MTD (Making Tax Digital) is the largest overhaul of the tax system the UK has ever seen.
The magnitude of the task means that recently, HMRC has seemed to announce that some key parts of the MTD rollout will be slightly delayed.
So what are the key impacts for bookkeepers? What should you be saying to your clients at the moment, and how long do you now have to prepare?
Do you file for clients or do they file for themselves?
“The first key element is to know whether you are filing returns on behalf of a client, or whether clients are filing themselves,” says Brian Palmer, Tax Policy Adviser at AAT and CEO of Tax Policy Advice. “If it’s on behalf, then you will need to set up an agent services account with HMRC .”
If you’re just working with the client’s own software (i.e. they are doing the actual filing themselves, “then as long as the client has been registered with HMRC to file MTD-compatible returns you can proceed as planned,” says Palmer. “Just be sure that your client software – or practice software – is MTD-compliant.”
Benefits of MTD
There has been “a surprising amount of resistance to MTD given that it makes so much sense,” argues Karen Lowen, Director, Dod-dle. “However, no-one likes change and for the smallest traders keeping records digitally can seem very daunting.” Moving to a digital tax system makes sense in many ways, Lowen argues; “firstly, HMRC systems are becoming somewhat antiquated and have had so many add-ons and changes over the years that it’s about time the whole system is overhauled.
Also, we’re living in a digital age, whether we like it or not. Look at the rise of smart technology to see how life is changing, with new technology favouring the ‘digitally savvy’.”
MTD for VAT
MTD VAT has a mandatory deadline of April 2019 “and is already running in private beta.” Lowen’s software Dod-dle “is hoping to join the beta testing soon with its own MTD for VAT products to make it straightforward for the majority of small business owners.” MTD for self-assessment has no mandatory deadline as yet, “but a voluntary scheme will be available prior to any future deadline.
Again, Dod-dle will be launching its MTD product once the system is available to the public. We’ve already taken part in initial trials with HMRC with good results.”
The key message is that the move towards digital is inevitable, and it makes sense to be prepared
What is the bookkeeper’s responsibility?
HMRC has publishing a list of software that is MTD-compliant, “but don’t wait and see what they come up with,” Brian Palmer says – “check now that you’re compatible. It’s not HMRC’s responsibility, it’s the bookkeeper’s. Liaise with your software provider to see when they’ll be ready.”
“There’s no VAT client software listed yet because no one has done it yet; at the moment, there are just a few listed which are for income tax.”
Bridging the gaps
For spreadsheets, “it’s likely here that you’ll need bridging software. In effect this will be an API-enabled plug-in module, which will extract data from the nine relevant boxes that are required, and link it to enable it to be filed with HMRC.” Essentially, this is programming that can take data straight from the spreadsheet and ensure it’s in the format that HMRC can read. “The likelihood is that there be standalone solutions that might (for example) charge £10 a time for using it. Or, it might be built into the practice software.”
Again, it’s important for bookkeepers to know what software is being used, and clarify whether you’re filing on behalf of the client or whether they are filing themselves. “Be reassured though, that if you’re working on third party software with up-to-date licences, there’s a reasonable chance that it will work.”
Start using digital systems
Is it true that some sections of MTD are being delayed? Can bookkeepers relax a bit?
“The commitment to make MTD compulsory for VAT-registered companies is still happening according to schedule, and will be rolling out next year,” Palmer says. “However, it’s true to say that mandation for the income tax side has been taken off the table for the time being. But, ministers and HMRC assure us that it will be back. The earliest this can happen is now 2020, but realistically it’s likely to be 2021/22.”
The key message is that the move towards digital is inevitable, and it makes sense to be prepared. “If you have a serious business then you will want to know what your cash flow is, who owes you, who you owe, what funds you currently have and so on,” says Karen Lowen. “This information will only be available instantly if a digital bookkeeping system is used.” Dod-dle “produces software that avoids accountancy jargon, offers help and advice and has pre-defined nominal ledgers which guide the user to help choose the right category for their expenses or sales.”
Start-up businesses should look to use digital systems from the beginning, Lowen argues. “It doesn’t make sense to learn a manual system only to have to retrain again in a few years.”
Stay on track
As far as bookkeeping is concerned, it’s not – yet – time to panic. “If you’re using one of the main software solution providers, then if it’s client-based you can be confident they will be able to get VAT returns ready and be MTD-compliant,” says Palmer. “The way it will be filed might change, but this will be ‘behind the scenes’, Palmer explains: “you probably won’t notice any difference.”
The difference if you haven’t renewed the licence recently. “In that case the software might not be API-enabled because it was designed before that was available. So – you might need to consider either updating the licence to be MTD-compliant or alternatively, go back and ensure you can still export the software. There are many people using old versions – if it doesn’t have a current licence it’s highly unlikely it will work.”
Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.