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23/07/19 12:27

MTD has gone live, but has anyone noticed?

Unless you have been living in Outer Mongolia for the last two years (which is probably a very nice place), you can't have missed the endless wittering in tax and accounting circles about HMRC's introduction of Making Tax Digital, nearly 10 years after George Osborne, then Chancellor, said we would soon be doing quarterly Tax Returns having all mastered real time online accounting. This was evidence if it were needed that politicians often don't understand what they are talking about, and reality has confronted this starry eyed utopia at every opportunity. We (in practice) did explain that most/many businesses maintained their business records in multiple 'diverse' formats (manual, excel hybrid, retail tills, some bookkeeping software, often covering only sales or purchases, not banking) and that trying to shoehorn non-accountant business owners into an online One Size Fits All policy was never going to work, and so it has proved.

HMRC firstly abandoned Making Tax Digital for Income Tax, or have put it so far into the future that it is meaningless. Instead, they targeted VAT as their starter, on the assumption that VAT traders were already keeping proper records and could more easily adapt to MTD. However, after initially announcing that Excel spreadsheets would not be an option, HMRC discovered that businesses with complex VAT could only do their VAT on excel (no bookkeeping system could cope with all variations of Margin schemes, partial exemptions, flat rate schemes, etc) and that many traders had never used a computer in their lives, let alone a real time bookkeeping product. (How did HMRC not already know this, given the thousands of annual VAT inspections they undertake annually?) After a period of uncertainty, HMRC turned volte face and came out in favour of Excel recording for MTD VAT.

The second disposal was the contemporaneous record. HMRC thinking at the outset was that record keeping would have to be in real time, on the day, picked up by a trader's computer software and unchangeable. Sheer Fantasy. When they realised the impossibility of this (maybe in 20-25 years it will have, as a result of natural organic development, but not by legislated compelled invention), HMRC announced that records only had to be contemporaneous "at the point of delivery", or in other words, when you submit your VAT Return.

The conclusion is that we have gone through incredible mind games, and an HMRC-attempted but failed re-education of businesses, only to arrive at from 1 April 2019, a different DELIVERY system of your VAT Returns. Yes, it has to be supported by an MTD software product, but most small traders (95% of VAT traders) will be using Excel to summarise their previous Manual records, which essentially held the same data. All that has really changed in practice is that you will deliver through MTD software, not the HMRC portal.

In due course, HMRC will fine tune the content of MTDVAT to drive it closer to the original blueprint of contemporaneous real time bookkeeping, but not for quite a few years, by which time the world will have changed again, or you may have had enough or retired..

Phew! For a discussion of what you need to do to comply with MTDVAT, please contact me for a chat (or a rant).

02844 616413

MTD has gone live, but has anyone noticed?

18 English Street Downpatrick BT30 6AB

Written by: Norman Elliott FCA
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