There has been an overwhelming amount of information from suppliers, Government, news sites and advisors on the most significant change to the UK tax system since the introduction of self-assessment – MTD for VAT.
At the heart of HMRC’s initiative is the ambition to make the UK tax system the most efficient and effective in the world. The fundamental change for you is that the online interface where most accountants manually enter their nine boxes for VAT return submission, will no longer be available for businesses with a turnover above the VAT threshold of £85,000.
That means you have six months to identify how you are going to file VAT returns on behalf of your clients, and how they are going to create and file their VAT tax returns if they have been submitting the returns themselves. In addition, you will need to identify how you should monitor the deadlines for VAT filing in an MTD compliant environment.
Why start now?
If the introduction of iXBRL and GDPR taught most businesses anything, it is that it’s never too early to review your processes to ensure you meet the requirements of new legislation. Process change has a big effect on any business. Your practice and clients need to understand what is changing and how it’s going to affect them. The deadline in April is beyond your control, but how prepared you are is in your control.
Get a head start with HMRC’s VAT pilot which moved into a public beta in October. Businesses who are VAT registered can voluntarily choose to submit their VAT returns via the new system. The benefits of being involved with the testing development of a system that will impact the whole industry cannot be overstated.
You will benefit from seeing how you will need to finalise your VAT returns and what solutions you should be using to file VAT tax returns before this becomes mandatory. Furthermore, you gain access to greater support from HMRC and will have the opportunity to influence how the service looks and feels.
The most fundamental change that should be front of the mind is that individuals and companies will be mandated to use compliant software to digitally submit accurate financial information to HMRC. They will no longer be allowed to manually enter the figures into the HMRC service. The key requirements from HMRC are that the underlying VAT data is digitally captured, and that software used is Application Programming Interface (API) compatible.
We have seen several ways that practices submit their VAT returns today. Some might process them through a bookkeeping product, while others use only spreadsheets to come to the nine figures only to then manually type them in to the interface. Practices have also been using a hybrid approach of online bookkeeping systems and spreadsheets. We have even seen clients using spreadsheets to produce their own manual calculations, before typing the figures into HMRC’s service.
In some instances, practices export the figures to a spreadsheet prior to submission for the purposes of consolidation of trades, adjustments, additional calculations and preparing the final figures that make up the VAT return. For most cases, practices will manually adjust the figures before they are submitted. This is the reason most practices are so concerned with the changes ahead, as their processes are today completely reliant on being able to manually type the figures into the online service.
Demystifying MTD: the facts
Before you get overwhelmed by the fear of the unknown, understand the facts about what you can and can’t do from 2019:
Businesses over the VAT threshold of £85,000 will no longer be able to type the VAT return into the HMRC filing service and will need to use API-compatible or bridging software.
HMRCs online interface will only be available for businesses voluntarily registered for VAT but under the threshold and have not transitioned to MTD or MTD exempt businesses. (Once a business transitions to MTD, they will not be able to go back to the online interface.)
Spreadsheets remain acceptable for digitally capturing data and can be the logical first step to embracing digitalisation.
Only the data from the nine boxes must be submitted. It will not be mandatory to submit underlying data or transactions.
This data must be submitted using compatible software for those over the VAT threshold and cannot be manually typed into the software for filing.
Calculations that make up the return can be voluntarily submitted to HMRC – these can be used prior to any investigations.
A digital link is the digital transfer of data from one system to the next. HMRC has allowed a 12-month grace period or ‘soft landing’, where links between software products will not need to be digital.
While ‘copy and paste’ does not constitute a digital link, this will be acceptable during the soft-landing period. However, data that is transferred to bridging software for the sole purpose of filing to HMRC via API platforms will be required from April 2019.
A major relief for many is the continued use of spreadsheets. It gives the accountant the freedom to keep spreadsheets with valuable and historic data and calculations in the process. Now it comes down to choosing a compatible software to transfer that data to HMRC.
Building a digital bridge
Bridging software has been developed to fill the need of practices still wanting to use their spreadsheets and digitally file their VAT returns. Bridging software provides a digital link to transport data from one application to another. HMRC will not allow you to type data from another place into the API software – it must be automatically populated from data elsewhere. Bridging software, like Wolters Kluwer’s MTD end-to-end solution CCH OneClick, does this from your spreadsheet.
The bridging software should also be able to accept data back from HMRC which means you can confirm that your filing has been successful and HMRC has accepted the data. By building a digital bridge, you are not only complying with HMRC’s requirements to use API-enabled software (rather than typing in the nine figures), but you are able to continue using many of your existing processes using spreadsheets to make the adjustments and calculations needed before the bridging software pulls the filing data to HMRC. The choice is still yours, even in an MTD environment.
Monitoring VAT submissions in an MTD environment
The next decision is how are you going to monitor VAT deadlines efficiently. Today many practices will be using a simple spreadsheet to monitor filing deadlines. This is very manual and going forward does not take advantage of the digital data freely available. Most practices will be filing their VAT returns in a variety of ways, including bookkeeping products or software.
Furthermore, clients could be filing VAT returns themselves. The obvious challenge is staying on top of the deadlines to ensure compliance in every scenario.
The answer is to find a solution that can monitor your submissions from a single location or central dashboard, independent of where the submission came from. The obvious solution is one that can use HMRC’s APIs to see the status of all VAT filings for your clients. Combining this with a solution that can provide deeper monitoring of process through workflow management would unlock significant time and control. Your practice would be able to not only monitor the workflow but also be aware that a VAT submission is due, irrespective of whether you or your client files the VAT return. This is an opportunity to support your client where previously they may have submitted through the HMRC service. Now you can file on their behalf, removing their need to acquire software.
Wolters Kluwer values choice
At the heart of our development and support for our customers as they transition to MTD, has been maintaining as many processes used today as possible. We have worked to understand your current process of submitting a VAT return and to build a solution that helps you transition to MTD without the stress of completely overhauling processes.
CCH OneClick is our end-to-end MTD toolset that helps you embrace digitalisation. It was built to give you the choice to continue using your spreadsheets and bookkeeping products. Our goal is to ensure that when HMRC’s online interface disappears in six months’ time, there will minimal impact on your process.
Efficiently monitoring your VAT returns is also at the heart of our toolset. We can provide several ways to monitor the filing of your VAT cases, whether you are looking for a full task management monitoring system using CCH Central workflow (a VAT template is included) or a proactive live dashboard within CCH OneClick to see your VAT cases at a glance. Another feature to be deployed in April 2019 will be workflow tools to monitor the individual milestones associated with the VAT return process ensuring that employees in the practice are alerted to tasks and deadlines.
Furthermore, our end-to-end MTD toolset uses open integration which allows for a permanent link to online products like Xero. This enables us to seamlessly use bookkeeping data for activities such as accounts production and quarterly filing.
Embracing digitalisation never looked this good
There has never been a stronger push to embrace digitalisation in the tax and accounting industry. MTD doesn’t need to be overwhelmingly complicated with the right software partner at your side. Rather, it is a golden opportunity to embrace digitalisation and boost efficiency and customers support.
Gartner defines digitalisation as using digital technologies to “change your business models and provide revenue growth opportunity”. The move to digital goes beyond just using digital data and software. It is a chance to change your processes and create new services. Look at MTD to develop new services, while still producing the same work you have done in half the time. Start by asking how you can take advantage of the digital efficiencies to offer additional services.
For example, validating and filing VAT returns for customers who have been reliant on HMRCs online interface is one option to consider. The options are endless with the right tools.
Ultimately, MTD is a transformation worth being prepared for. If the transition is handled correctly, MTD can transform your business with increased efficiencies, giving you the valuable time to grow your client base and capitalise on new revenue opportunities.