12 | MARCH 2019
News
Read online at www.proinstaller.co.uk
HOW TO COMPLY WITH MTD
With the first deadline for MTD, also known as Making Tax Digital, upon us, it’s time to
stop asking whether it’s necessary and start focusing on how installers can implement
a solution. Benjamin Dyer, CEO of Powered Now, looks at how to comply with MTD.
MTD is a whole program,
running over many years, to get all
businesses and individuals doing
their tax digitally. The first dead-
line for VAT registered business-
es is 1st April 2019 and all VAT
returns for periods starting on or
after 1st April 2019 must be made
under MTD.
The next business deadline will,
at the earliest, be 1st April 2020
when all businesses with sales
over £10,000 per annum must
submit quarterly profit and loss
returns under MTD.
In this article, we will focus on
complying with MTD for VAT.
Making Tax Digital –
just what is required?
There are two parts to the MTD
for VAT requirement:
• An electronic audit trail of
sales and costs that make up
a VAT return must be kept on
computer
• All VAT returns must be made
using software running on
behalf of the business and that
links to the audit trail. The
software must use the new
“MTD Portal”. The existing web
form for VAT returns which is
currently used by 98% of VAT
registered businesses will not
be available in the future
In other words, all communica-
tions to and from HMRC will be
electronic and everything submit-
ted to HMRC must be justified by
electronic records. Paper records
are no longer good enough, they
must be held on computer.
HMRC communication
HMRC have been very slow
to communicate about MTD and
letters informing VAT registered
businesses only started being
sent in December 2018. The final
letters have been sent in February
2019 so there has not been too
much time to comply.
The result of the communication
delay may be why HMRC are allow-
ing some temporary exceptions to
the rules, which I explain below.
Complying with
MTD for VAT
98% of VAT returns were already
being submitted electronically
through the HMRC web portal,
even before MTD for VAT became
law. However, this was simply re-
cording the “9 box return” and this
web portal will be closed.
In contrast, only 8% of VAT
registered businesses submit their
VAT returns using their own ac-
counting software running either
on their own computers or in the
cloud. These are disproportionate-
ly larger businesses.
Given these figures, it’s in-
teresting to note that the major
distinction when it comes to MTD
will be between those businesses
which submit their current VAT
return from an accounting system
and those that don’t. This applies
whether they run their own sys-
tem in-house or it is run by an ex-
ternal accountant. People using an
accounting system to submit VAT
returns are unlikely to struggle
with MTD. Provided all individual
costs and sales are already entered
into the system there will probably
be nothing further to do.
However, for businesses that do
their own VAT return manually or
get an accountant or book-keeper
to do it, there is more of a chal-
lenge. The critical change is that
VAT registered installer businesses
must put all of their individual
sales and costs into a system with
an MTD for VAT interface. With
the exception outlined in the next
section, they can achieve this as
follows:
• Give detailed records of all
sales and costs to their ac-
countant or bookkeeper who
keys them into an accounting
system. This might mean little
change for the business other
than the cost.
• Either implement a complicat-
ed accounting system or start
using a system designed for
installers. One of several pos-
sible suppliers is my company,
Powered Now.
Remember that
manually adding
up your sales and
costs to produce
the nine-box return
does not comply
with MTD for VAT.
The spreadsheet and the
copy and paste get out
The temporary loosening of the
rules that I referred to previously
is that for 12 months only, HMRC
will allow the sales and costs to be
held in a spreadsheet. The spread-
sheet can calculate the VAT return
and the results can be copied
and pasted into some “Bridging
software” that will submit the VAT
return through the HMRC VAT
Portal.
There are some good reasons
for allowing this. Businesses con-
sisting of multiple companies each
with a VAT registration or partial
exemption from VAT require diffi-
cult calculations not supported by
any mainstream systems. There-
fore, the final VAT return is done
on a spreadsheet.
However, that doesn’t apply to
most installers. The exemption has
been seized on by many account-
ants as a way to effectively get
out of MTD for VAT. And over 50
software vendors have made their
software able to accept copy and
pasted VAT returns.
We think that using this method
is a mistake for most companies.
In fact, we have looked at making
our solution for MTD for VAT able
to accept cut and pasted data.
The work is trivial, but we have
decided not to go down that route.
I explain why in the next section.