Train of MTD when they only have a little Tank Engine and don't know how to drivr anything else.

I feel a bit sorry for them and suspect that they are now going to have a much harder time adapting to MTD for VAT than us.

I am still convinced that MTD for VAT can only be voluntary from next April otherwise the mandatory Express Train is going to crash and seriously disrupt the whole tax system for years to come.

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Replying to Tornado:
Morph
By kevinringer
13th Aug 2018 08:50

I blame the fat controller

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Replying to philfromleeds:
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By KenKLM
17th Sep 2018 13:11

I do wonder if forcing taxpayers down MDT at their cost is a breach of Human Rights ????

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By Sylvia01352
16th Aug 2018 11:20

As a small business I don't especially want my accounting data stored online, I like to control who has access to it so where do I go for accounting software with or without MTD? Any help will be appreciated. Thank you.

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Replying to Sylvia01352:
Morph
By kevinringer
16th Aug 2018 11:50

Sage say their existing desktop software will be MTD compliant. I've been told that anyone who has existing Sage desktop software on monthly subscription will have their software switched to MTD automatically and from a user perspective won't even notice the change.

Sage desktop clients can use Sage Drive to synch their Sage desktop data with their accountant so the client will always have the latest data without having to send backups backwards and forward. Sage Drive does store a copy of the data on Sage's servers but it is encrypted by the client using a password known only to client (and shared with the accountant) so even if Sage's servers were compromised and the data stolen the thief would not be able to unencrypt the data. Sage Drive is nothing to do with MTD: it's been around for about 3 years. I use it and it is very useful and saves time.

I've also been told Sage will also do a 'deal' with Sage accountants for clients using Sage desktop software: if the clients are 'introduced' to Sage subscriptions by the accountant, Sage will charge the client £10+VAT a month and bill the client direct (so the accountant doesn't get involved with billing) and Sage will pay the accountant £2 a month 'thank you'. I haven't got any clients on Sage subscription (they all use older software) so I don't know if this actually works.

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Replying to Sylvia01352:
Morph
By kevinringer
16th Aug 2018 12:07

None of the MTD linking software stores the accounting data online.

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By [email protected]
21st Aug 2018 15:30

How will returns for travel agents (TOMS margin scheme) and for car dealers (another margin scheme) be filed. These are not tiny corners of the economy.

TOMS is enough to give you nervous breakdown without any attempt to force it through MTD. I guess the return amendment schedule will remain in place effectively breaking any chance at end to end digital.

I cannot imagine any software developer being bothered to account for the annual margin % applied to sales and recalculating it it at the end of the accounting year, whenever that may be.

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Replying to [email protected]:
Morph
By kevinringer
21st Aug 2018 15:47

I haven't come across any software that can handle margin schemes, or retail schemes, or partial exemption. These have been in place since VAT started in 1973 so the software industry has had 45 years to get it right. But HMRC don't seem to be bothered: they turn a blind eye to all the problems because they don't want to be distracted by real-world problems. All we agents can do is take these issues up with our professional bodies. I know that the professional bodies are acting on what we give them and they want more real world problems and examples to put to HMRC. If enough of us do this then we can influence MTD and even scrap it completely: the Government can save face by blaming Brexit.

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By the_Poacher
25th Aug 2018 08:42

I'm old enough to remember the days when your local inspector had a decent understanding of the rules and if they didn't you could talk to them, often face to face, and sort things out. Now it's call centres with staff reading from scripts, software that doesn't work and the lamentable guidance on Gov.UK. Heaven help us

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Replying to the_Poacher:
Morph
By kevinringer
28th Aug 2018 13:48

It is called progress: it now takes us twice as long so we can charge more.

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By KenKLM
17th Sep 2018 13:07

I think what is hard to swallow with all of this is we are effectively unpaid tax collectors as it is for HMRC VAT yet what they are saying is we need to go to MDT ( even though most returns are filed on-line which in my book is a digital return ) to suit them but they are not going to provide any software to achieve this . How many companies could say to their customers it will cost you to give us what we want ? There needs to be a cheap and cheerful spreadsheet based package ASAP for us smaller practitioners or taxpayers will not be submitting their returns and who gains from that ??

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Replying to KenKLM:
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By EnglishRose
13th Oct 2018 08:30

Your analogy is a bit like those few bit supermarkets which make smaller suppliers pay a large up front payment in order to continue to have the privilege of supplying that customer ("up front access payments") (although at least in those cases there is presumably still some profit in the customer otherwise you refuse politely)

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By 0098087
17th Sep 2018 13:13

This whole thing is a nightmare. Clients don't want to know and certainly don't want to pay for it. Unfortuantely while we can rant and moan about George Osborne bringing this in I think all parties would have wanted to go down this route whoever was in power. I still think we'll get a postponement as Brexit is going so well!!

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A caricature of SteveJay
By SteveJay
11th Nov 2018 15:32

I have been following this debate with great interest. We are a small company with turnover less than the VAT threshold but have registered voluntarily as it is to our advantage. So it appears that I will not need to file vat digitally.
I still quite happily use QuickBooks2013 Pro which is stand alone, as I travel extensively and cannot always get adequate internet to work in the cloud.
Just as an experiment this quarter I thought I would use the online filing facility in QB2013, unfortunately HMRC have changed their system so the submission fails. So I did it the usual way manually on the HMRC site. But then I tried outputting the VAT 100 report as a .CSV file and lo and behold it produces a very simple file with just the 9 figures required for submission that can be simply read by one of the "Bridging Programs" that are supposed to be provided free for single users to transfer their spreadsheet results. So, unless I am very much mistaken or HMRC decides to ask for much more information I and perhaps some of your smaller clients who use QuickBooks will not have a problem with MTD after all.
The output is the simple 20 cell spreadsheet below. I have shortened some of the descriptions for clarity.

Aug - Oct 18
Box 1 - VAT due on sales and other outputs 0
Box 2 - VAT due on .... other EC Member States 0
Box 3 - Total output VAT due 0
Box 4 - VAT reclaimed on purchases 0
Box 5 - Net VAT to pay (or reclaim) 0
Box 6 - Total net value of sales 0
Box 7 - Total net value of purchases 0
Box 8 - Total net value ..supplies.. EC Member 0
Box 9 - Total net value acquisitions EC 0

Hope this is of interest, but please tell me if I have got it all wrong.

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Replying to SteveJay:
Morph
By kevinringer
12th Nov 2018 14:26

You've got it right Steve. Though how much easier it would have been if HMRC had let you file through QB2013. I've got the same problem with Sage from the same era. It seems crazy for HMRC to switch off the old filing method thus forcing thousands of business to manually input their figures through GOV.UK: just when HMRC are telling us they are introducing MTD to stop people inputting through GOV.UK.

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Replying to kevinringer:
A caricature of SteveJay
By SteveJay
12th Nov 2018 14:50

kevinringer wrote:

It seems crazy for HMRC to switch off the old filing method thus forcing thousands of business to manually input their figures through GOV.UK: just when HMRC are telling us they are introducing MTD to stop people inputting through GOV.UK.


Yes, but expecting joined up thinking from HMRC!
All we need to do now is find some good, "FREE" bridging software that works from a simple spreadsheet. Because I am sure HMRC will very soon expect all VAT registered businesses to submit digitally. My accountant insists it will happen.
The saving grace is that from the above comments it seems that many big businesses are using spreadsheets, but what extra info is HMRC going to soon demand thus requiring us to update software which is working perfectly.
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By NewACA
19th Jan 2019 20:01

There are loads out there.

Here is my favourite: https://123sheets.co.uk

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By carolelmcarre
25th Jan 2019 16:32

So I thought I would get a good start on mtd. Registered my agency, registered my client, checked my software would work...QuickBooks...as per HMRC website, them couldn't get it to work. When QuickBooks dialled in to check they saw that this was a flat rate calculation and guess what, QuickBooks can't do mtd flat rate submissions, (not yet anyway). Didn't see this anywhere on HMRC or in the QB training.

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