HMRC has said that it does not expect to extend the soft landing period for MTD for VAT. Speaking on our ‘Final Call for MTD for VAT’ joint webinar with BDO, Verna Gellvear from HMRC’s Customer Readiness and External Stakeholder Team, told the audience it’s now business as usual for MTD and that as the soft landing period has already been extended by two years, “I don’t think there is any chance of us extending it any further”.
Digital links have been part of the MTD for VAT process since April 2019 but the soft landing period meant businesses could still use manual processes such as cut/copy and paste. Gellvear said this will no longer be acceptable once the soft landing period comes to an end, which occurs on or after 1 April 2021 as determined by the date of the business’ first VAT return.
The full benefits of MTD
Gellvear reminded the audience of the details of what a digital link is and gave two examples – a transfer or exchange of data between two systems within the business or a transfer of data to an agent – before walking the audience through the main four options for compliance.
During the webinar she answered over forty questions and there were clearly two areas that were of prime concern to the audience. These were ‘Can I use my existing bridging solution and spreadsheets’ and ‘How will I perform my adjustments?’. In response, Gellvear said HMRC recognised that some software “cannot cope with adjustments” in which case these will have to be performed outside of the process and then entered into the software. She confirmed that bridging software and spreadsheets are still a viable means of compliance and continue to be seen as a valid reporting mechanism but cautioned “you won’t get the full benefit of the MTD experience if that’s how you want to keep your digital records”.
She surmised that if you only have a single system and a relatively simple VAT process, you’re unlikely to find digital linking an issue, the inference being that those with multiple systems and more convoluted processes may have to review their processes to ensure compliance.
Gellvear also outlined that MTD is part of a “long term vision” for HMRC which will see “all taxes managed through a single, digital account, with similar, effortless processes” to MTD for VAT. This resonates with industry expectations for consolidated digital platforms based on ‘a single source of truth’: a pool of tax data that can be readily used to fulfil the compliance demands of all taxes.
Changes in filing VAT
HMRC will also be making changes to its own systems which she was keen to make businesses and their agents aware of. From March, HMRC intends to migrate the remaining customers on the VAT Mainframe to the Enterprise Tax Management Platform (ETMP) and this will impact how ALL VAT tax payers file their Returns. However, it was stressed this would not see a forced migration of all tax payers to MTD.
Moving from the old mainframe from the ETMP will stop the dual running of VAT across the two systems and allow for the decommissioning of the mainframe which is expensive to run and maintain. It will also allow HMRC to react more efficiently. Gellvear suggested that having all the records in one place would have made it far easier for the tax authority to respond to and instigate the changes that resulted from the pandemic, for example.
During the migration it will be impossible to tell which records have been migrated, so HMRC is advising agents to take action now. Agents will no longer find a Return automatically created on the legacy online services account for non-MTD clients. Instead, they will need to move all their client accounts to the ASA account they currently use for MTD clients. They will need to submit Returns for clients who come under the threshold using a link which they will find in the ‘View and change’ section of the ASA.
HMRC will also be removing the XML submission channel for VAT. Businesses who submit their own Returns will find a link in their business tax account to enable them to file while agents will be provided with a link in their ASA.
Glyn Woodhouse, VAT Partner at BDO, went on to explore the VAT timeline. First up was the deferral of VAT payments. Covering payments for the period of 20 March – 30 June 2020, the payment plan gives businesses who are struggling to pay by March 2021, the option to pay over 11 months. To avoid incurring any penalties or interest, businesses must opt-in to the payment scheme by 21 June 2021 but in order to gain the full 11 months, they must do so by 19 March. To qualify you need to have filed all your VAT returns for the last four years and have processed all voluntary decs if any of the amounts are to be deferred. Importantly, agents cannot opt-in on your behalf. You will need to do so and will therefore need access to your government gateway account.
Ian Bowden, Tax Partner and Head of Tax Performance Engineering at BDO, took a look at the MTD timeline, which sees activity ramping up over the next five years. We can expect the income tax pilot to be increased from now through to April 2022 and MTD for ITSA to be mandated in 2023 while the corporation tax consultation is expected to see legislation drafted in 2023, with a pilot in 2024 and mandatory compliance in April 2026. This roadmap shows how HMRC intends to accelerate its plans for MTD and the importance of digitalisation in its ten year plan for the reform of the UK’s tax regime.
Bowden also explored how businesses are keeping pace with these changes. He described six maturity levels that increased in technical sophistication. While very few were still at level 1, equally nobody yet was at the other extreme of the scale which will see predictive modelling capabilities and real-time monitoring and automated alerts. We suspect the majority still occupy level two. The graphic provided a fascinating glimpse of where we’re going and how the tax process may be transformed over the next few years.
Russell Gammon, CINO of Tax Systems, agreed with Bowden and said that we’re now starting to see the emergence and integration of some of these technologies. Tax data analytics, for example, is a core offering in Tax Systems’ AlphaVAT platform, and digital platforms should also offer business intelligence as well as providing a holistic view of compliance activities.
He observed the direction of travel will be a consolidation of technology platforms, integration with key technologies (ERPs etc) and broader automation of the tax function. Desktop solutions are giving way to cloud and stand alone products are being replaced by integrated platforms. He also said that we can expect to see the functionality Bowden described delivered over one single platform.
Gammon then shared his vision for Alphatax 360. Tax Systems new cloud-based digital compliance platform which will incorporate tax applications, data, operations and insights and deliver all the compliance requirements for indirect, direct and international reporting obligations, Alphatax 360 will provide the single touchpoint for data required by HMRC’s “single digital account” as outlined in its vision for MTD.
In all, over 200 attendees attended the event. If you were unable to make it or would like to browse the webinar slides, please click here. Or, to learn more about the broader value of compliance software, contact us or book a one-to-one demo of our AlphaVAT digital compliance platform.