4 Feb 2019 09:44am

Making Tax Digital for VAT: not the end game

SPONSORED CONTENT: When the House of Lords Economic Affairs Committee published its report into Making Tax Digital (MTD) at the end of 2018, scant attention, if any, was given to one of its main recommendations: that businesses should “choose digitalisation for productivity, efficiency and modernisation reasons rather than just tax compliance”. Making Tax Digital for VAT (MTDfV) is a stage post on the journey to tax automation – not the end goal

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Caption: MTDfV is a stage post on the journey to tax automation – not the end goal

MTD is continuing the trend towards automation, fuelled by the government’s agenda for transforming the UK into a digitally advanced tax administration. It’s seeing resources stretched and CFOs demand more value but embracing automation will deliver tax information efficiently and accurately. Additionally, it will deliver data analytics, providing businesses with the visibility to measure performance, drive innovation and aid decision making.

Automation is bringing tax in-house and redefining the client/advisor relationship, shifting the emphasis from compliance to complex tax planning. MTDfV is helping to drive automation, however organisations need to avoid the temptation to select an MTD solution with only 2019 compliance in mind in order to harness these benefits.

Difficult to navigate

Selecting a viable solution is far from straightforward. The House of Lords report describes the “emerging software market” as “difficult to navigate”, flagging problems such as data access and product support. There’s a dizzying number of solutions – from sector specialists to MTD enabled accounting software and white labelled SaaS solutions – making it difficult to identify those that offer wider automation. Organisations are therefore advised to consider the following:

1. Map your current processes and identify your requirements.
2. Only purchase software that is recognised on the HMRC website as VAT compatible software.
3. Pick an existing expert in tax compliance who is clearly committed to serving the market long-term and has a strong support service track record.
4. Avoid the temptation to select a basic MTDfV bridging solution – spend the time now to implement a digital end-to-end process futureproofing your compliance for 2020 and beyond.
5. Look for a solution that delivers visibility, deadline management and reporting. Some provide dashboards for managing your VAT entities, with real-time information from HMRC’s system on payments, historic returns, summaries and future liabilities
6. Make sure the solution allows simple change management, with the functionality to perform simulated submissions to test the process before formally committing to MTDfV
7. Ensure the solution meets complex VAT requirements by calculating for VAT groups, partial exemption and the capital goods scheme criteria etc. The calculation engine should also facilitate error reporting and audits.

Best long-term choice

It’s also critical that your solution provides value beyond VAT as a part of a broader automation strategy. The House of Lords report found that many businesses would “prefer to move to a system that would be compliant for all taxes” such as corporation tax or income tax due to be digitalised from April 2020 and that they wanted to make “the best long-term choice”.

It’s for these reasons that MTD should be seen as a stepping stone to automation rather than the end game. It presents an opportunity to transform the tax function, equipping the tax professional with the tools to focus on governance, data analysis, and tax planning to create real value for the business.

Tax Systems are specialists in tax compliance technology and the creator of Alphatax, the UK’s number one corporation tax software. Alphatax is used by 43 percent of the UKFTSE 100 and 23 of the top 25 accountancy firms. To learn more about tax automation please see our Digital as a Destination white paper or join one of our ‘Demystifying MTD for VAT’webinars.

Jane Malkin is head of tax development and tax systems at Taxline