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Markel Tax

22 Feb 2018

MTD VAT pilot about to go live

If the outcome of an HMRC poll question is anything to go by, a lot of work lies ahead trying to prepare clients for Making Tax Digital (MTD).

April 2019 is edging ever closer. 

From 1 April 2019 VAT registered businesses with a turnover in excess of the VAT threshold – currently £85,000 - must start keeping their business records digitally and begin submitting their VAT returns via MTD compatible software. In practice that means the first VAT return due on or after 1 April 2019 must be submitted to HMRC in this way.

This requirement will remain, even if they fall below the threshold at a later date. The requirement will cease upon deregistration.

Rather alarmingly, in a recent live poll conducted during an HMRC MTD webinar, some 70% of the viewing respondents said their clients knew little about the impending requirements. Prior to the question and answer session on the webinar which followed, the presenter stated over 1,000 agents were participating in the webinar.

What could be the reasons for the limited knowledge?

A lack of time to learn more? A fear of the costs involved in moving from paper to digital? Perhaps even the belief that MTD will never happen, so why bother? Certainly Mel Stride, the financial secretary to the Treasury, is keen to dispel that myth and recently reaffirmed there will be no further delay to the rollout of MTD.

The forthcoming launch of the VAT MTD pilot might be the ideal opportunity to encourage clients to dip their toes in the water and to begin preparing for the real thing. 

Initially participation in the pilot is going to be by HMRC invitation only, as businesses with the simplest VAT arrangements are targeted first. 

As time goes by, HMRC intends to gradually encourage more complex businesses to join, with agents able to set up an agent services account with HMRC and register clients. As part of this process, agents will need to identify whether their client’s business is a sole trade or limited company and provide other supplementary information such as the client’s VAT number and Unique Taxpayer Reference. Once this information has been provided, HMRC will let the agent know within five working days whether they can use MTD software to submit their client’s VAT updates.

Data which must be recorded digitally includes:
designatory data including the business name and address;
  • supply data, such as the time of the supply, the value of the supply and the rate of VAT charged; and
  • a record of outputs split between standard, reduced and zero rated, alongside any which are exempt or outside the scope of VAT.
There are some exemptions to MTD including:
  • practising members of a religious society or order whose beliefs are incompatible with the use of electronic communications; and
  • people for whom online filing is not reasonably practicable for reasons of disability, age, remoteness of location or any other reason.

HMRC is keen to point out that each case will be judged on its own merits and the examples given above are not the only circumstances where ‘Assisted Digital’ help may have to be provided.

What can agents do to try and motivate clients to prepare for MTD?

Aside from reminding clients they will be completing the same nine box VAT return, albeit in a digital rather than paper form, to the same frequency, in accordance with the same payment deadlines, can they really face the inevitable disruption to their business if they have not prepared for MTD at all before April 2019?

Practical tips

Here are some practical tips to encourage them and to help you formulate a strategy:

  • Identify all of your clients who are VAT registered and trading above the VAT threshold, notifying any lapsed clients to HMRC.
  • Segment clients on a spreadsheet listing those who are still keeping paper records, those who are maintaining a mix of paper and spreadsheets and those who are already using software.
  • Prioritise the paper clients and decide what your approach is going to be, including how you are going to educate them and whether you are going to recommend a particular brand of software. If you have several paper clients, will they respond better to a training style event where they can learn with their peers or will they respond better to one to one hand holding advice?
  • Consider the logistics of how to deliver your plan. Do you invite them to a breakfast or evening powerpoint briefing, perhaps with a representative from the software provider present? What additional collateral are you going to provide in the way of useful factsheets and MTD guides.  
  • Once your clients understand more of what is required, find out what they are going to need from you i.e. a full service or just partial help.
  • Review your pricing structure and the fees you are going to charge for the work you are going to be doing for them.
  • Plan a calendar for when the peaks and troughs are going to fall, based on what you have established your clients are going to need, so you can manage staffing levels. Remember you do not want your MTD staff on holiday at the same time, as Ryanair found out with its pilots recently!
  • Look again at your Letter of Engagement to ensure any new arrangements are accurately reflected.

It won’t be good for them or you, if your clients leave everything until the last minute!

Finally, HMRC has provided an email address to use for further technical support.
Next article in series

22 Feb 2018

MPs start digital currency inquiry

The Treasury Committee has announced an inquiry into the role of digital currencies in the UK.

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