CIOT has just published the results of its survey on the use of MTD which makes for interesting reading with amongst other findings 90% of respondent stating that MTD did not reduce errors and the cost of compliance has far exceeded government estimates. The results of the survey are being shared with HMRC and the government, so is the system working in practice?
According to HMRC the whole point of Making Tax Digital (MTD) is to reduce the instance of transposition errors when submitting VAT returns. Longer term the goal it appears would be live time VAT reporting. But is this goal feasible and does MTD work in practice?
The premise is quite a simple one; find a software provider and a package that can transmit date via API to HMRC as part of its VAT reporting facility, Sage for example has this facility as an option in its most current packages, or use a linking API enabled spreadsheet as a bridge to link the accounting package to HMRC. The latter option being almost inevitable for any businesses that need to consolidate VAT reports from various accounting systems or carry out calculations such as partial exemption calculations before submitting their VAT return. Having obtained the correct software to submit returns it should be a simple process.
The issue for many users submitting MTD returns to meet the 7th of January 2020, so anyone with a monthly VAT return or a quarter ending 31 November 2019, however was that the MTD return simply would not submit with a variety of error messages being generated in the process. Of course the natural assumption is that the error must be that of the software provider. In fact the main problem, based on conversations with HMRC’s helpline staff tasked with dealing with MTD returns, appears to have been that HMRC’s own software could not cope with the volume of users submitting personal tax returns on line as well as other users submitting VAT returns. This resulted in HMRC extending the 7th January deadline for returns to 9th January. Following this debacle the next return period for returns ending 31 December 2019 resulted in a number of other errors with HMRC’s system again being unable to cope with the volume of users.
In addition to the above there seems to be many glitches with the system. For example, once businesses sign up to MTD returns submitted by agents, VAT returns submitted using the “old” manual agents account system are no longer visible on the “old” agents account and do not show up on the “new” agents MTD account as they have not been submitted via MTD. Furthermore returns submitted via MTD may be visible to HMRC but might not appear on the agents account for the person that submitted them. In addition HMRC have erroneously sent out demands for returns to be submitted and paid when the return has in fact already been paid and submitted on line.
It certainly seems sensible to ensure that where clients or their agents do not have software capable of transmitting VAT returns using MTD and the client is one of those businesses capable of gaining either exception on the grounds of turnover or exemption from MTD this option is sought; certainly HMRC are now encouraging such groups to “opt out” presumably as it cuts down on the volume of users.
So is MTD in its current format fit for purpose? Software providers have certainly provided a variety of MTD compatible software and bridging solutions however HMRC’s own IT system seems incapable of reliably accepting the information transferred to it on mass at times of high volume use.
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