HMRC now lists over 400 compliant software solutions, ranging from bridging solutions to add-ons for accountancy packages to fully compliant end-to-end offerings. But differentiating between these can be difficult. There’s a lack of understanding of how extensive the mandated requirements are (our Tax Professionals Survey revealed 41% are unaware of the digital links requirement next year) leading many to plump for a solution without considering the bigger picture. So how should you go about picking an MTD for VAT solution?
Minimum versus must-have
All of the solutions recognised by HMRC satisfy a minimum set of requirements, specific to the scope of the solution. This states that the compliant software should 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 should also be able to keep digital VAT records including summary data, store records for six years and receive information digitally from HMRC. The interoperability, functionality and longevity of each solution is, however, outside the scope of the requirements and will vary considerably.
HMRC has introduced a checklist feature on its site in a bid to help users so that it’s now possible to filter by customer type, basic features (view returns/check VAT owed/view payment history), and purpose. That said, a typical search will still return close to 100 solutions. So what criteria should you use to narrow down the selection? How can you assess suitability in achieving both short and long-term compliance?
Vet your vendor
To help you evaluate the virtues of an MTD solution we recommend you ask if it can:
1. 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.
2. Pre-test processes
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.
3. 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.
4. 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).
5. 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.
6. Automate various VAT calculations
Organisations that come under the deferment period (mandated from October 2019 with soft landing period to October 2020) typically need to be able to aggregate large volumes of data from across groups and third parties. For them, automation of the data extraction process is key to ensuring data quality. They also tend to handle a diverse range of VAT calculations, such as groups, exemptions and charges, which would benefit from being automated.
LOOK FOR: Support for more extensive automation. Verify if the solution 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.
7. 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 the seven criteria outlined above provides the user with a robust and versatile means to meet the mandatory requirements as and when they come into play. In this way it will ensure the business can comply with existing, imminent and future regulatory demands. But such a solution also allows the business to embrace automation at its own pace; it’s this automation that will free up resource leading to the efficiency and productivity gains that will truly benefit the business.