MTD for VAT: Latest update

Philip McNeil By Philip McNeill, ICAS Head of Taxation (Tax Practice and Small Business Taxes)

15 May 2019

With MTD for VAT officially beginning from the first VAT period starting on or after 1 April 2019, all VAT registered businesses, unless exempt, or deferred, should be maintaining the prescribed VAT information digitally. Philip McNeill provides an update as at 15 May 2019.

Some businesses have started making submissions – particularly monthly repayment cases, who decided to join early. There have been problems reported including returns shown as submitted according to the firm’s software, but which later appear not to have been logged by HMRC. This may only become apparent when an expected refund fails to materialise, similar issues have been reported elsewhere.

Phoning HMRC

It is all too easy to end up going round in circles with phone calls to HMRC. The information we have received indicates that there are usually around 100 HMRC staff available for helplines. When lines are busy – caller numbers far exceed staff - then you will hear a ‘busy’ message and Intelligent Telephony may be activated.

The HMRC Intelligent Telephony has not been able to identify the word ‘MTD’ though it may recognise VAT. It is therefore unlikely that the voice recognition system will currently take you to the correct team within HMRC.

Unfortunately, when lines are busy, your call may be abruptly terminated. HMRC advises that their phone lines are usually less busy between 8am and 11am.

With MTD for VAT you may:

  • Phone the VAT helpline (0300 200 3700). You may need to ask to be put through to the MTD VAT team in Glasgow, or
  • Phone the Agent Dedicated Line and ask to be transferred to MTD VAT team in Glasgow.

HMRC MTD for VAT updates

HMRC is aiming to issue fortnightly updates. To the end of April 2019, six editions have been issued. You can register to receive copies by emailing HMRC.

The updates can also be found on the ICAS website, under ‘MTD - Latest updates from HMRC’. This section of the website also includes other information from HMRC:

  • Making Tax Digital Update for Agents – Issues 1-6 (January to April 2019).
  • Information required for client sign up (4 April 2019).
  • How to sign up for an HMRC Agent Services Account (4 April 2019).
  • Signing up to MTD for VAT at the right time (30 April 2019).

MTD for VAT notice

The MTD for VAT notice is being continually updated. The latest set of revisions (3 May 2019) cover:

  • Guidance on the turnover test
  • Exemptions
  • Digital links
  • Supplies by third parties
  • Supplies received
  • Use of supplier statements
  • Petty cash transactions
  • Charity fundraising events

Much of this is a clarification of rules we have known about for a while, but some information is newly made public. Key clarifications are:

Petty cash (para 4.3 .3.2 of the Notice)

This confirms that petty cash items do not have to be entered individually in the digital records. Instead:

The business can record the total value and the total input tax allowable. This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry.

Charity fund raising events (para 4.3.4)

A similar easement applies here, where transactions for a charity event can be entered digitally as a single item.

Where supplies are made or received during a charity fundraising event run by volunteers you may treat all supplies made as covered by one invoice for the event, and all supplies received as covered by one invoice for the event, for the purposes of the digital record keeping requirements.

Turnover test (paras 2.1 and 2.1.1)

New wording confirms that any business which, on or after 1 April 2019, exceeds the VAT threshold of £85,000 in taxable supplies and is registered for MTD for VAT will not be able to leave MTD for VAT if its turnover falls below the deregistration threshold. The business would need to deregister for VAT altogether.

By contrast, a business which is voluntarily registered for VAT and which joins MTD for VAT, may subsequently leave MTD for VAT without needing to de-register for VAT.

Exemption

Grounds of exemption (3.1-3.4) are restricted. Businesses in insolvency are not required to follow MTD. The ‘not reasonably practicable’ exemption is not an effort-free, let-out-clause: ‘HMRC will not give you an exemption purely on the basis that reasonable effort, time and cost may be involved in making the transition to Making Tax Digital, for example choosing and buying any new hardware or software or learning to use them.

The ‘religious society’ exemption is similarly strict. All those involved in running the business would need to qualify and HMRC will not give you the exemption if ‘you’re currently filing online and use a computer or smart device for business or personal use’.

Digital links (para 4.2 .1.1)

The update confirms that you do need digital links, even during the soft-landing period, ‘where the data to be included in any of the boxes of the VAT Return has been prepared within a software program, product or application, and this data is then transferred to another program, product or application in order to submit the VAT Return data to HMRC via the API platform’.

This covers the example of preparing a VAT return nine-box summary within a spreadsheet and then transferring this data into bridging software. The transfer from spreadsheet into bridging software must be digital, e.g. linked cells.

Third party supplies (para 4.3 .2.1)

In a similar way to the petty cash and charity event easements, where sales are made via third parties, digital record keeping requirements are relaxed.

Where a third party agent makes supplies on your behalf, those supplies do not fall within the digital record keeping requirements until you receive the information from the agent. Where the information is received as a summary document you can treat this document as one invoice issued by you for the purpose of creating your digital record.

This relaxation only varies the requirements on maintaining records using functional compatible software. It does not change any other record keeping requirements set out in VAT legislation.

Supplier statements (para 4.3 .3.1)

Again digital record keeping requirements are relaxed where a business ‘pays to statement’ and records only the statement total in their records.

HMRC will permit that where a supplier issues a statement for a period you may record the totals from the supplier statement (rather than the individual invoices) provided all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown’.

Agent journey and software choices

Agent update 6, includes more information on how to sign your clients up for MTD for VAT as well as links for setting up an Agent Services Account.

HMRC’s software choices viewer is continually being updated, but it is worth reminding clients that this does not ensure that the software is appropriate for their business. The choice of book keeping software should be based on business requirements such as invoicing and reporting functionality, cashflow managements and compatibility with other systems, including those used by business advisers.

The requirements of MTD for VAT can be met entirely by using spreadsheets, or by using existing digital software and bridging software for submission. Don’t let the tax tail wag the accounting dog: records are not just for VAT purposes. We are already hearing reports of smaller business clients, panicked into buying software through persuasive publicity. This can result in their and purchasing systems which don’t match their business requirements and need to be replaced later.

Topics

  • Tax

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