Making Tax Digital for VAT Update – June 2019
By Philip McNeill, Head of Taxation (Tax Practice and Owner Managed Business Taxes)
26 June 2019
For the majority of agents and businesses, the period running up to 7 August 2019 is likely to be key for MTD for VAT. This is the deadline the first VAT stagger of quarterly filers who pay electronically will have to meet with their first VAT return submission under MTD for VAT.
Philip McNeill provides looks at some of the issues to consider as at 30 June in the run-up to the deadline.
Overview
HMRC reports that over 200,000 VAT returns have been filed through the new MTD for VAT API. While many businesses are filing successfully, agents have raised a number of concerns. When problems do arise these often prove to be a major headache and HMRC support, online and through helplines is noticeably stretched.
Preparation – file the last return under the old system first
It is essential to file the last return under the old system before you use the new one. This means that you need to file the last VAT return which covers / straddles the period to 31 March 2019, first.
Signing up for MTD for VAT
Before a return can be filed under MTD for VAT, the business (and agent) need appropriate software. Submission of the VAT return may be made directly from record-keeping software, or it may be via bridging software, for example from a spreadsheet VAT return summary.
The first quarterly filing date depends on the VAT stagger:
| First mandatory MTD for VAT quarter | Keeping digital VAT records required from | First VAT return filed through MTD for VAT API (7 days earlier if you don't pay electronically) |
|---|---|---|
| 1 April - 30 June 2019 | 1 April | 7 August |
| 1 May - 31 July | 1 May | 7 September |
| 1 June - 31 August | 1 June | 7 October |
Signing up involves the business registering for MTD for VAT; though this may be done by the agent, with the agent setting up an Agent Services Account, in order to manage clients using HMRC MTD services. There is a special route for overseas agents.
Challenges and pitfalls
It is not possible to list all the possible problems, as new ones arise as existing ones are solved. The HMRC Agent Forum has a discussion of many of the issues. The sort of problems that may arise include data miss-matches between HMRC systems and client entered data, difficulties with creating online accounts, lost passwords or changes to hardware, such as mobile phones or computers.
For some problems it has proved difficult to isolate the source: is it an issue with the business’ or agent’s software, or is the error on HMRC’s side? Error messages are not always specific enough to enable the source to be quickly tracked.
Often the problems are not ones which were envisaged while the system was designed and so there is no quick fix.
Basic precautions include:
- As far as possible, ensure client data, such as postcode and other identifiers are up to date on your systems and on HMRC’s. Check for discrepancies, for example between addresses held by HMRC for VAT purposes and those for other purposes such as self-assessment for income tax, corporation tax
- The signing up window can be restricted – as time is needed to process the last non-MTD for VAT submission and any associated direct debit. In addition, the new MTD sign-up is not instantaneous:
- If paying by direct debit, allow 5 working days after submission of the last non-MTD return; and sign up for MTD for VAT at least 7 working days before filing the first return under MTD for VAT
- In all cases, allow at least 24 hours after filing the last non-MTD return before signing up for MTD for VAT
- Following sign up, do not file under MTD for VAT until you have received a confirmatory email from HMRC confirming the sign up (this usually takes up to 72 hours)
- Allow extra time. Signing up for MTD for VAT is a multi-stage process and delays could occur at any stage
Easements and exemptions
The updated VAT notice 700/22 making tax Digital for VAT contains a number of updates covering easements to the rules, eg for recording petty cash payments, paying to supplier statement, and recording third party transactions and soft landing for penalties.
It also sets out the conditions for exemption, deferment and voluntary registration.
Note that users of GIANT (public sector bodies) whose entry to MTD for VAT was initially deferred to October 2019, are now further deferred and will not join MTD for VAT until further notice.
Conclusion
As could be expected with such a large-scale digital change, transfer to the new system is likely to come with some significant hiccups for some. Unfortunately, agents are bearing the brunt of much of the disruption. While the transition may be smooth for many businesses, it would be wise to manage client expectations and factor in the wild card of potentially complex and hard-to-solve issues in a minority of cases.