Powered Now, UK Field Service Management App looks at the Penalties for failing to file MTD for VAT returns.
Making Tax Digital and the role of your accountant
MTD & your accountant
MTD & your accountant
MTD, or Making Tax Digital is going to have a profound impact on EVERY business over the next few years. But it’s not only businesses, it will also make a big difference to the way that accountants support their clients. Benjamin Dyer, CEO of Powered Now, looks at how MTD will impact the relationship between clients and their accountants.
With the MTD for VAT deadline of 1st April, 2019 now long gone, the race is on to prepare both the whole accounting profession as well as many small businesses for the next deadline. This is “ITSA” or Income Tax Self Assessment and the MTD deadline when it will become compulsory is from April 2023. It is pretty unlikely that this deadline will be put back further so many businesses need to start giving some thought to Making Tax Digital but may not have done so. As a result, we are probably in for a bumpy ride and this could be a painful time for trade businesses like plumbers, gas engineers, electricians and builders.
Recap on Making Tax Digital
Just as a reminder MTD is HMRC’s initiative to bring all record keeping relating to tax onto digital platforms. Their argument is that in the long term it will be better for honest businesses while they will collect more tax – known as closing the “tax gap”. Critics argue that it will be much more work for everyone and is being badly implemented to boot.
The specifics of MTD for VAT were twofold:
All quarterly VAT reporting needs to be done through new technology. The old web form has been dropped and software that talks to the new MTD portal must be used for VAT returns.
There must be a link from the individual records to the VAT return and these records must be kept on computer.
MTD is a rolling program and MTD for VAT was always just the first of the major initiatives that will end up impacting virtually all businesses. The one after VAT is likely to be quarterly profit and loss reporting for all businesses with annual sales over £10,000. MTD will also apply to individual tax returns but that is currently on hold.
If you would like to know more about MTD and how it will impact your business, visit our MTD site where you can find useful information and articles.
The state of things
AccountingWeb and system supplier Quickbooks undertook a survey of 271 accountants a couple of years ago and the top concern, at 35% of responses, was client’s poor record keeping. The big danger with data being plugged straight through to an MTD return, with little opportunity for review, is that the proportion of wrong returns will soar, at least initially. Given that errors are likely to be in both directions, this is somewhat worrying. Businesses could either end up over-paying which is bad for cashflow or underpaying and then getting an unexpected catch up charge later which is also bad.
Of course, you might expect accountants to regard their clients as incompetent – it’s a temptation that we all have. Accountants might do better to look at themselves. A survey of accountants a short time before the first MTD deadline found that 25% of them hadn’t even heard of MTD – that survey was by accounting software company Xero.
How do you work with accountants?
The critical thing in determining the way to address MTD is to start with the way that you currently work with your accountant (if at all) and how you want to work in the future.
There are broadly two ways of working:
You submit your own returns to HMRC.
You pass information to your accountant and they do the returns for you.
It’s likely that as each MTD deadline arrives you will continue to work in a similar way. The big difference is that your sales and supplier invoices and expenses must all be recorded digitally. It will be against the law to simply total up the amounts of VAT, sales and costs. They must be put into a system by either you or your accountant. That’s the big change.
There is one important point to note which is that at the moment the detailed information can be entered onto a spreadsheet and then “bridging software” can be used to submit it to MTD, at least for VAT returns. However, it’s not clear how long this concession will be available.
How ready are accountants?
The lack of readiness of accountants mentioned earlier is worrying as many trade businesses are likely to be looking to their accountants for how to comply with MTD.
In fact, there is a further worry. Accountants are professionals and charge by the hour. They are not set up for lots of calls and a sudden surge of implementation work.
Unlike other companies, most do not have banks of people to take incoming calls. Nor are they usually backed with a great CRM (Customer relationship management) system to track everything and make sure nothing falls through the cracks. Given the scale of change needed, the limited time and the education that needs to permeate out into the market, there is a big danger that accountants will simply get overwhelmed. This also applies to software vendors, but given their history, help desks etc. the issue is likely to be more manageable.
The role of accountants
The MTD system has been designed by HMRC with the role of accountants in mind. In HMRC’s parlance, they are “agents”. That is, they can act on behalf of a business. This means that they can make submissions under the new regime on behalf of businesses and will be able to do all types of MTD return in the future.
One of the problems is that this is yet more complex to set up. Trade businesses can authorise HMRC to allow agents (accountants or bookkeepers) to both send and get information on their behalf. Once that is done, the agent is able to sign up the installers business to any particular MTD service, and then use their own software to interact with HMRC on the installer’s behalf.
So, there is a two- step process while it is a single step when installers do things entirely for themselves.
Complying with the law
MTD requires at least one system and there are really only three ways of complying with the law:
Run a system under your control that enables you to capture all the information you need for HMRC returns and submit it to MTD from your system.
Use a system to capture all the necessary information and send it to the system used by your accountant or bookkeeper, then they send it to MTD.
Send copies of all of your paperwork to your accountant or bookkeeper and they key it into their system and submit to MTD from there. This may come with a higher price tag and has the maximum danger of accountants being unable to cope.
Making your choice
At the moment, a minority of trade businesses use accounting software under their own control for their HMRC calculations. I suspect that implementing accounting software isn’t a top priority.
However, it may be possible to kill two birds with one stone as businesses that do not use a computer system to manage their business will find big benefits if they start to do so. MTD could be the reason for adopting such a system but the benefits might be the reason for being pleased about the initiative. Benefits realised should be:
Much less time spent on paperwork.
More control: a better view of finances, what’s owing etc.
Replacing bits of paper everywhere with a single system where everything can be easily found.
Providing clients with a more professional impression.
Like everything in life, new software introduces costs, problems and issues, most of which can be addressed or reduced:
The new software might not fit the business – that’s why it’s important to spend time checking out the software including trying it for yourself, seeing demos and talking to other customers.
You may need a lot of hand holding while getting to know the software so it’s vital your supplier is both available and willing.
The important point to consider is that a system can be implemented to make it easier to submit data to the accountant as an alternative to posting paperwork with the attendant inefficiency and expense.
Every trade business should be considering their plans for MTD. If they do things themselves, they could turn to a specialist trade-based software company like my own, Powered Now, or one of our competitors. Most such system nowadays can also automate the feeds to accounting systems. If they already have an external accountant to submit their HMRC returns, they should be talking to them as soon as possible. My strongest advice would simply be this – don’t get caught out at the last minute.