Last week on 25th March I held another one of my monthly Tony Talks webinars, and I was joined by Julie Green, Vat expert for CronerTaxwise and we discussed in some detail the MTD4Vat process.

We had over 1,000 registrants and believe me an awful lot of questions were asked both during, after and indeed before the actual broadcast.

What struck us both was not the problems accountants were having with registering for their Agents Service Account or the perceived interaction between the Agents Service Account and their existing Government gateway credentials which we were able to deal without too much concern being expressed by the viewers but actually attendees’ incredulity at what exactly was represented by a digital record.

The bugbear seemed to be the fact that under MTD4VAT business and thus our clients are required to record individual supplies made and received, we were being asked.

“Petty Cash transactions: Do we have to input each entry, or can we summarise?” Julie’s answer was “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” and for instance:

“What about if you are paying the 100 invoices and you are calculating your VAT on a cash basis? do you still need to process every one of the 100 invoices?” Julie’s answer was “Businesses are required to record individual supplies made and received. Creating digital records from bank or supplier statements alone will not satisfy the requirements” and further:

“HMRC presumably would not know if you didn’t enter the invoices individually – is there a penalty/view by HMRC if this is not done. We have some clients with thousands of invoices but pay the statement at the end of the month…” Julie’s answer was “HMRC would pick this up during a VAT inspection. There will be record keeping penalties. However, there is a soft-landing period for 12 months for those who try to comply” and:

“If you have said a Jewson account with 100 invoices…. I believe HMRC are requesting these are individually listed? Many accountants I have spoken to say that this is ridiculous.” Julie’s answer was “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.”

How about:

“Talking cash – if it is record keeping – can you have a spreadsheet with the daily total BUT just use a weekly/monthly total for the bookkeeping software e.g. SAGE? Do you just need the daily cash total just for an HMRC visit?” Answer was “The daily gross takings must be recorded in the digital records that are sent to HMRC. If the software is used to submit the VAT returns, keeping the DGT records in a spreadsheet will not be permitted.”

This is just a very, very small selection of questions on the theme of summary entries which incorporated attaching invoices to statement and making one entry to cover all the month purchases from a given supplier to entering one figure for the month’s takings based on ‘phone calls from the client.

A recall at one point having to say that the fact that more work was now necessary was not down to us and basically don’t shoot the messenger.

This is what the record keeping requirements are:

For supplies made:

  • The time of supply.
  • The value of the supply.
  • The rate of VAT charged

For supplies received:

  • The time of supply.
  • The value of the supply including any VAT that is not claimable by the business.
  • The amount of input tax to be claimed.
  • If there is more than one supply on an invoice the business can record the totals from the invoice.

We’re talking about an individual supply here and the ICAEW have also been receiving much of the same resulting in a statement like this: “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.”

It is apparent to me that many, many small businesses will be finding that MTD4VAT will increase the time they spend on their vat and you know what it will have nothing whatsoever to do with the Cloud versus spreadsheet debate and everything to do with a much less grandiose concept of namely what is a supply.