Our first MTD experience - we made it!
posted 15th August 2019
We've heard plenty about MTD for the last year and a half...how on earth does it work, why oh why are we doing it, and are we all ready for it(!!!) On August 7, the first long-anticipated deadline arrived. With echoes of the Y2K bug anticlimax, our computers didn't quite explode, but there have definitely been some glitches.
In the past couple of weeks I have had varied dealings with MTD with mixed results. This has included registering clients for MTD and submitting their returns, and submitting my own VAT return. As a recap, the idea behind MTD is that business' VAT returns will no longer be submitted by manually entering figures into the Government Gateway online account. Instead the figures will be taken to HMRC's Application Programme Interface (API) platform by linking digital records. There are two main ways to do this - 1) having an accounting system linked directly to HMRC's API platform (the accounting system must be "MTD ready"); 2) preparing records using spreadsheets (or downloading your accounting system information into spreadsheets) and submitting to HMRC via "bridging software".
This is compulsory for businesses with UK taxable turnover over the VAT registration threshold (currently £85k) for returns starting on or after 1 April. If you are established overseas, or have otherwise been notified by HMRC that you are "complex", the relevant date is instead 1 October 2019. Apparently TOMS doesn't qualify as "complex" for this purpose, which I found strange.
For more background information, please see our detailed article on MTD and TOMS
The first step regardless of the method used - registering for MTD
Before being able to submit your return via MTD, you must register your business for MTD submissions. This bit was fairly straightforward and is done by following the steps in this link. This gets you up and running once HMRC process the registration and send you an email to confirm. I registered myself and my clients earlier in the month so this wasn't an issue for us, but I understand that those registering later in the month found quite large delays with this process. In some cases this meant that the business wasn't able to use MTD for this return period. Although HMRC have confirmed that they won't be issuing penalties for these businesses, I would advise anyone who has not yet registered for MTD to follow the process ASAP. This should take no longer than 5 minutes and will ensure you are registered in advance of your next return.
Submitting VAT returns via bridging software - API enabled spreadsheets
For clients' June filing deadlines we used a bridging software product. This was incredibly straightforward. The product used involved signing up to the system, and signing in for each of our clients. I imagine that using bridging software as an individual business is perhaps even more straightforward, and quicker. This bridging software system "speaks" to HMRC once you give it your VAT registration and business details and the authorisation.
Most of the businesses I submit VAT returns for are travel businesses, and most use TOMS or have some other complication that a normal accounting system does not "fit" with. This means that spreadsheets are key in preparing their VAT returns, and these businesses either download information from an accounting or booking system into spreadsheets, or use spreadsheets only.
For these returns, I found very little changed using MTD bridging software. The only new step is that, instead of signing into the HMRC account to submit, you sign into the bridging software product and download the API enabled spreadsheet for that return, which should be obvious in the software system. This spreadsheet looks exactly the same as a normal Excel spreadsheet but is able to "transmit" information (don't ask me how!). This spreadsheet is copied into the normal Excel VAT return file, and boxes 1 to 9 are populated into it using standard Excel formulas (remember, all formulas must flow through the set of spreadsheets, and hard coding is not allowed). The submission button should then be obvious and following submission, the system should send confirmation that HMRC has received the return.It took no longer than the "old" process and was pretty seamless.
This process is likely to vary between bridging software products but I would definitely recommend bridging software for any business which currently uses spreadsheets for part or all of its VAT return make-up.
Submitting directly via accounting software
For my own VAT return I opted to submit directly using a well known accounting software package as it promises me that MTD is as easy as ABC. VATNAV is in its first week of business and so is by no means using MTD on a compulsory basis yet, but I thought I should throw myself in at the deep end.
Being a novice to accounting software I wanted MTD to be as easy as possible for me, and as a business with no particular VAT complexity, there is no reason why accounting software wouldn't work. Once I logged into the VAT section of the system, it asked for my VAT number and VAT quarter end date, and for permission to connect with HMRC. This was really easy to do and, having already registered with HMRC earlier that month, the two systems instantly set themselves up and started to "talk" to each other. The only issue here was that, in my case, they seemed to be speaking different languages...
The issue I faced arose from the fact that I have only just registered for VAT. Most business' date of registration for VAT is not the first day of its quarter. Mine was mid quarter - let's say it was 3 June. HMRC had communicated to my accounting software that it wanted a return for 3 June to 31 July, and my software decided to also demand a return for the period 3 May to 2 June. It said that this "fake" return had already been submitted but I needed to mark it as filed. This was clearly a glitch in the system, but it meant I needed to clarify what was going on. This was 5 August (I'm on a July quarter) and given the proximity to the June deadline, there was a 25 minute wait to speak to my accounting software team, and HMRC put me on hold for half an hour before hanging up. I decided to wait until 9 August to give everyone time to recover, and it was pretty easy to get hold of people on the phone then.
Solving the issue was a bit long-winded, because neither HMRC nor the software helpline knew anything about this, and didn't know what would happen if I marked it as filed. Eventually, I decided to click "mark as filed" anyway, and this seemed to get the system back to normal. I waited four working days to phone HMRC to check that nothing had actually been submitted for the fake return. Nothing had. Great! My accounting system was showing the completely wrong information due to the "filing" of the fake return, so I added all the pre-3 June information via the "adjustments" section. (All MTD-compliant system should have this section but I would advise using this in exceptional circumstances only because feedback from others have said it can impact the figures within the system itself).
Anyway, once the system got back on track, submission was really straightforward and I had a receipt emailed to me automatically. I guess the moral if the story here is for your first MTD return, allow yourself plenty of time for any glitches/delays etc...I am very glad I started submitting my return 5 weeks before my deadline!!
What have I learnt?
- If you still need to register for MTD, register as soon as you can. It only takes 5 minutes but this will save you a lot of headache when you come to submit your return.
- MTD is not likely to be complex for most businesses, but you need to find the system that works for you. Bridging software currently seems much more flexible, especially for complexities such as TOMS, but this will vary between businesses and what systems they use and need.
- Submitting via an accounting system is okay in general, but possibly less flexible. Most systems allow "adjustments" to be added to the MTD return before submitting, but you should check how this may impact the rest of your accounting system first, and may need to use this as a last resort only.
- Try to ensure that your first MTD return is submitted in plenty of time to allow for teething issues.
- I probably wouldn't recommend submitting a first ever return via MTD, unless you have to. I am sure that in due course, the systems will work better so that this is not an issue (or maybe I was just unlucky!).
- One tip I did get from HMRC is that, if you are registered for MTD on a voluntary basis, and have decided you would rather not be, there is now a way of cancelling your MTD registration until such a time arises where you need to do so on a compulsory basis.
- MTD is okay actually, and in time may be a much more efficient system than the "old" one.