The document discusses the implications of Making Tax Digital for VAT (MTDfV) in the UK, including the reduction of HMRC staff and increased penalties for VAT errors and compliance failures. It outlines the benefits of automation in VAT processes, potential risks, and how BDO is assisting businesses in adapting to new compliance requirements. Key components of MTDfV include electronic transmission of VAT return numbers and enhanced record-keeping demands.

1. FOR MORE INFORMATION:
MARK ELLIS
INDIRECT TAXES PARTNER
+44 (0)7813 629 444
mark.l.ellis@bdo.co.uk
Mark has 28 years’ tax experience. He
cut his teeth in VAT in the mid-1990s
assisting businesses to configure their ERP
accounting systems to deal with the EU
VAT Single Market which was introduced
in 1993.
AMIT DEV
INDIRECT TAX TECHNOLOGY LEAD
+44(0)7583 061888
amit.dev@bdo.co.uk
Amit has an IT background and has worked
as an in-house tax manager at different
businesses with complex VAT accounting
affairs, helping them to streamline and
strengthen their VAT accounting/reporting
controls and processes.
MAKING TAX DIGITAL
FOR VAT (‘MTDFV’)
XX HMRC are significantly reducing their
staff/offices and are modernising in order
to be able to be more efficient/effective
at enforcing VAT compliance, ie do more
with less
XX HMRC lose significant amounts of tax
revenue through undetected VAT errors
XX HMRC spend a significant amount of time/
resources dealing with VAT errors.
WHAT ARE THE CURRENT POTENTIAL PENALTIES?
Issues Potential penalties
‘Careless’ VAT error arises Penalty of up to 30% of value of VAT error
Material issue with VAT controls and
processes after providing a ‘clean’
annual certificate to HMRC
Fixed penalty of £5,000 levied on Senior Accounting
Officer (if business is subject to that regime)
VAT return form filed late In the Default Surcharge Penalty regime – a late VAT
payment to HMRC in the next 12 months leads to a
penalty of 2%/5%/10%/15% of the VAT paid late
Sliding scale penalty: minimum £50; maximum of
greater of (i) £1,500 or (ii) 0.5% of VAT due to HMRC
for the period covered by the late VAT return form
Not keeping all required VAT records
(including filing VAT return figures to
HMRC in the new way when required
to do so)
£500 fixed penalty
Not filing a VAT return form
‘electronically’ at all (ie either via the
existing portal or in the new way)
Up to £400 per return
WHY IS MTDFV HAPPENING?

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HB012100
WHAT ARE THE POTENTIAL BENEFITS
OF MTDfV?
Increased automation should mean:
XX Finance/tax teams spending less time
preparing VAT returns thus freeing up
resource to focus on ‘value-add’ activities
XX Anyone in the finance/tax team can do the
VAT return forms
XX Less chance of VAT errors arising
XX Improve detection of potential VAT errors
before filing returns
XX Being able to demonstrate ‘reasonable
care’ to HMRC if VAT errors ever arise
through a better audit trail and a log
of ‘VAT exceptions’ that have been
investigated and resolved before
submission of the return to HMRC
XX Better prepared when MTD is rolled out to
other taxes.
WHAT ARE THE KEY COMPONENTS OF MTDfV?
Component What does it mean in practice?
Box 1-9 VAT return numbers are
transmitted electronically to HMRC
No more manual typing of VAT return numbers into
the HMRC portal
‘Digital links’ between accounting
systems/VAT return spreadsheets
No more ‘copy and paste’/manual entries
Additional VAT records now required
to be kept
This is the detail that many businesses are missing –
additional information now needs to be gathered and
retained in respect of transactions
WHAT DOES THE FUTURE HOLD?
XX Less face-to-face VAT inspection visits
from HMRC?
XX More remote provision of spreadsheets/
data to HMRC for them to run data
analytics?
XX More questions from HMRC about VAT
accounting controls and processes?
XX Less VAT errors from taxpayers?
XX More time for finance/tax teams to carry
out ‘value add’ activities?
XX A need to consider MTDfV upon changes
in the business, eg purchase of a new
company and adding it to an existing
VAT group, implementation of a new
ERP accounting system, a new revenue
stream created, a new input VAT recovery
methodology agreed with HMRC, etc.
HOW IS BDO HELPING BUSINESSES WITH MTDfV?
XX Using the potential adverse consequences
of non-compliance to justify internal time/
external spend getting ready for MTDfV
XX Focussing on achieving the benefits, ie
changing the VAT return preparation
process so that it takes less time (where
possible) and is more controlled (thus
reducing the risk of VAT errors)
XX Identifying the various effective ‘start dates’
for the different key components of the
new law
XX Narrowing down the selection of potential
bridging software providers
XX Getting MTDfV considerations (as well
as VAT generally) built into new ERP
accounting system rollouts
XX Helping to configure ‘for VAT’ a new
ERP accounting system if it is being
purchased anyway
XX Spotting issues that can be readily/
easily solved
XX For tougher issues, requesting a written
‘Direction’ from HMRC to ‘approve’
continued non-compliance with certain
aspects of MTDfV.