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Countdown to MTD for VAT

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John Stokdyk

Head of Insight
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With just over nine months to go before VAT-registered businesses will be required to start preparing VAT figures for submission under HMRC’s Making Tax Digital (MTD) regime, John Stokdyk sets the scene for an Accounting Excellence webcast to get practitioners ready.

There are some huge challenges ahead in 2019. This is probably the last chance we have to step back to review them in a strategic way and prioritise how we go about tackling them. Using the ideas and techniques that have been used successfully by other Accounting Excellence firms, we want to help you plan effectively for the next 6-12 months and beyond.

Across the profession, the common theme has been the sheer scale of client education needed around the MTD project. Half the accountants attending HMRC’s MTD webinar in June were not confident they could prepare their clients adequately for next April when MTD for VAT goes live.

Even before July’s VAT notice gave us more detail on MTD for VAT requirements, proactive firms like Accounting Excellence Award nominee Inca Caring Accountants were already devoting time and effort to training clients and migrating them to online bookkeeping systems.

According to research from both Sage and AccountingWEB, cloud accounting has become the de facto solution to MTD’s digital record-keeping requirement. More than a third of businesses are already online, and that figure rises to eight out of 10 among 2018 Accounting Excellence practices.

AccountingWEB has already documented the MTD effect that followed George Osborne’s ambitious “death of the tax return” promise in the 2015 Budget. Not only have we seen cloud accounting usage double among Accounting Excellence entrants, there was a parallel surge in expenses capture which doubled from 10% of participating practices in 2016 to 21% in 2017.

Taking a smartphone photo of expense receipts as they are incurred and feeding them directly into a reporting platform that can prepare the necessary quarterly figures for HMRC lies at the heart of the government’s MTD vision, so it makes sense for practitioners to go down that route.

However, the expenses capture trendline dropped back to 17% in 2018, most probably in response to the relaxation of the MTD timetable in July 2017. Once VAT-registered businesses negotiate the VAT filing hurdle in 2019, the government has vowed to wait until 2020 before it makes a decision on the next implementation phase.

There are two potential explanations for this decline. Either the smartphone app has become such an ingrained part of the digital infrastructure within most Accounting Excellence firms that they don’t mention it anymore, or they’ve slowed down their roll-outs because it’s not such an urgent priority now. Which option applies to your practice?

Time to rev up MTD preparations

Taking a breather from MTD is understandable, but if you were paying attention over the past few months the advice from HMRC, professional bodies, software suppliers and AccountingWEB was not to put the project on the back burner and forget it. If MTD has slipped down your agenda, at least you have time to do something about it if you start acting now.

Any large, complex undertaking needs to be broken down into a plan for tackling the different tasks in a systematic way. For MTD, this would start by classifying VAT-registered clients who fall within the regime according to the support they will need. How well informed are they about the general requirements? Are they already maintaining digital records or will they need training and implementation help to start doing so? Or if they aren’t able to cope by themselves, will your firm be able to do it for them?

Your detailed action plan and targets will be determined by the time and resources needed to get each group to their MTD safe place. And there’s not a lot of time to do it.

MTD has been a stimulus for switching clients on to cloud accounting systems, but satisfying HMRC’s digital tax demands shouldn’t be the sole motivation for doing so. Some clients may want to avoid any extra cost or lack the expertise to move away from spreadsheet systems they know and trust, but there are very real benefits for both business clients and accountants in going online.

Doing the education and migration work around cloud accounts while things are quieter now will pay off when it comes to VAT return time next summer.

Clients and accountants should also log in and test out their online tax accounts. This is where they will confirm agent relationships about the different taxes for which the taxpayer is represented and where they will share information on what has been filed.

Progress has been slow on the MTD for VAT pilot scheme, but before long online testing will go public. At that point, clients and practitioners can start MTD filing voluntarily ahead of the mandatory deadline. Encouraging well-informed clients to go early will smooth out the transitional workload for accounts and give practitioners an opportunity to address snags that might catch out the unwary when they have to join in next April.

Beyond MTD

MTD has been a pressing issue for the past 18 months, but don’t make the mistake of thinking that it’s your destination. There’s more to being a digital accountant than having an MTD-compliant solution in place.

The VAT element of MTD is just one component of HMRC’s digital tax project, which is due to take in further online agent services, income tax and eventually corporation tax.

It also may not have escaped your notice, but according to the current timetable, the UK will officially leave the European Union on 19 March, just a few weeks before VAT-registered businesses will be embarking on their MTD-compliant record keeping.

There is no shortage of challenges the accounting profession will have to face over the next 12 months. If you want to pick up strategy and planning skills to cope whatever changes come your way pointers on how to cope, join me and technology champion-turned-Sage product director Chris Downing for our next live Accounting Excellence Talk at 11am on Thursday 16 August.

Register now for ‘How do we solve a problem like MTD to join a 45min session looking practical, real-life examples on how practitioners are planning for MTD and using it as a springboard to longer-term practice development. 

About John Stokdyk

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.

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