The New MTD VAT Regulations – More questions than answers?

Date Added | March 13, 2018

Don’t get bogged down in too much detail that you miss the big picture.

The final version of the VAT regulations (SI 2018/261) has been passed by Parliament.


The regulations come into force on 1 April 2019.

There are two changes from the draft regulations:

  • Regulation 6: the VAT records (the electronic account) must be preserved using MTD functional compatible software unless the trade is exempt from the MTD regime.
  • Regulation 7: the rules which determine what information must be kept and maintained for each transaction can be varied by HMRC, if it is satisfied that complying with the regulation is likely to be impossible, impractical or unduly onerous.

There are so many questions accountants will need answers to on the details regarding MTD for VAT. Specifically the definitions of what is “functional compatible software” (MTD compatible software), “bridging software” (which is not mentioned in the regulations) and what makes up a set of “compatible software”. Spreadsheets and their relationship with a set of software also needs addressing. All accountants will welcome further clarity from HMRC on these and some consistency on terms used by HMRC such as “electronic form” and “digital links”.

The new regulations also raise a series of questions on applying MTD for VAT for businesses that have exempt supplies, are partially exempt, complex situations, are on particular VAT scheme and organisations like charities who have income outside the scope of VAT now needing to record such income.

What’s clear to us at 2020 is businesses over the VAT registration limit of £85,000 need to address MTD for VAT urgently and more clarity from HMRC will help. In the meantime you should be converting your clients to a cloud accounting package which will encourage digital record keeping and therefore compliance with MTD regulations.

What advice should an accountant give to their clients?

With just over 12 months to go, accountants should educate all “non–compliant clients that are affected” (i.e. they are not already keeping digital records on a cloud accounting package).

A meeting, telephone call, letter or email (whatever is practicable) along the lines of:

“HMRC have issued regulations that will require most businesses above the VAT threshold of £85,000 to keep digital records for VAT commencing in 2019. Currently you are not compliant with the new regulations.

This means that you will have to change the way you keep your books from [outline their desktop package, manual, spreadsheet, etc.] to a Cloud accounting package. This may sound uncomfortable and a bit of a nuisance but Cloud accounting has huge advantages. [Outline a few such as no upfront fee, monthly fee, automatic backups, mobile app etc.] 

Getting information into your accounts has never been simpler [outline photo on mobile, quotes and invoicing etc.] Demo how the app works. This only takes a couple of minutes.

We are experts in a variety of packages. I think you should move to xxxx package and we can help you with training and the implementation.

Do you want me to arrange the transfer of your data to xxx and move you to digital?”

The above text is just an example and you should practice, and you will get asked about the price! Many accountants have gone through the conversion already and pricing of your services will need to be thought about. This will include whether or not you charge a set-up fee, training and support, cloud accounting subscription and data input apps in addition to the preparation and filing of accounts.

In practice I have found most accountants are converting businesses easily to the Cloud and therefore making MTD easier to implement. The price you charge depends on each individual business and how they will adapt to the new technologies. For example, some firms charge a set-up fee to transfer the data from the old software to the new and for training the business to input data. Some firms don’t and just encourage the business to keep digital records from the first day of the new financial year. Some firms simply divide the existing price by twelve and ask the client to pay monthly. There is no right or wrong answer other than looking at the level of support each client requires and working out whether this means additional time or indeed, in many cases, less!

Having clients standardise the input of their sales and purchase information, the use of bank feeds and your ability to see real time information means accountants will streamline the preparation and submission of accounts to HMRC and Companies House. The use of Cloud accounting software, artificial intelligence and data analytics means accountants will be able to spend less time correcting, re-keying or re-entering client data and more time discussing business owners needs and add value to their clients.

There is quite a bit of detail missing from the MTD regulations but that should not stop accountants from seeing the opportunities that arise from the new technologies to streamline their production and focus on giving clients business support and advice. The firm of the future will be just that: Business Advisers.

The full Making Tax Digital Action Pack is included with 2020 Premier Plus and Platinum membership.   If you haven’t already subscribed to the MTD Action Pack, click here to discover the benefits of upgrading your membership.

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Managing Director, 2020 Innovation

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