MTD Update

Friday, August 17, 2018

Engaging with the digital world Whether we like it or not, we live in a digital age. We’re much more likely to book our holidays online than to visit a travel agent, and we can find reviews and opinions of our chosen resort at the click of a mouse. As the high street banks continue to close their branches more of us turn to online banking, and we can choose when we want to watch our favourite TV programmes rather than arranging our time around broadcast times.

 

HMRC has made it clear that, with a very few exceptions, its future engagement with taxpayers will be digital, i.e. no more paper. There will continue to be a paper-based regime but the criteria for exemption from MTD in general, and MTD-VAT in particular, will be stringent.

Where we need to be now

There are only a few months to go before Making Tax Digital for VAT becomes mandatory for most businesses whose turnover is above the registration limit. For many of us this period will coincide with our busiest time of year, the Christmas holiday break and  a well-earned holiday after we’ve submitted that final Self-Assessment Tax Return. So now is the time to make sure that we and our clients are fully prepared for MTD-VAT.

We need to be fully conversant with the legislation and regulations governing MTD-VAT. HMRC has issued the relevant Notice which sets out in detail the record-keeping and reporting requirements. Although it’s a formal document, it rewards careful reading as there may be some aspects that we’ve previously misunderstood or taken for granted.

Those clients who come within the MTD-VAT requirements will need to keep their VAT records in digital form. Many will be doing so already, but now is the time to persuade those who currently don’t to do so as soon as possible.

Expanding services

Some of us will be looking at expanding the range of services that we offer to include digital record keeping, for both existing and potential new clients. However, we need to be aware of a number of potential pitfalls and take care to avoid them.

Do we have the capacity within our practices to provide such services? Will we need to take on extra staff and, if so, where will we find them? Trained, experienced bookkeepers are likely to be very much in demand as April 2019 approaches.

As an alternative to taking on additional staff, consider developing a collaborative relationship with one or more bookkeeping firms.

Commercial realities

A pessimistic view of MTD-VAT says that it will be an expensive, time-consuming exercise for accountants that will bring little or no benefit to their practices, that their clients will be resistant to the necessary changes and will be unwilling to pay increased fees for the inevitable additional work.

On the other hand, an optimistic view says that the introduction of MTD-VAT will create opportunities to take on new clients, to expand the range of services offered to existing clients and thereby increase the profitability of our practices. (This may sound harsh, but it will also give opportunities to weed out and dispose of difficult and non-profitable clients; anecdotal evidence suggests that clients in general follow the “80:20 rule” in that 20 per cent of the client base causes 80 per cent of the problems.)

It seems logical that the introduction of MTD-VAT will result in a significant number of current “self-submitters” seeking professional assistance, perhaps initially in the form of advice about digital record keeping and reporting under the new regime. The opportunity to develop this into a full professional service is then available. It also seems logical that these potential new clients will outnumber those who choose to dispense with their current agent’s services and go it alone under the new record-keeping and reporting regulations.

To take full advantage of this, it is vitally important to be fully conversant and up-to-date with the MTD-VAT regulations.

Keeping up to date

As mentioned above, HMRC has issued the relevant VAT notice, but there are likely to be further developments before the regulations become mandatory, not least in the field of commercial software. HMRC continues to add to its list of MTD-VAT compliant software, which can be accessed here.

The Association will continue to provide information about MTD-VAT via this magazine, seminars and the Training Portal. HMRC will deliver updates in the form of webinars and articles on its Agent Forum, so it makes sound sense to sign up for alerts from HMRC. Many agents are unaware of the range of support services which HMRC provides for agents; you can start exploring these here.

A word of caution; since it first appeared on the horizon, MTD has generated a fog of misinformation, speculation and misunderstanding. It’s vital to ensure that we have a clear and unambiguous understanding of the legislation, regulations and timescale. As always, beware of the “pub expert” !

CPAA and HMRC

The Association engages with HMRC to ensure that its members’ views and opinions are heard. As well as responding to consultations issued by HMRC, HM Treasury and the Office of Tax Simplification the Association has representation on HMRC’s Agent Strategy Group and the Joint VAT Consultative Committee MTD sub-group. HMRC is currently reviewing its whole agent and professional body engagement regime, and the Association is closely involved in that process. It is sometimes felt that HMRC is more inclined to listen to the “big boys” among the professional bodies to the exclusion of those which, in general, represent smaller practices. It would be inappropriate to comment on that matter, but it’s true to say that the Association’s engagement with HMRC has raised awareness of some particular issues pertaining to smaller practices which might otherwise have been overlooked.

It is important that the Association speaks accurately and comprehensively on behalf of its members, so if you have any particular issues that you think should be brought to the table, then please email Lee Haywood at Head Office; he will pass on your comments to the appropriate representative.