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MTD4VAT and the cost of a digital entry

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Posted by: Tony Margaritelli | Last modified on 12/04/2019

MTD4VAT: It’s not the cost of the Software bridging or otherwise that’s a worry but the cost of the digital entries.

I think it’s fair to say that the debate about the increased costs to businesses as a result of the introduction of MTD4VAT has been concentrating on the actual costs of a) the Bridging Software and b) the additional costs being charged to upgrade existing software.

With bridging software available from approx. £30 and a couple for £Nil, this has meant that spreadsheet users could be accommodated for that price and existing software users could continue using the same software and just export the results to the bridging software and file from there thus avoiding any excessive upgrade costs.

As a result, the additional cost argument has subsided so much as to be hardly ever mentioned. However, that was before Accountants, Bookkeepers and businesses began to understand what was actually involved in maintaining a digital entry.

The assumption was that basically nothing had changed as regards the individual entries and it was all about the means of actually filing the 9 boxes but then as we got nearer and nearer to the 1st April and more information came out it became apparent that there were indeed lots of additional work necessary and why? The answer is that Accountants and Bookkeepers had over the years recognised that data entry was time consuming and wherever possible any time saving techniques were to be exploited.

The result has been, for example, waiting for the supplier statement, checking it and then only making one entry for the months transactions. This could mean one entry rather than several or maybe hundreds of individual entries. This technique has been applied wherever possible and it has meant that significant time has been saved. On the sales side it is not unusual to see for a retail business the daily sales added and posted to the records as a weekly or even a monthly total. Surely, this would continue to be acceptable under MTD4VAT? especially if Cash Accounting for Vat has been adopted. Then the following appeared on the ICAEW website:     

“The cash accounting scheme which allows businesses to account for VAT on the basis of payments made and received rather than on invoices continues. Such businesses are, however, required to record individual supplies made and received and creating digital records from bank statements alone will not satisfy the requirements.” 

When I ran my webinar on MTD4VAT questions such as these were put to myself and Julie Green, Vat Consultant at CronerTaxwise and as you can see the answers were the same:-

Q. Further to the question you've just answered about takings - does this also apply to supplier statements? Where statement totals are currently recorded as one total per VAT rate into software, do all invoices now have to be recorded individually?

A. Thank you for your email. That’s correct, businesses are required to record individual invoices received. Creating digital records from supplier statements or bank statements alone will not satisfy the requirements. 

Q2. If on cash accounting for vat in a non-retail business, do invoices need inputting?

A. Thank you for your email. Yes, businesses are required to record individual supplies made and received. Creating digital records from bank statements alone will not satisfy the requirements. 

Q. Summary of bank payments and bank receipts good enough if using cash accounting?

A. Thank you for your email. Unfortunately not - businesses are required to record individual supplies made and received. Creating digital records from bank statements alone will not satisfy the requirements. 

Q. If you have say a Jewson account with 100 invoices.... I believe HMRC are requesting these are individually listed? Many accountants I have spoken to say that is ridiculous.

A. Thank you for your email. The current position is that businesses are required to record individual supplies made and received. Creating digital records from bank statements alone will not satisfy the requirements.  Representations have been made to HMRC but HMRC have not announced any relaxations to the rules yet.

Q. Petty cash transactions, do we have to input each entry or can we summarise?

A. The current rules are that each entry has to be input. Representations have been made to HMRC that this is overly difficult but HMRC have not announced any relaxations to the rules yet 

Q. what about cash accounting

A. The current position is that businesses are required to record individual supplies made and received. Creating digital records from bank statements alone will not satisfy the requirements.  Representations have been made to HMRC but HMRC have not announced any relaxations to the rules yet.

As you can see from just a selection of the questions raised there are no doubt thousands of businesses who are going to find that to fulfil their MTD4VAT obligations costs will rise far more than the cost of the Bridging Software and they will gain nothing whatsoever for the increased cost. Nor for that matter will HMRC because they were paying the correct amount before and they are continuing to pay the correct amount.

The only scenario in which costs will not rise is if the Accountant or Bookkeeper doesn’t pass on the increased costs to the client but that won’t happen will it…

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