How are you getting on with Making Tax Digital (MTD) for VAT? If your business is required to adhere to MTD, you’ll most likely understand what’s required of you.
Still getting your head around HMRC’s new digital VAT filing service? Don’t despair.
Put simply, VAT-registered businesses with a taxable turnover that’s over the VAT threshold of £85,000 now need to use software to submit their VAT returns, and also keep VAT records digitally for the mandated period (typically six years, or 10 years if you use the Mini One Stop Shop scheme (MOSS)). That’s discounting deferred businesses – they need to comply from 1 October 2019.
Accountants have a duty of care to ensure their clients comply.
As part of Sage’s effort to educate businesses and accountants about Making Tax Digital (MTD), I’ve been out on the road answering questions about VAT, most recently at Accountex 2019, where I was joined by a representative from HMRC.
I thought it would be useful to write up some of the questions I was asked for those businesses that might need help making the switch and for accountants preparing their practice and clients for MTD.
Does MTD mean HMRC will need all my company’s VAT accounting records?
At the current time, HMRC requires just the usual “nine boxes” of data submitted via the same VAT return we’ve used for years.
The difference introduced by Making Tax Digital in this regard is that this must now be submitted via software by most businesses, rather than through the VAT portal website (or by post).
Not unsurprisingly, many people have asked if there’s a chance HMRC might use MTD for VAT as an opportunity to make businesses submit all their VAT-related accounting records, known technically as transactional data.
After all, it’s right there in the software and it wouldn’t be difficult to simply send that too.
I heard HMRC say this is a possibility but that it would ask permission to receive the data – so it wouldn’t just download it when you submitted your VAT return. I suspect the reality is that, in all likelihood, it hasn’t yet decided.
As for why HMRC would want this data, remember that MTD for business in all its forms (VAT, corporation tax and income tax) is about correcting mistakes and inaccuracies, and clawing back some of the £9.2bn tax gap.
If viewing a company’s entire VAT record can help HMRC with this goal then it makes sense from its perspective.
When should I sign up for MTD for VAT?
You can use our MTD timeline calculator but generally speaking, you’ll need to do so at least seven days before you’re due to make your first MTD for VAT submission, assuming you pay by direct debit.
Do not sign up until after you’ve filed your final non-MTD return, and you should wait until five days have passed after the deadline has passed for that return.
There are different timelines for those who don’t pay their VAT by direct debit—again, see the MTD calculator.
Why can’t I sign up to MTD for VAT and make file my first return immediately?
It takes up to seven days for HMRC to transfer your VAT payment direct debit with your bank. There’s nothing it can do about this.
Do my VAT payment deadlines change with MTD for VAT?
No. Your VAT return dates and payment frequency remains the same. In other words, if you submit quarterly or monthly then this will not change.
Will I need to set up a new direct debit with HMRC for MTD for VAT?
No. The existing one should be fine. However, it will be automatically moved from the old VAT portal to HMRC’s new Enterprise Tax Management Portal. It’s possible your bank might notify you of this and it’s possible that the entry within your bank statement might have a different reference.
I use spreadsheets for my VAT accounting. How do I switch to MTD for VAT?
If you haven’t already, you should switch to MTD-compatible software-based accounting at some point, ideally following your year-end, because making the transition before then might be near-impossible from an administrative standpoint.
Until you make the switch to full accounting software, you can use something called bridging software. This hooks the spreadsheet into HMRC’s computers so you can submit the VAT return in the correct way.
A variety of bridging solutions are available, which cater to differing requirements.
Few people believe bridging software should be used as a permanent solution, including HMRC. It’s just a temporary fix until the business concerned can make the switch to accounting software.
If nothing else, using spreadsheets for VAT records is risky because it makes it difficult to maintain the necessary digital records for six years.
Read more about Making Tax Digital
How do I submit VAT for a group of companies, each using differing accounts software/spreadsheets?
As you might know, groups set up under one VAT registration need to follow the same MTD for VAT rules as any single business.
It’s therefore a matter of mechanics – getting all the data into one system via what HMRC refer to as digital links, so you can submit the return and also store the data digitally for the necessary six years.
Section eight of the VAT Notice 700/22 has some very useful explanations and diagrams that might help you figure it out – in particular, look at example six.
Notably, you might find your software vendor offers adaptor software to help unify the data that’s able to “plug in” to your various accounting solutions to consolidate the necessary data.
As an accountant, do my clients have to register for MTD, or can I do it for them?
If you’re an accountant or bookkeeper who has an existing client who completed a form 64-8 authorising you, and you previously submitted VAT returns for them via the old Government Gateway VAT portal, then the client will be automatically migrated across when you sign up to your practice’s Agent Services Account (ASA). The client doesn’t need to do anything.
However, a new client to your practice will need to sign up for MTD and then, after around 72 hours, you can send through an authorisation request for them via your ASA. They will need to confirm this authorisation.
Can businesses still submit via the old VAT portal once they’ve signed up to MTD?
No. The details will have been migrated across to the new system (known as the Enterprise Tax Management Platform). The details will no longer exist within the old VAT portal.
Why do businesses need to provide and subsequently authorise an email address when signing up to MTD?
This is a banking requirement relating to the direct debit system. Put simply, HMRC has to be able to email the business to inform them about their payment schedule.
I’m an accountant and I can’t create an Agent Services Account. What’s gone wrong?
According to HMRC, the most common reason the creation process doesn’t work is because the accountant (or agent) in question has already created an Agent Services Account (ASA) in the past but has forgotten about it, or doesn’t realise it can now be used for Making Tax Digital.
For example, you might have created an ASA to register a trust online.
ASAs aren’t limited to MTD and HMRC uses them for several different tasks (with more likely to be added as time goes on).
Try looking through your emails to see if you can find information about a previous sign up for an ASA.
Why is the VAT gateway website still online if we now have to use software to file VAT returns as part of MTD for VAT?
A minority of businesses don’t need to follow the MTD for VAT rules. Examples might include companies that are registered for VAT but whose turnover is below the VAT threshold.
Some types of businesses have a deferred start date and don’t need to use MTD for VAT until 1 October 2019.
Do I have to send my invoices digitally with MTD for VAT?
Sending digitally has many benefits but there’s nothing in the MTD for VAT rules that says you must do so.
However, if you print invoices via something like Microsoft Word, or even handwrite them, you must transfer the data to your digital VAT accounting as soon as possible. If you don’t, you’re breaking the law.
You need to transfer the tax point date, the value of the sale, the VAT rate applied, and the VAT element.
If you use spreadsheets, this means inputting that data and then keeping that data unchanged for a minimum of six years as per the existing VAT accounting retention requirements.
Of course, by using accounting software you not only get to issue invoices however you wish – electronically or printing them off – but it ensures the vital data is kept digitally without you even having to think about it. This is why digital accounting software is simply hard to ignore in a modern business.
I keep handwritten sales records. Am I breaking the law now MTD for VAT is here?
See the answer above. There’s nothing wrong with keeping handwritten sales records. That’s provided you transfer that data into your digital accounting solution as soon as possible.
You must do this in order to comply with the requirement of MTD for VAT that says not only should VAT records be kept for at least six years, as per existing rules, they must now be kept digitally.
Again, while there are a handful of solutions around that help with this – such as document scanning software – the additional admin work it generates really does suggest that moving to an accounting software solution is a very good idea.
How do I handle partial exemptions or adjustments and stay compliant with MTD for VAT?
Ideally, these should be done in your accounting software but if the software can’t handle it for whatever reason then you can do export the data and undertake the calculations outside of the software, for example in a spreadsheet.
You then must journal the resulting figure back into the accounting software. In the accounting software, you can indicate this using T codes, or an extended nominal ledger structure.
However, you will need to keep a copy of whatever you used to make the adjustment calculation (for example, the spreadsheet) for at least six years in case it’s required during a VAT audit in the future.
Notably, you can’t simply print off this spreadsheet because a key part of MTD for VAT is that VAT accounting records must be kept digitally.
A useful tip is to attach the spreadsheet to your ledger as a note, if your accounting software has that feature. You might find that it does.
I’m an accountant and can’t see a list of my clients in my Agent Services Account
This is correct and by design. Unlike with the old system, this data isn’t shown on the website. You can only see a list of clients in the accounting software you use to connect to the Agent Services Account.
Conclusion on Making Tax Digital
Making Tax Digital for VAT might seem simple in principle but, as I’ve found from speaking to businesses and accountants, a surprising number of issues arise when it’s comes to real world implementation.
I hope some of the answers above are able to solve any issues you might have had. Don’t forget that it’s not hard to get help for MTD.
You can call HMRC direct with any questions you have, while if your problem relates to the software you’re using then you should speak to the vendor.
You can always call your accountant (if you have one), who will be happy to help. And check out our MTD hub for support and top tips.
The best advice is to start thinking about Making Tax Digital for VAT now, even if your initial filing deadline has yet to come. There can be some substantial bumps in the road – and just a small sample have been outlined above.
The ultimate guide to Making Tax Digital
Need help getting ready for Making Tax Digital? Download this free guide to learn about MTD for VAT, Income Tax and Corporation Tax, and what they mean for your business.