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Written by FCSA Business Partner, My Digital Accounts
HMRC’s Making Tax Digital (MTD) initiative is still worrying many taxpayers, which in part is down to a misunderstanding as to what is involved.
In simple terms, all VAT returns submitted for quarters beginning on, or after, 1st April 2019 (where the VAT payer’s turnover exceeds £85,000) have to be submitted using HMRC’s new MTD platform. This covers 1.1 million of the 2.1 million VAT returns submitted each quarter. The remaining 1 million VAT returns (those under the VAT turnover threshold) can continue to be submitted using HMRC’s legacy system and submit returns online using HMRC’s government gateway (in practice many accountants will simply move ALL clients to the new MTD platform).
MTD is a challenge for accounting software providers NOT accountants and it is the software company’s responsibility to ensure that their software is MTD compliant. The impact on accountants will be minimal, though it may be necessary to change processes because VAT returns will need to be submitted directly through accounting software. HMRC’s government gateway VAT portal will no longer be available (for companies whose turnover exceeds £85,000)
HMRC currently have 2 methods of accounts and tax submission, either:
HMRC want submission to be directly made via 3rd party software (method 2 above) because the use of such platforms will prevent errors and ultimately streamline the process saving time and money for both HMRC, accountants and, ultimately, taxpayers.
Figure 1: HMRC Current Process
HMRC have built new, high-quality Application Programming Interfaces (API’s) to make integration simpler for 3rd party software providers, which should encourage new and more straight-forward accounting software products.
HMRC have in recent weeks ramped up their efforts to extend VAT MTD pilot schemes with software partners to ensure that there is a ‘transition’ leading up to 1st April 2019 rather than a “shock” – as was experienced with, for example, the introduction of RTI returns or quarterly agency reporting.
Figure 2: HMRC Envisioned Process
My Digital Accounts are recording their MTD journey in a public blog. We believe that sharing our journey openly will increase industry understanding and, hopefully, help other accounting software providers who are on a similar journey.
Our plan is to complete the project by the end of July with a successful VAT MTD submission. The blog currently includes a narrative on workflows and the incorporation of HMRC’s API’s into our software, recording successful tests with “obligations, “liabilities” and “payments”. The blog is updated every 3 days.