MTD – How was it for you?

MTD – How was it for you?

In his June column, Avalara's Richard Asquith takes a look at how Making Tax Digital has gone so far, as we approach July and the first real deadline for VAT filing

Phew! The first Making Tax Digital (MTD) for VAT filing deadline passed on May 7. It could easily have been a meltdown; engulfed by a no-deal Brexit on March 29, but that didn’t happen, and there were no mass MTD failures. So, let’s give HMRC’s digital team a lot of credit.

It was, however, just a warm-up. As are the next two filing deadlines this month and in July. The real test will come on August 7 when the biggest wave of the 1.1 million-affected VAT registered businesses are mandated to file under the new digital platform for the first time.

The risks for ‘Super MTD Day’ in August are twofold: lack of action by more than 600,000 businesses; and a legacy MTD IT system, which software developers have not been given a full test environment for. I should declare my interests here to be fair. We at Avalara provide a simple, free MTD Excel bridging tool, MTD Filer. So far, it’s being used by over 10,000 users, and my opinions below are based on their feedback to date. Other MTD software and accounting providers may have a different story.

Hundreds of thousands still to act

There are more than two million VAT registered businesses in the UK. But only those over the VAT registration threshold of £85,000 have to switch to MTD digital filings. That is about 1.1 million. However, HMRC cannot accurately identify which businesses fall in the mandated category due to unreliable data. So, it could not shift and lift them into the new MTD environment.

Instead, HMRC have been obliging businesses to come forward and register online to switch to MTD. If they do not, they cannot file on the new digital filing platform. (Which does beg the question: “How will HMRC ever spot a business that should have registered under MTD but has just stayed with the existing manual portal?”)

At the last count by HMRC, only about 300,000 businesses had not yet registered with them for MTD despite the 1st April launch – although most do not need to file a first MTD return until after June. The concern is now that the media coverage for the April 1 go live date has passed, the pace of sign-ups may actually slacken. That makes this big ticking time bomb for HMRC.

IT without robust testing environment

The May filings exposed some IT frailties during the MTD launch process which could yet undermine the big push in August.

Aside from reducing the possibilities for tax payers’ data entry errors on VAT filings – estimated by HMRC at £600 million – one of the other objectives of the MTD project was to consolidate HMRC VAT processing onto a single, modern platform. I’ve heard it said by insiders that some businesses’ records are still held on COBOL language-based systems popular since the 1960s.

The first MTD filings in May have shown this up as some tax payers are getting variable filing data from HMRC via their MTD software or accounting systems. Many have been missing details of old filings and have been getting back inaccurate data. There has already been one significant planned outage of the MTD system in May. And HMRC say they will need two more in June to fix known errors. It will be critical that these work in order to avoid major confusion in July and August as the big wave of filers hits the system.  MTD helplines were already straining in May, with many users reporting over two-hour delays in call answering.

Whilst this scale of software implementations will also bring out hitches, it is the lack of test production environment that has really challenged this undertaking. ERP, accounting and software providers were only given a limited-feature sandbox version of the final MTD platform. Therefore, they are only now being able to test out their solutions fully, using live client VAT data, with filing deadlines and potential fines at stake.

Again, HMRC do deserve to be congratulated for the work done so far. Implementing the biggest overhaul in tax reporting in years in the teeth of Brexit was never going to be easy. But the real test is yet to come. Unless there is a pick-up in MTD registrations then it may not look so rosy in a couple of months.

 

 

 

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