HMRC suggests various ways to comply with the digital links Making Tax Digital mandate due to come into effect from this April. These range from using a USB stick to pass data to an adviser to API-enabled spreadsheets to a dedicated compliance solution. Faced with this choice, many are still deciding as to which option they should go for.
Not all of them will suit your business. The best compliance option for you is largely determined by the complexity of your VAT process but there are also other considerations to bear in mind.
Will your VAT process need to change in the near future? Do your VAT processes align with digital improvements in other area of the finance function? Could MTD give you the justification you need to push for wider improvements in your working practices and technology options? Or do you need to leverage the data held within the tax process to better inform commercial decisions?
Knowing what you want to achieve out of the MTD process and any longer terms goals around better efficiency and increasing reporting accuracy should also inform your compliance decision. To help you review what’s important, we’ve devised our top eight reasons why a compliance software platform could help.
- Reduces time/resource: Automating the collection, preparation and management of tax data can significantly reduce the compliance burden of VAT. For instance, we recently helped a business reduce its manual workload by 28 days a quarter across their 18 VAT-registered entities.
- Automates complex calculations: Businesses that need to perform calculations such as Partial Exemption Special Method (PESM) can find VAT particularly onerous. While your calculations don’t have to be incorporated into the MTD digital links process, doing so can dramatically reduce the risk of error and provides you with an unbroken digital trail right back to the data source.
- Reduces spreadsheet dependency and risk of error: it is estimated that up to 88% contain errors. Reducing reliance on spreadsheet-based processes means there are less datapoints to manage and less risk of error. Additionally, you can also easily manipulate data through automatic filtering, allocation and checking.
- Enables error checking/correction: Compliance software can improve confidence in the process by scanning data at the point of ingress and search for anomalies. These are then be flagged to the tax team for investigation, which in turn speeds up the review process.
- Performs data analysis: By comparing specific periods, you can see the day-to-day functioning of the business, create more accurate forecasts and carry out comparisons against projected liabilities or repayments.
- Creates a digital audit trail to track and prove compliance: Digitally linking the entire process allows tax and finance teams to quickly and efficiently respond to any queries from HMRC, should they arise
- Futureproofs the business against change: Businesses will want to ensure they have adequate technology in place to both prove their compliance with the MTD mandates and that they are paying the correct amount of tax. Plus, should HMRC decide to change requirements under MTD for VAT, you’ll also need to be able to accommodate any changes.
- Provides a path to a ‘single source of truth’: The expectation is that tax technology is moving towards using a common data set of data to fulfil all tax computations. Rather than completing each tax Return individually, from scratch, the tax team will be able to utilise this pool of data to meet the demands of real-time reporting. We’re already seeing moves towards this in the form of MTD for corporation tax and HMRC has already stated that its “long term vision” is for “all taxes [to be] managed through a single, digital account, with similar, effortless processes” to MTD for VAT.
The capabilities of the tax technology you choose for MTD phase 2 will determine how quickly your organisation is able to take advantage of the opportunities digitalisation provides in a changing work environment.