VAT preparation in accordance with the latest VAT 700/22 regulations has been available as a pilot service for around half a million businesses, so long as their reporting and accountancy operations have been “up to date and straightforward”. This has allowed for testing of ‘Making Tax Digital’ (MTD) readiness for both HMRC and those bodies wishing to ‘dry run’ their own upgraded systems.

From 2019’s VAT reporting deadline for companies using third party accountancy services or proprietary software, being MTD ready is applicable to most other business types over the coming months. There is, however, a transition period for organisations employing traditional accountancy methods, involving spreadsheets from which they previously may have copied and pasted data into HMRC’s VAT reporting system.

Nevertheless, ICAEW research results published in September of 2018 claims that over 40% of businesses affected by VAT MTD obligations are not yet aware that they have to be ready imminently.

So who needs to get MTD VAT ready fast?

Who Is Affected by MTD in 2019-2020 by the VAT 700/22 Notice

Since October 2018, being MTD compliant has been possible for:

  • Sole traders or companies that are up to date with their VAT records. Exclusions include those who are part of a VAT group or VAT Division
  • Companies and partnerships trading with the EU, based overseas, who submit VAT Returns annually, make payments on account, or use the VAT Flat Rate Scheme
  • Newly VAT registered organisations who are unable to join at this point are not subject to HMRC liability
  • Customers with a default surcharge within the last 24 months were able to join the pilot

From early 2019, roll out will continue to:

  • sole traders and companies who are not up to date with their VAT records
  • Flat Rate VAT scheme users
  • Newly VAT registered businesses who have not submitted returns previously
  • Partnerships and E.U. customers
  • In Spring the pilot HMRC MTD VAT preparation project will be available to MTD customers who have been deferred and is mandated for all others from April.

From October this year, the latest HMRC MTD system becomes mandatory for customers that have been deferred.

HMRC states that the 6-month deferral applies to the following categories:

  • trusts
  • ‘not for profit’ organisations, not set up as a company,
  • VAT divisions and groups
  • public sector bodies required to submit a VAT return ( e.g. Government departments, NHS Trusts)
  • local authorities
  • public corporations
  • overseas based traders
  • those required to make payments on account
  • annual accounting scheme users.
    While this deferral “will apply to around 3.5% of mandated customers”, this could leave thousands of entities who are not MTD compliant and subject to financial penalties.

Getting MTD Ready Yet?

For quarterly VAT returns, many businesses use their GOV.UK website portal. However, from April 2019, qualifying VAT registered businesses, as described above, will have to use accounting software that is HMRC MTD API compatible.

In other words, relevant bodies will have to invest in new accounting software that includes code that communicates with HMRC’s API software tool.  This could mean an upgrade of standard accountancy software packages, so that there is inclusive code that ‘speaks to’ HMRC’s gateway, or investment in bridging software that allows data to be submitted from spreadsheets and paper-based systems, including any digital links to source data. Companies outsourcing their accounts management to professional accountancy firms needs simply check their agent is MTD ready.

38% of UK businesses are now using the appropriate, compatible accounting software, according to Accountancy Age.  However, given that many have not started preparation, time is of the essence given the need to review existing accounts management and reporting systems, then evaluate, purchase, implement and test new software packages in time for their MTD deadline.  The later companies leave this process, the more rushed they will be, leaving them open to greater risk of purchasing inappropriate software, lack of adequate staff familiarisation and late submissions.

One fifth of organisations who have purchased software, says ICAEW, who need to implement their accounting software have not yet made any preparations to do so.  This is worrying and no doubt somewhat explicable in terms of not having a handle on technical aspects of the software they have at their disposal. While the debate still rages over delaying mandatory roll out, businesses should seek to avoid any penalties, should HMRC fail to listen to the House of Lords requests to do so and the many tax professionals appealing the deadline.

Two Routes to Getting MTD Ready

  • For companies that use an existing proprietary accountancy software package, (e.g. Quickbooks, Oracle, Sage, etc.),a simple upgrade to the latest version will have ‘bridging software’ that can communicate with HMRC’s MTD API.

For companies who use spreadsheets and paper-based accountancy systems, all data needs to be collated into a specific VAT reporting spreadsheet and software be invested in that acts as a bridge to the HMRC API.  This bridging software will have functional compatibility and be MTD API enabled, such that the two organisational interfaces can transmit and receive information as necessary

5 Steps To MTD Readiness

1. The first step to being MTD ready is to review your current IT systems and their platforms, before evaluating potentially compatible software. You may need to liaise with your IT partner to check if they can offer programming code to drop into current software to open the communications with HMRC’s VAT reporting system.

2. If your IT systems are all managed in-house, as are your VAT submissions, then your IT leadership will have to review the API in order to design functionally compatible code and implement this, or outsource code design and then integrate to your accountancy software systems

3. Next, having bought your bridging software, MTD ready accountancy package, or having outsourced software programming to a consultant, is to sort your new HMRC VAT submission login. You will of course, need to share this with your accountancy partner, where appropriate.

4. Where data is stored and managed at different locations or in a variety of formats, this will need centralising and importing to your software, or collating into a VAT reporting spreadsheet, which is then used to populate your software, prior to HMRC submission. Ideally, this should be ahead of time in order to test for problems

5. Successful submission should be followed up with staff training and guidance documentation updates.

If your VAT filings are complex, we recommend you hire an MTD Consultant for your VAT preparation.  While we obviously have an interest in making this recommendation, we also recognise the potential costs of late submissions and non-compliance for businesses concerned with keeping their costs down.  If you have any doubts or questions on this, Meer and Company’s provide more information in other MTD articles, here: What is MTD and MTD Compliance . Alternatively, call our friendly, efficient MTD accounting team to ensure your VAT submission goes ahead in good time and without the headache.

For more detail on Making Tax Digital, also see the following Meer & Co. article:

How To Be VAT MTD Compliant