If you had been working toward meeting the requirements of HMRC’s Making Tax Digital (MTD) for VAT deadline in April 2020, then you were probably relieved when it was postponed to April 2021. We’ve all spent this year trying to manage our way through the global pandemic, both personally and professionally, so having one less thing to worry about was welcome for many.
Some businesses are ready for MTD for VAT and already making submissions. Our own ONESOURCE Indirect Tax Compliance software has supported 150 businesses across their 4,800 UK VAT registrations to successfully file over 8,500 MTD compliant VAT returns with HMRC.
However, there are still companies, large and small, looking for a “sticking plaster” style bridging software solution to meet their MTD for VAT compliance obligations. Throughout 2020, those implementations were frozen, with many yet to restart, and the risks for those that aren’t ready are about to become all too real.
No more extensions
HMRC has made it clear that there will be no further extensions to the April 2021 deadline for phase two of MTD for VAT. Where the first phase focused on digital record keeping and the ability to make API-enabled submissions, this second phase places much more emphasis on establishing uninterrupted digital links through the VAT reporting process.
The work needed to digitally link business transactions will vary greatly depending on the industry, size, and complexity of a business. With the risk of imminent fines for non-compliance looming from April 2021 onwards, organisations should already be examining what they will need to do and choosing the best platform for the task. Remember too that MTD for VAT is not just an indirect tax issue. In order to comply, efforts need to be joined up between the finance operation, corporate governance, and IT teams.
As a reminder, there are three key requirements to ensuring compliance with MTD for VAT:
Digital record keeping
- You must store and analyse all Accounts Payable and Accounts Receivable data in electronic form, ideally using functional compatible technology – in other words, technology that can be used to store records, perform the required calculations, and submit the information to HMRC directly via their API.
- Although spreadsheets can be used, you will need additional software to handle filing, and there will be certain conditions attached to this approach.
- There must be a direct digital link between your software and HMRC. This means that spreadsheets are acceptable, but only if they can be digitally linked through to another programme which is able to make the final digital submission – referred to as bridging software.
- Any movement of data between one programme and another should not require any rekeying or manual intervention.
- Importing data via CSV or through automatic links in a spreadsheet will be allowed.
- Manual input of figures via the current government gateway will no longer be accepted. All submissions must be made using appropriate software with a digital link. As it stands, only data for the current nine boxes are mandated.
You could tick most of these boxes by using bridging software to get you through, but can you ignore HMRC’s greater aspirations for digital tax reporting in the UK, and indeed from other tax authorities around the world? All are moving toward a time where digital tax reporting will be commonplace, requiring greater transparency and auditability from invoice to tax return.
There will undoubtedly be legal test cases where companies try to push the boundaries of how the rules should be interpreted, especially in relation to digital links. But the reality is MTD is here and, having had deadlines previously pushed back, there’s no room for more excuses or delays to becoming compliant.
MTD box ticking – An inflexible approach to an ever-changing tax landscape
The UK leaves the EU on 31 December 2020, and how this and the nature of future trade deals impacts indirect tax are yet to become clear. Furthermore, in light of the COVID-19 pandemic, countries are constantly reviewing how taxation may need to change to support businesses and consumers for solid economic recovery. Your own business may even be considering new business models to aid recovery and secure its future.
Expecting VAT managers to stay abreast of these changes and ensure your business is compliant without the right tools is a juggling act too fraught with risk.
As so many businesses have discovered this year, the ability to digitally transform their operations has been crucial to their very existence. Evolving practices to address HMRC’s MTD for VAT, as well as digital tax reporting in general, has a pivotal role to play. It is a chance for indirect tax teams to spearhead a change in their organisation that will give them greater control, visibility, and agility to deal with the unexpected and evolve at speed.
It’s not too late to get ready for MTD for VAT and be prepared for the future. HMRC has given you more time, and the elephants we talked about are going nowhere. By choosing a solution that helps meet the April 2021 deadline and prepares you for the next stage of your tax technology journey, you will create a foundation that supports the long-term future of your business and keep it on the right side of regulatory and compliance requirements.
A tax technology platform for MTD and beyond
Thomson Reuters ONESOURCE will help you to evolve and address your indirect tax and accounting needs, as the world moves towards digital tax reporting. With a robust risk management framework, ONESOURCE helps to ensure your business is fully compliant with automated data collection.
ONESOURCE is fast and reliable, with intelligent reporting that manages your digital submission. Importantly, it also provides all the required digital links and incorporates an underlying process control and digital audit trail of any adjustments from review to sign off, allowing you to file your returns directly from the application with confidence.
Furthermore, ONESOURCE can support indirect tax filings in over 50 countries from traditional VAT returns, GST, ES Listings and Intrastat, to the more complex requirements for SAF-T, Spanish SII, and other country-specific reports.
To learn more about phase two of MTD for VAT and how Thomson Reuters ONESOURCE can support your preparations, take a look at our MTD Hub, which is full of useful advice and information. You can also view our free on-demand webinar for the latest MTD updates with guest speakers from HMRC and The Chartered Institute of Taxation.
Contact us today for a demo of our ONESOURCE Indirect Tax Compliance solution for MTD.