Most businesses will have now made their initial MTD for VAT return but there’s a contingent of deferred organisations (3.5% equivalent to 1.1 million) who will only be taking their first steps this quarter.
Those with more complex VAT needs are covered by the deferment. This includes organisations with VAT groups or divisions, that trade with the EU, are based overseas, submit annually or pay on account, that use the flat rate scheme or are newly registered for VAT. These were brought under mandated to comply with MTD for VAT from 1 October while public sector bodies that use the GIANT service have been granted a further extension.
Deferred organisations will now need to select a software solution from the 400+ listed on the HMRC website in order to submit their next return. But they have some unique criteria. Many will be looking for a solution that dovetails with their existing accounting and ERP systems. They’ll want to know if it can support the complex calculations they wrangle with on a quarterly basis, such as group consolidation, capital goods schemes, reverse charge and partial exemption (standard and special method).
Yet the solutions recognised by HMRC only have to satisfy a minimum set of requirements. Compliant software must be able to create a digital VAT return from digital records and to submit a VAT return via the HMRC API. End-to-end solutions need to keep digital VAT records including summary data, store records for six years and receive information digitally from HMRC. But the interoperability, functionality and longevity of each solution is outside the scope of the requirements and will vary considerably.
So how can deferred organisations begin to sift through suppliers? To help you evaluate the virtues of each MTD solution we recommend you ask if it can:
Provide a seamless user experience When you sign up to MTD, access to the current HMRC portal will effectively cease. This means you will want to preserve access to data associated with each entity which is currently housed in the respective Business Tax Account. While MTD solutions are obliged to receive data from HMRC how they display this data can vary. Housing both pre- and post-MTD data in one place will make it far easier to ensure a smooth transition to MTD for VAT. LOOK FOR: A solution that can provide you with a replacement MTD Compliance Portal. This should give you visibility of past, present and future obligations, payments and liabilities, summary data and other VAT records and also flag data for attention and or issue alerts for deadlines.
There is no going back once you commit to MTD and the business has a limited time during which to make its submission. To avoid falling foul of the regulator and incurring penalties, it is vital to ensure that staff are familiar with how the solution works, from preparation of the return to submission and receipt.
LOOK FOR: A simulated submission environment. This allows the user to submit a dummy return for a given entity and to explore the solution’s data management features within a sandboxed environment, providing the business with the breathing space to check its workflows.
Integrate with existing systems
A prime cost in implementing MTD will be systems integration potentially requiring a change management project. Ease of integration is therefore fundamental if the business is to minimise this cost.
LOOK FOR: A vendor that has developed plug-ins to allow the solution to directly interface with your existing accountancy and ERP systems. Check to see if they have the resource to support bespoke systems too and if they will continue to update and develop plug-ins going forward to ensure ongoing compatibility.
Protect access to data
MTD for VAT will reduce the capability for error by minimising the amount of human input. To preserve data integrity still further, it would be wise to implement restrictions so that it is possible to limit data manipulation and determine when and by whom any changes were made.
LOOK FOR: A solution that enables access privileges to be assigned on a per user basis. Dedicated access rights should include role-based access (i.e. superuser, sys admin etc) or task-based access (read only, edit, edit and submit, submit only).
Scale on demand
The objective of MTD is to create an end-to-end digital process, starting with the submission, which will be built-out over time to reduce the impact on the business. LOOK FOR: A solution that can scale with the rollout and the needs of the business. This should begin with a bridging solution to meet the digital submission requirement of 2019 and scale up to a fully-fledged source-to-submission capability utilising automated data extraction to comply with the digital link requirement of 2020.
Automate complex VAT calculations
Deferred businesses typically need to be able to aggregate large volumes of data from across groups and third parties and to handle a diverse range of VAT calculations, such as groups, exemptions and charges, which would benefit from being automated.
LOOK FOR: Verify if the product suite can scale to provide you with the functionality associated with a compliance engine, automating calculations, performing diagnostics, and using in-built continually updated tax logic to ensure compliance.
Future proof against further regulatory change
In addition to digital submission and digital links, HMRC may well follow in the wake of Spain, Poland and Brazil and introduce near or real-time reporting of transactions for MTD for VAT. This would see the underlying data used to support electronic audits and data analytics. Bear in mind also that MTD for Corporation Tax is expected sometime after 2021 once MTD for VAT has bedded down.
LOOK FOR: A solution that puts in place data collection processes that lend themselves to other digital taxes. Check if your vendor has tax compliance expertise and if the solution has the capability to offer support for these future digital taxes, reducing the likelihood of the need to reinvest.
An MTD for VAT solution that meets these seven criteria provides the deferred organisation with the means to meet the mandatory requirements and to comply with imminent and regulatory demands. It’s worth remembering that the digital links requirement is the next hurdle (set for October 2020 under the deferment), emphasising the need for the MTD solution to stand the test of time.
By Andy Mills, Commercial Director, Tax Systems