Making Tax Digital for VAT – is your software up to date?

Making tax digital for VAT (MTD) comes into force on 1 April 2019 and VAT registered businesses with a turnover of £85,000 or above will be required to submit their VAT returns via an Application Programming Interface (API) after that date. You will no longer be able to submit using HMRC’s online gateway.

This will have a major impact on businesses not currently submitting their returns electronically.

Whilst all manual records keepers and most of the spreadsheet users will need to implement accounting software from scratch, those already using software should not be complacent as not all systems will be compliant.

Compatible accounting software

Most of the software houses have been preparing for MTD for several months and some are already involved in HMRC’s pilot scheme that started in April 2018. Do not be fooled into thinking that all software is going to be compliant though as many popular accounting software developers for SMB’s have already confirmed that older versions won’t work.

According to the government, more than 130 software suppliers have told HMRC that they’re interested in providing software for Making Tax Digital for VAT. This list is available on the HMRC website.

Sage 50 / Sage 50cloud Accounts

Sage have recently announced that they are ending support for Sage 50 / Sage 50cloud Accounts version 23 in October 2018 so there will be no more updates or upgrades after that point. Businesses running Sage 50 Accounts v23 or older will therefore need to upgrade to the latest version of Sage 50cloud Accounts (currently v24) via a monthly or annual subscription to receive MTD updates and be compatible.

To clarify, Sage 50 Accounts (all versions) will NOT be MTD compliant, only Sage 50cloud Accounts will be.

Sage are also aiming to provide an MTD module to allow submission for users that can’t move to the latest version, but this will require an active contract with Sage.

QuickBooks desktop 

QuickBooks desktop customers will need to be on the latest version (currently 2018) with an active subscription to ensure that all MTD updates and upgrades can be installed as soon as they are released.

Cloud based

All cloud-based accounting software is updated regularly as part of the subscription cost so will almost certainly be compatible by next April. Xero, Sage One, QuickBooks online, FreeAgent and Kashflow, for example, have all confirmed that they will be MTD compatible in time for 1 April 2019, so you shouldn’t need to do anything further to be compliant.

Bespoke desktop software

Some software developers are currently choosing to not develop their software to be fully MTD compliant, so we recommend that you contact your provider as soon as possible to allow plenty of time to research and switch to alternative software if required. 

Bridging software 

This is designed to “bridge” the gap between spreadsheets and provide an API to link with HMRC’s system to allow MTD compliant submissions to be made by businesses without the need to switch completely away from their beloved spreadsheets.

This solution for MTD is proving quite elusive though leading to many “Where is the Bridging software?” questions and a general frustration amongst spreadsheet users. Some software houses have picked up on the general lack of movement in this area and are now developing their own solutions to convert spreadsheet data and import it into their own software to allow onwards submission. 

Group registrations, partial exemption and special schemes

At the present time, these areas are causing most concern for software developers. Issues such as creating a “digital link” between accounting data for Companies in a Group VAT registration and processing partial exemption adjustments are yet to be fully resolved. Watch this space for future developments in these areas.

New penalty regime 

A recent HMRC technical note confirms plans for a points based penalty system for late submission of VAT returns under MTD. Once a business has accumulated a certain number of points then financial penalties will be imposed so it is critical that you address your MTD software requirements to be fully compliant in advance of 1 April 2019.

How can we help?

Bishop Fleming has a wealth of experience in advising businesses on their accounting software strategy and is able to assist with implementing the best solution for you. Please contact your usual Bishop Fleming advisor or a member of our Making Tax Digital team.