For those who manually enter data and rely upon spreadsheets, the transition to comply with Making Tax Digital can seem like a daunting prospect. But it’s far easier than you might think to take those first steps towards automation and real-time reporting.
Today, many businesses are heavily reliant on spreadsheets when preparing their VAT return. Quite often the data from their accounting system is manually extracted and rekeyed into their VAT calculation spreadsheet. Partial exemption adjustments, reverse charge calculations, consolidations, and other adjustments can then be made to arrive at the nine boxes, which are then rekeyed into the HMRC portal. It’s this process that has to change to meet the mandated requirements in 2019.
Under Making Tax Digital (MTD) there are three key changes: digital record keeping, digital submission of VAT returns via an API, and a digital audit trail using digital links from the source data through to the submitted VAT return. The first two of these will come into effect for those businesses exceeding the VAT threshold of VAT (£85,000) from either April 2019 or October 2019, depending on the complexity of that business’ VAT processes, while digital links will be required from 2020. Let’s look at each in turn:
- Digital record keeping: The digital records that need to be stored consist of permanent data, transaction data and the VAT account. At first this may appear to be an admin burden for many businesses. However, for those businesses with accounting systems in place, this data is usually already stored. It is still important to check you are recording the relevant information required, especially if some of these records are recorded on spreadsheets.
- Digital submission: Businesses will no longer be able to submit their VAT Return though HMRC’s portal and will be required to relay the necessary data to HMRC via an Application Programming Interface (API). An API is a mechanism whereby a software program enables the exchange of data with other software programs by agreeing a common language for them to talk to one another in. Or to put it another way, if that data were a physical thing, stored in a room, an API could be seen as a door to the room, allowing you to open it to pass the relevant information through and securely close it afterwards.
- Digital audit trail: A digital audit trail will be required by April 2020. This is the link between your source data all the way through to the nine boxes that are submitted to HMRC. Quite often many businesses already have a digital link in place. For example, if you are using an accounting system and exporting data through a standard report which feeds into your VAT calculation spreadsheet, that is a digital link; there is no need to change that process to stay compliant. What you need to do is to ensure you cut out any copying and pasting of that data into a spreadsheet from the accounting system as this constitutes a break in the digital link. It should be emphasised that this requirement will not apply until April 2020 so you may continue to copy and paste during what has been termed the ‘soft landing period’ (April 2019-April 2020) and should use this time to improve processes/eradicate manual intervention.
As of today, for those using a VAT calculation spreadsheet, the good news is that you don’t need to change it. The first step on the path to compliance for MTD is in fact very simple. From April 2019, the mandatory requirement from HMRC is to just digitally link the nine boxes from your spreadsheet to HMRC.
Our solution, AlphaBridge, facilitates this. Not only does it allow you to link from the boxes in your spreadsheet workbook to submit these to HMRC but we also provide you with a portal that will allow you to retrieve data from HMRC as well. This will enable you to view your previous MTD submissions, any future obligations for your entities, any VAT payments made and any VAT liabilities, all via a centralised dashboard.
AlphaBridge in action
Once you have logged into the AlphaBridge portal, the first step is to add your VAT registered entities. You then need to authorise the solution to communicate with HMRC. The portal will guide you through each step, allowing you to log onto the government gateway and grant authority which is then valid for 18 months.
With the entity set up, the content sensitive icons on the dashboard will prompt you to complete the next outstanding step, which is to download the AlphaBridge template.
Once downloaded you will need to set up your digital links. This takes a matter of seconds and can be done by inserting the ‘equals’ sign into the template and clicking on the cell in the your existing VAT calculation spreadsheet. It’s as easy as that.
Clicking on the ‘Post to AlphaBridge portal’ button sends us to the dashboard from where we can click the ‘Submit return’ button. The portal will then summarise the submission and request us to make the declaration that the submission is true and complete. Hit submit and the return is then sent to HMRC via the API, with delivery confirmed in the form of a receipt. This is stored back in the portal to give a record of all submissions made.
I should emphasise that the spreadsheet and transactional data remain on your system. They are not linked to the portal or HMRC. The only information linked across pertains to the nine boxes.