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Making Tax Digital for law firms – an update from HMRC

Making Tax DigitalThe deadline for Making Tax Digital for VAT has now passed.

Many legal practices are fully prepared for the new era via their updated practice management software. However, this is not the end of the line as far as tax digitisation is concerned.

HMRC has put together a series of helpful notes and links. These describe both the ongoing process for VAT and what is around the corner for other areas of taxation.

Take a look at the main points as described in an excerpt from their recent circular below.

Breaking news…
welcome to ‘V day’ (that’s VAT mandation day)!

Today is the day that many of us have been working towards, for many months, Making Tax Digital for VAT mandation day!

We’d like to take this opportunity to thank every one of you for, your contribution towards, getting us into a very strong MTD VAT software position. Together, we’ve seen many ups and downs over the last year but we hope you agree, this is a  fantastic example of what we can achieve when we work in partnership.

More than 200 products have now successfully submitted an MTD VAT return in live and are available for purchase now. Many more are in the pipeline and expect to be live within the next few weeks. Our collective effort, has provided our mutual customers, with a diverse choice of MTD VAT products to suit wide range of needs. Over the next few months we will continue to work with you to deliver new products. We also intend continuing to iterate the software choices page, providing more filters that will help users to better refine the extensive product list.  We have already added accessibility filters, more information on this is available below.

But it’s not all about VAT, while this edition is, understandably, VAT heavy, we want to make it absolutely clear MTD for Self Assessment is still happening. This is despite Spring Statement not confirming a firm date for mandation. We will continue to build and deliver the ITSA solution and expect mandation to follow, once the system has been proven to work well. Latest updates are included below.

As always please contact if you have any feedback or ideas for inclusion in future newsletters please email SDSTeam@hmrc.gov.uk

Making Tax Digital for VAT latest

Making Tax Digital for VAT latest Mandation mythbusting  

As expected, we’ve seen an increasing amount of media coverage in recent weeks, however, we’ve also noticed some content containing inaccurate or misleading information. The attached ‘mythbuster’ document, is designed to provide the accurate picture, we hope you find this useful for your communications with customers.

We’ve also included below, clarification, on a number of additional questions, specifically raised by software developers and/or their users:

Will customers over the VAT threshold be automatically signed up to MTD from 1st April?

No. MTD requires customers to sign up to the service, so that we can verify their information and migrate their record to the MTD system. We will not be undertaking a wholesale migration from today, the processes your users have been following, up until now, will not change and can be found here.

Business guide: https://www.gov.uk/guidance/use-software-to-submit-your-vat-returns

Agent guide: https://www.gov.uk/guidance/making-tax-digital-for-vat-as-an-agent-step-by-step

Important: businesses should not sign up to MTD until they have filed their last return through the old xml route. This is because sign up migrates their record to our new MTD system and closes off the xml channel.

Are customers submitting the VAT return through existing XML software already MTD compliant?

No. We’re aware that some customers, who already use software to submit their VAT return via the xml route, are under the impression this makes them MTD compliant. We need your help in reaching out to these customers, as they are unlikely to access HMRC’s communication channels regularly. We would appreciate you making clear in your software and guidance that they will still need to sign up to the MTD service and re-authorise their MTD enabled software. You can direct them to the appropriate guidance here:

Business guide: https://www.gov.uk/guidance/use-software-to-submit-your-vat-returns

Agent guide: https://www.gov.uk/guidance/making-tax-digital-for-vat-as-an-agent-step-by-step

Does the customer have to submit their first MTD return immediately after 1st April?

No. The 1st April is the date that customers are mandated to start keeping their records digitally. The date for filing the first MTD return, is the first full period that falls after the 1st April. This means that for monthly customers the earliest return would be 7th June and for quarterly customers the 7th August (assuming they haven’t already joined the pilot). The actual date will depend on what stagger the business is on.

Will customers receive penalties for not filing MTD returns or keeping digital records?

Not yet. The government has confirmed a light touch approach to penalties in the first year of implementation for MTD VAT. Where businesses are doing their best to comply, no filing or record keeping penalties will be issued. However, customers must continue to pay their VAT obligations on time, as late payment penalties will still apply.

Can agents sign clients up to MTD in bulk?

No. Agents must follow all steps outlined in the agent step-by-step guide to set a new Agent Services account and then, if they choose to, sign their clients up to MTD. Where the agent undertakes the client’s sign up step themselves, it is important to note, this has to be done one client at a time. Alternatively, the client can sign themselves up to MTD. We would appreciate any assistance developers can provide in pointing their agent customers to the agent guide:

https://www.gov.uk/guidance/making-tax-digital-for-vat-as-an-agent-step-by-step

Changes following maintenance

In our last edition, we advised that we would be implementing new functionality to stop customers submitting using the old xml route and to stop them from submitting returns for periods not yet ended. We can confirm that both changes went ahead as planned. Details of these changes and their impacts are recapped below.

Blocking MTD customers from the XML channel

Customers who have signed up to MTD are now blocked from submitting their returns via the old XML route. This applies to both third party software and portal submissions. This change only applies to all customers who signed up to MTD after the change was implemented (19th March). There is, therefore, still a chance that those who registered beforehand will submit incorrectly but we expect volumes to be very low.

The error returned in software is:

<Error key=”InvalidTraderVRN”>
<RaisedBy>ChRIS</RaisedBy>
<Type>business</Type>
<Number>8508</Number>
The VRN specified [VRN] was not found.
<Location>HMRC</Location>
</Error>

Preventing customers from submitting future returns

We have had a number of customers submit their MTD returns for a future, rather than, current obligation. We believe this happens where there are two open obligations returned and they select the period that isn’t yet closed in error. Now we have implemented validation to prevent this, the following error message will be returned when they call the VAT return endpoint:

Return submitted too early         403 (Forbidden)                TAX_PERIOD_NOT_ENDED

While the validation will now prevent the submission, it could still cause your customers frustration if they can readily select an incorrect period in software. We would therefore recommend that software defaults to the earliest outstanding obligation. E.g.

  • Obligation 1  01/04/19 – 30/06/19 Due 07/08/19
  • Obligation 2  01/07/19 – 30/09/19 Due 07/ 11/19

Up until 30/06/19 we would only return the current obligation (unless old obligations remained unfulfilled), however, from the 01/07/19 we would return both the current and the next. To ensure the customer correctly selects the current period, we recommend that software always defaults to the earliest full outstanding period, which in this example is Obligation 1.

Error messages latest – 90% of error root causes establishedOur work on analysing error messages continues. In the last edition we shared our findings on 403 and 500 messages, we can now also provide an update on 404 errors. These 3 errors make up over 90% of the errors we see returned by the API platform. We are therefore confident that we understand and are addressing the main causes of errors and you should expect to see an improving picture. For completeness, our findings on all error messages are included below.

404 (Not Found)

We have observed a steadily increasing number of 404 ‘Not Found’ responses as sign ups to MTD increase. Our investigation has established, the majority of these responses are being returned correctly and it is normally where a user is calling for pre MTD information. The problem is also being exacerbated by automated design in software. Examples of calls made for pre MTD information:

  • View VAT returns pre MTD call.
  • Obligations for periods pre MTD call.
  • Liabilities for periods pre MTD call.
  • View payments for periods pre MTD call.

MTD APIs only call data relating to MTD

The user’s historical information will remain visible via the legacy channel. We recommend software makes this clear to users.

The API platform is a shared resource with millions of calls being made to it every year across multiple tax regimes. Protecting the integrity of the platform is crucial to the delivery of vital public services, this is one of the reasons we have a standard call rate limit in place of 150 requests per minute.

One of the things you can do to help, is design your software to make the minimum number of calls required to provide your users with an effective service. We have seen an increase in automated design with software continually calling the APIs when they initially get an error message or the APIs being called every time a user accesses the product. How you design your product is entirely up to you, you know your users and what they need, but we do ask that developers consider the number of calls their design will create and how that might impact the platform. You should also bear in mind that as you scale your product, there is an increased likelihood that any automation that repeatedly plays back the same error message, will result in rate limits being exceeded.

For more information on rate limiting see:
https://developer.service.hmrc.gov.uk/api-documentation/docs/reference-guide#rate-limiting

500 (Internal Server Error)

Investigations found that this error is returned where the customer has not waited the recommended 72 hours for their record to be migrated to the MTD service. This means when they attempt to call an obligation there is no record for us to return.

We recommend:

  • Agents and customers should only attempt to submit a VAT return once they have received the email confirming the customer is now in MTD.
  • If, after 72 hours, they are still receiving an error, they should report it to HMRC.

403 error (Client or Agent not authorised)

There are multiple reasons this error can be returned but our investigations have shown that in over 90% of cases the reason is that the agent did one of the following:

  • Didn’t use their agent services account (ASA) credentials to link MTD VAT software
  • Hasn’t signed up to the ASA
  • hHas signed up but has not linked their clients
  • Has signed up and linked clients but the customer hasn’t subscribed to the Making Tax Digital service.

The agent step-by-step guide was specifically designed to help guide agents through the various steps. We recommend that all agents use it when signing up to the service. We would appreciate any assistance you can provide by pointing your agent customers to this guide.

https://www.gov.uk/guidance/making-tax-digital-for-vat-as-an-agent-step-by-step

HMRC’s customer support model

From today, MTD for VAT is officially ‘live’. As such, we need to make sure that agents and businesses are following the correct support model. This tests that those models are robust and helps us to identify specific issues and pain points. Where a problem is manifesting in software but the root cause is customer behaviour (for example 403 error where agent fails to follow one of the steps) your software should direct users to the following link:

Get help using VAT online services

Accessible products – we need you!

Following our appeal in the last newsletter, we have now identified a number of products that meet the WCAG AA accessibility standard outlined in our Terms of Use. Thank you to all the developers who have helped us to achieve this. We are now including this data on our software choices page and we will continue to add developers as we establish the status of products.

If you are a developer with a keen interest in making your product accessible, please contact SDST@hmrc.gov.uk and we will be in touch.

Welsh products – we need you (again)!

As with accessibility, HMRC has a responsibility under the Welsh Language Act to provide Welsh speaking customers with the ability to file their VAT returns in Welsh. HMRC intends to eventually close its xml route to all VAT customers and we would therefore like to hear from any developers interested in producing their products in Welsh.

Please contact the SDST@hmrc.gov.uk to register your interest in building a Welsh product and we will be in touch.

Changes to the Software Choices pages

We continue to iterate and improve the software choices pages. Following the splitting out of the pages we reported in our last edition, we received feedback from developers. This said some customers were struggling to find their MTD VAT listing because it wasn’t clear that they needed to click on the ‘use this tool’ function. We have now amended this to make it much clearer. However, please continue to provide feedback of your experiences with the pages.

In our latest iteration of the MTD VAT page, we’ve added filters to enable users with accessibility needs to refine the entries down, to identify specific products that meet their needs.

Withdrawal of the ‘in development’ section

The ‘in development’ section was introduced during the pilot to reassure external stakeholders and customers that we were working with the software industry to ensure there would be MTD products in the market. As we are now fully live the need for this page has diminished. We intend to withdraw this section at the end of April.

We will shortly be reaching out to developers listed in this section to establish when they expect their product to be ready.

Transport Layer Security (TLS): Important reminder

Six months to go.

We have recently updated the Developer Hub in Production to advise that we will be turning off support for anything below TLS1.2 from 1 Oct 2019. Please see the link below for the updated paragraph which can be found at the bottom of the Authorisation guidance.

https://developer.service.hmrc.gov.uk/api-documentation/docs/authorisation

This is being treated as a breaking change, which is why we are providing six months’ notice, but we advise developers to switch over to TLS1.2 as soon as possible.

Transaction monitoring fraud headers (TXM) latest

Legislation

In the last newsletter, we told you that the Statutory Instrument for transaction fraud headers had been laid and can be found here:

http://www.legislation.gov.uk/uksi/2019/360/contents/made

We can now confirm that the Commissioners Directions have also been published and can be found here: https://www.gov.uk/government/publications/direction-under-regulation-22-of-the-delivery-of-tax-information-through-software-ancillary-metadata-regulations-2019-si-2019360

The Direction sets out the metadata required under the legal obligation on software suppliers (under the Delivery of Tax Information through Software (Ancillary Metadata) Regulations 2019, S.I. 2019/360) to ensure their products, that use the Making Tax Digital for VAT API, collect and send all available fraud header information along with taxation information that it relates to. This information must be sent to HMRC systems electronically, from the products that taxpayers use.

Timeline for implementation

Fraud prevention headers are mandatory for MTD VAT messages from today (1 April 2019). However, we will work with developers, as necessary, to ensure software applications are made compliant, as quickly as possible.

Currently, our logs show that some applications are not submitting the required metadata to be compliant. We are happy to assist you by conducting a review for both sandbox and production environments.

  1. If your application is in production and you would like us to review your headers, then please let us know what Gov_Vendor_Version header we can use to identify your application. We will then undertake a review of the headers you are sending to us in production and provide feedback. Please email your enquiries to SDSTeam@hmrc.gov.uk with the title beginning ‘Production Header Review Request.’
  2. If your application is in sandbox only or the version you would like feedback on is in sandbox, please send us a text file including an example HTTP Request (with all headers intact). Please email your enquiries to SDSTeam@hmrc.gov.uk with the title beginning ‘Example Header Check Request.’

Important: If you haven’t done so already, we would urge you to contact us immediately with an update on the progress you are making.

Service availability page

We try to ensure that developers are informed of downtime with plenty of notice. However, you may be aware that we’ve recently experienced some technical difficulties with our mailbox that has led to delays in emails being shared. We believe these issues are now fixed. However, for future reference you can keep up to date with scheduled downtime by checking this page.
https://www.gov.uk/government/publications/making-tax-digital-for-vat-service-availability-and-issues

Making Tax Digital for Income Tax

Latest headlines

  • Changes to error responses. We have recently released some changes to the error responses for the ‘crystallisation’ and ‘intent to crystallise’ endpoints.
  • Tax calculation. Planned changes are slightly delayed but will be in the sandbox by the 9th April
  • May release. Following feedback from vendors we are planning a walkthrough of the May release on the 17th April. Look out for an invite within the next couple of weeks. We will walk you through all the elements that will be part of the May release
  • Changelog. Don’t forget to check out our changelog to get access to any changes as soon as they are released. https://github.com/hmrc/self-assessment-api-router/wiki/Changelog for SA or https://github.com/hmrc/vat-api/wiki/Changelog for VAT
  • Version 1 of SA API withdrawal. Following requests from vendors we will now not be retiring version 1 of the Self-Assessment API until the end of May.

Useful MTD links

Videos available on our help and support page:

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