Making Tax Digital for VAT - Frequently Asked Questions

The legislation applies from the 1 April 2019.  However, your first submission will be for the first “whole” VAT period beginning on or after the 1 April 2019.  For example, for a quarterly VAT return and the VAT Quarter finishes on the 28 February 2019, then the next quarter will start on the 1 March 2019 and run to 31 May  2019.  This will be submitted and paid using the existing system.  The next quarter which runs from 1 June 2019 to 31 August 2019 will need to be submitted using the new MTD VAT API.

Yes, there are a few exemptions to this rule.  The first group are those that already are exempt from filing VAT Returns.  

• Those who have religious beliefs that prevent them from using computers

• Those who live in a location that is so remote that they cannot access the internet.

The second group that account for about 3.5% of HMRC’s mandated customers are the ones with more complex requirements.  So, to ensure they have sufficient time to test the service, HMRC have setup a pilot scheme, before they are mandated to join.  

These customers are mandated to join the MTD regime, from the 1 October 2019, and include;

• Trusts

• ‘Not for profit’ organisations that are not set up as a company

• VAT Divisions and VAT Groups

• Government Departments

• NHS Trusts

• Local Authorities

• Public Corporations

• Traders based overseas

• Those required to make payment on account

• Users that are on an Annual Accounting Scheme.

This was announced in the March 2015 Budget and is part of the Government’s plan to implement a digital tax system.

HMRC believes that MTD is making fundamental changes to the way the tax system works and transforms tax administration so that it is:

• more effective

• more efficient

• easier for taxpayers to get their tax right.

This will help eliminate many of the existing paper-based processes.

VAT registered businesses with a taxable turnover above the VAT threshold are mandated to keep digital VAT records and to send VAT Returns using 'MTD compatible' software from 1 April 2019.

No, you cannot manually adjust the VAT Return once MTD comes into force because there would be no digital record of that adjustment. Digital records of adjustments must be recorded.

The regulations state that businesses that fall into the scope of MTD must use functional compatible software to meet these new requirements.

The functions of the compatible software must include:

• Keeping records in a digital form as required by the regulations - the information you record when you issue sales invoices and received purchase invoices.

• Preserving records in a digital form as required by the regulations - you need to keep these records for 6 years.

All businesses using our Pegasus software financial ledgers are already maintaining digital records as required by this new legislation.

That digital format has been defined by HMRC and this is used to digitally communicate with the HMRC website.  A high percentage of VAT Returns are already submitted using HMRC software but is mainly via the HMRC online legacy system that allows users to log on and manually enter their VAT figures.

With MTD, you will not be able to manually enter your VAT figures. You will have to use software that creates a digital record of the VAT Return values that can submitted to HMRC using the MTD VAT API.

That digital format has been defined by HMRC and this is used to digitally communicate with the HMRC website.  A high percentage of VAT Returns are already submitted using HMRC software but is mainly via the HMRC online legacy system that allows users to log on and manually enter their VAT figures.

With MTD, you will not be able to manually enter your VAT figures. You will have to use software that creates a digital record of the VAT Return values that can submitted to HMRC using the MTD VAT API.

You will still need to follow all the MTD VAT rules.  So, once you have made an MTD VAT submission, then you will continue to make those submissions irrespective of your turnover.  The only way to fall outside these rules is if you de-register from VAT.

According to the regulations you need to keep these records for at least 6 years.

Example 1;

Currently, you could simply amend the figures on the VAT Online form, but under MTD this is not allowed.  However, by using the new VAT Adjustment form and “J” Type VAT code, you could amend the EC Member State boxes as required.  This provides a digital record of those adjustments.

For example, you might want to amend Box 2 (VAT Due on Acquisitions from EC Member States) and Box 9 (Total Value of Acquisitions from EC Member States). This new functionality will help those customers that do not need the EC VAT module but, have occasional EC transactions that need to be accounted for on the VAT Return.  If you have many such transactions, then simply buy the EC VAT Module and this will be done automatically. Box 4 will automatically include the reverse value.

Example 2;

If you have a product that you believed to be zero rated for VAT but it should be invoiced at the standard 20% rate. You will need to update your next VAT Return with the value of that VAT. In which case you could credit and re-invoice but if you have been paid, then you may decide to simply accept the VAT cost and adjust the VAT Return accordingly.

With these new “J” Type VAT codes, once you have calculated that VAT value, you can simply adjust the VAT value in Box 1 (Tax Value on Sales) and in parallel with that, you could post a non-VATable Nominal Journal to the VAT Output Control account to bring it into balance.

This is mainly for larger, more complex businesses that have different data locations that they need to bring together.  

HMRC recognises that even though a company may have the software to submit the VAT Return via the MTD VAT API, they may not have all the digital links in place between all parts of their functional compatible software.

HMRC will allow a period of time, called the “soft landing period”, for businesses to get these digital links in place.  For the first year of mandation, that is from 1 April 2019 to 31 March 2020**, businesses will not be required to have digital links between software programs.  Where a digital link has not been established, then HMRC will accept the use of cut and paste as being a digital link.

There is one exception, data prepared in the VAT Return must be digitally available to the MTD VAT API.  This cannot simply be entered manually.

**if the business has been directed by HMRC’s letter that it has a deferred start date for MTD filing to the first VAT period beginning on or after 1 October 2019, the soft-landing for that business will run from 1 October 2019 to 30 September 2020.

MTD for VAT doesn’t change how often businesses have to send information to HMRC. It is all about how that information is being handled, that is the business transactions must be kept digitally and the VAT Return sent through MTD-compatible software.

The VAT Return periods remain the same.  Also does the date by which you have to pay HMRC.

No, the VAT Return has to be paid within 1 calendar month and 7 Days after the end of a VAT accounting period.  For example; a VAT quarter runs from 1 June to 31 August.  The latest submission would be 7 October with a cleared payment on the same date.

The legislation applies from the 1 April 2019.  However, your first submission will be for the first complete VAT period beginning on or after the 1 April 2019.  For example, for a quarterly VAT return and the VAT Quarter finishes on the 28 February 2019, then the next quarter will start on the 1 March 2019 and run to 31May 2019.  This will be submitted and paid using the existing system.  The next quarter which runs from 1 June 2019 to 31 August 2019 will need to be submitted using the new MTD VAT API.

From the 1st April 2019, HMRC has mandated that all VAT registered businesses with a turnover above the VAT threshold must use software to make these submissions monthly.  

So, the way it will affect you is that you must use a different method for submitting your VAT Return in line with legislative requirements, whilst continuing to submit at the same frequency.

Yes, a spreadsheet is a digital record. You can capture the date, invoice number, transaction type, customer details, Net / VAT / Gross and so on. You are keeping your records in a digital form as required by the regulations, however, from an Opera 3 perspective, you already have all of your digital records held in Opera 3 so there is usually no need to use a spreadsheet.

The reason you may want to use a spreadsheet is because the VAT calculation can be very complex.  You may need to do complex calculations outside your accounting system.  HMRC explicitly states “There may be points during preparation of your VAT Return when calculations will have to be made outside of any software you use to keep the digital records”. Therefore, you may need to take your VAT records out of Opera 3, do that calculation and enter the results back into Opera 3 (by using a VAT adjustment posting or the MTD import routine).

Some examples of where you may want to do this:

• Partial Exemptions – Where some of the supplies are exempt and where some of the supplies are taxable

• Flat Rate Scheme – Where VAT payable to HMRC is less than the usual rate, but where you do not normally reclaim VAT on purchases

• Cash Accounting – Where VAT is payable to HMRC when your sales and purchase invoices are paid

• Retail Scheme – Where you do not account for VAT on each sale, but at the point of creating the VAT Return and so on.

Further information may be found on the HMRC VAT Notice 700/22 – MTD for VAT, Published in July 2018.

Opera 3 records all sales, purchases and expenses in a digital format and Opera 3 is able to prepare the VAT Return at the end of the VAT quarter.  However, the business wants to use a spreadsheet to calculate adjustments such as a Partial Exemption calculation or working out road fuel scale charges and so on.

Information from Opera 3 such as inputs, outputs and totals, are transferred to the spreadsheet via a digital link transfer (or could be manual). Pegasus XRL could be used to collate this information from Opera 3 and digitally transfer this information into the Excel spreadsheet.  The spreadsheet uses this data to calculate any of the adjustments that are required.

Once you are happy with the calculation the Adjustment Value in that spreadsheet can be manually entered into Opera 3 - via the VAT Adjustment option using those “J” Type VAT Codes.  This means that your VAT Return will now be correct and that there is a digital record of that adjustment posting.   The key point here is that there is a digital record of that adjustment so you can then use the 'MTD VAT API' to submit that return digitally back to HMRC.

The reason this is allowed is because the calculations in the spreadsheet are not required to be kept digitally in the functional compatible software, in other words they do not need to be stored in Opera 3. Therefore the adjusted figures can be posted into its functional compatible accounting software. However HMRC does encourage that transfer be made using a digital link for these processes rather than a manual input, because that reduces the risk of errors. But it’s not a mandatory HMRC requirement.

No, the relevant software features are built into the Opera 3 SQL SE 'Windows service' program. This is installed with the server software.

Authorising Opera 3 for MTD VAT Returns is done using the MTD VAT Centre.

For ‘Submit by agent’ companies - controlled by that option on the Company Profiles form, only one user needs to be authorised to submit MTD VAT Returns. The same authorisation information will be shared by all Opera 3 users in those companies. The first Opera 3 user who completes an agent authorisation for a company will in effect authorise all Opera 3 users.

How the agent MTD VAT authorisation works:

• An agent must set-up an agent services account (ASA) with HMRC.

• After setting up an ASA the agent is issued an agent reference number (ARN).

• Using HMRC online services, the agent then links their clients to their ASA (they link to their client's VAT Registration Numbers).

• In order for the agent to then process a client’s VAT data within Opera 3, they must authorise their software using the MTD VAT Centre.

If the ‘Submit by agent’ option is not used, each user who submits VAT Returns will need to be authorised for each Opera 3 company they work in.

Opera II users will need to upgrade to Opera 3 in order to be MTD compliant. There will be no new release for Opera II for MTD.

You must have Pegasus Scheduler installed and configured to use MTD in Opera 3. However, you don’t have to use it to schedule tasks in Opera 3. Installation instructions are included in the Opera 3 Installation Guide.

This is unlikely; it depends on what each computer will be used for.  

There are two parts to Pegasus Scheduler - the Server software and the Client software.

MTD for VAT uses the Scheduler Server software to communicate with HMRC. The MTD Centre uses a program called Scheduler.dll that is compiled using .NET Framework 4.7.2, which is installed as part of the Opera 3 Client installation, to communicate with the Scheduler Server. Emails sent via the Scheduler Server for Debt Management and Email Payslips also operate in the same way.

The MTD Centre form does not require installation of the Scheduler Client software on the Opera 3 Client machines. Only Opera 3 Client computers that need to use the 'Task Scheduler' to schedule tasks requires the installation of the Scheduler Client software.

The initial configuration of Pegasus Scheduler to create the database, define the email server and so on requires the Scheduler Client software, so the Client software must be installed on at least one computer. We recommend this is done from the Opera 3 Server computer.

The Opera 3 Server requires the following:

• Microsoft .NET Framework 4.7.2+

• Microsoft SQL Server

• Opera 3 Server (2.60.00+)

• Opera 3 Client (2.60.00+)

• Scheduler Server (2.20.00+)

• Scheduler Client (2.20.00+).

After installing the Scheduler client software you will be able to configure it using the Set Options screen in the Scheduler Editor in Opera 3.

All Opera 3 Client computers require:

• Microsoft .NET Framework 4.7.2+

• Opera 3 Client (2.60.00+)

You must have IE11+ to authorise your software with HMRC.

Opera 3 Client computers where the Task Scheduler will be used require:

• Microsoft .NET Framework 4.7.2+

• Opera 3 Client (2.60.00+)

• Scheduler Client (2.20.00+).

No, you cannot just switch on MTD.

You will need to commit those VAT transactions before you turn on MTD - you will not be able to activate MTD if there are any uncommitted VAT transactions prior to the Start Date of your first MTD VAT Period.

We recommend doing a VAT Tidy but remember that you need to keep 6 years of VAT transactions.  You can do all of this now as you don’t need to wait until you have upgraded your software.

You will not be able to activate MTD if there are any uncommitted VAT transactions prior to the Start Date of your first MTD VAT Period.

You should switch on MTD at some point in the first VAT period where the MTD for VAT rules apply to the business.   You will need to activate MTD within your copy of Opera 3 but you cannot do so if the final VAT Return before MTD has not been committed.

For example, say the previous VAT quarter ended on the 31 March. You could have until the 7 May 2019 to submit and pay the VAT Return, so if you don’t commit your VAT Return until 7 May. That would be the earliest date you could tick the MTD for VAT box and enter the MTD Start Date on the Company Profiles screen.

However, you don’t have to activate MTD then, as the last date would have to be on or before the last date in the current VAT quarter.  In this example that would have to be on or before the 30 June 2019.  Essentially, any time in that VAT Quarter, after you have sent and committed the last VAT Return under the existing regime.

This is unlikely as the payroll upgrade will be completed before the MTD for VAT rules apply to business.

You should switch on MTD at some point in the first VAT period where the MTD for VAT rules apply to the business.   You will need to activate MTD within your copy of Opera 3 but you cannot do so if the final VAT Return before MTD has not been committed.

No, committing a VAT Return through Opera will not affect your day-to-day running of the business.  It means you will just be using Opera 3 to submit your VAT return.

Yes, there is an option to consolidate the VAT information from multiple companies to allow for a single group MTD VAT submission to HMRC.

There will be a check to make sure that the VAT Registration numbers for each of those companies are the same.

On the Company Profiles screen there is also an option to enter a consolidation company code. This is the company where the VAT records will be consolidated into.

In the parent company, you will see each subsidiary company's VAT Return figures consolidated in the MTD VAT Centre screen with the overall group totals that will be submitted to HMRC.

Special consideration and care is needed when doing data back-ups and restores, in particular when to do them.

We recommend a back-up is taken immediately after a submission.

When restoring you must at least consider the following:

• If you are restoring data where the submission has already been processed, note this data can only be used for reference purposes

• If using consolidation, what are the current states of all the companies being restored and any linked company not being restored.

Existing Opera 3 users will need to upgrade to the version 2.60.00+,  which contains the software features for MTD.

No.

Opera 3 prevents the figures from being amended manually after MTD for VAT is switched on. You cannot manually adjust the VAT Return because there is no digital record of that adjustment. Those figures must be generated from the underlying digital VAT records.

Opera 3 now allows the creation of a new “J” Type VAT code, which is designed to be used when VAT Adjustments are posted. This allows boxes on the VAT Return to be adjusted. These VAT Adjustments do not update the ledgers.

The VAT Adjustment form in Opera 3 now allows a new “J” Type VAT Code. This “J” Type VAT Code can be used in the VAT Adjustment form so that the boxes on the VAT Return can be adjusted.

If you don’t use the EC VAT module but purchase items from an EU supplier, this would have to be posted as a Home Country transaction and update Box 7 (Total value of purchases excluding VAT) and Box 4 (VAT reclaimed on purchases).  However, the EC VAT boxes are not updated.

Currently, you could simply amend the figures on the VAT Submission form, but under MTD this is not allowed.  However, by using the new “J” Type VAT code on the VAT Adjustment form, you could amend the EC Member State boxes as required.  For instance, you might want to amend Box 2 (VAT Due on Acquisitions from EC Member States) and Box 9 (Total Value of Acquisitions from EC Member States). This provides a digital record of those adjustments.  

This new functionality will help those customers that do not need the EC VAT module but, have occasional EC transactions that need to be accounted for on the VAT Return.  If you have many such transactions, then simply buy the EC VAT Module and this will be done automatically.

Yes, you need to sign up with HMRC to use MTD.  You can do this from the MTD VAT Centre in Opera 3, or use your web browser to navigate to the Sign-Up page on HMRC website for using software to submit VAT Returns and follow the instructions.

You must wait until you've submitted your final pre-MTD VAT return (and paid it) before signing up for MTD.

The reason is, once you've signed up, you will not be able to submit a pre-MTD VAT Return - your next VAT Return will be your first MTD VAT return.

You need to have MTD compatible software to digitally hold the VAT records and submit the VAT Return to HMRC using the new HMRC MTD VAT 'API'.

Opera 3 (2.60.00+) uses the new HMRC MTD VAT 'API'.

You can continue to work in the same way under MTD.

• Each Government Gateway user must have their own Opera 3 user login ID.

• When they run Opera 3 and use the MTD VAT Centre for the first time after MTD has been switched on, they will each have to complete the authorisation process.

• During the authorisation process, they will enter their Government Gateway credentials in order to grant their Opera 3 user authority to process the company’s VAT data using their Government Gateway credentials. Each Opera 3 user must complete the process using their own specific Government Gateway credentials to perform authorisation for their associated Opera user ID.

• Each Opera 3 user will then be able to submit VAT Returns to HMRC as required.

The system must have the following installed;

• Microsoft .NET Framework 4.7.2+

• Pegasus Opera 3 (2.60.00+)

• Pegasus Scheduler (2.20.00+)

• Microsoft SQL Server (Full or Express edition)

• Internet Explorer 11+.

HMRC has implemented version 1.1 of Microsoft’s Transport Layer Security (TLS) and advised the developer community to implement it in MTD for VAT compliant software when communicating with HMRC.

This recommendation requires Pegasus to embrace the Microsoft .NET Framework version 4.7.2.  This will future-proof further upgrades of TLS versions without the need for further software changes in Opera 3.

Yes.

The Opera 3 Client software installation contains a Scheduler.dll file which is compiled using Microsoft .NET Framework (4.7.2). This means that even if the Scheduler client software is not installed on a workstation, if an Opera 3 client is to be installed, it must have Microsoft .NET Framework (4.7.2).

After installing Microsoft .NET Framework (4.7.2), to be sure that it has installed correctly, check the following key on the Windows registry on the computer: HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\NET Framework Setup\NDP\v4\Full.

More details can be found at: docs.microsoft.com/en-us/dotnet/framework/migration-guide/how-to-determine-which-versions-are-installed.

If you get an error message when using the MTD VAT Centre, for example one that mentions AZURE failures or technical codes, this is likely to be caused by an issue with HMRC’s API.  We recommend that you close the MTD VAT Centre, wait for a few minutes and then re-open it and try again.

If the Pegasus Copy Company utility has been used on site, for example for a software test, the copied company will also have the same VAT Registration Number as the live company.

Before switching on Making Tax Digital for VAT you MUST anonymise the VAT Registration Number in the copied companies, for example changing it to '999999999'. If this isn't done the test company will be considered a subsidiary company of the live company and VAT values will be consolidated.

No.  Currently you will be merely submitting the figures in the 9 boxes on the VAT Return (and information that identifies your business).

HMRC states that it is acceptable to create XML or CSV import files that can be uploaded.  These are deemed to be digital. Pegasus will provide an import facility for those situations where VAT box values need to be imported into a VAT Return.

For example; a customer has an Opera 3 company and uses another accounting system for a second company. Both use the same VAT Registration Number.  They need to send one VAT Return covering both companies.  

The Import option makes this possible. It will import the 9 boxes on the VAT Return and add those figures to the VAT Return within Opera 3, ready for onward submission to HMRC. It’s digital, because the 9 boxes imported come from the digital records held in the other accounting system.