Far from being the end goal, Making Tax Digital for VAT is the first step in the digitalisation of the tax regime. It’s evolved from HMRC’s desire to increase tax revenues and reduce tax evasion which, since 2016, has seen a wave of local and international reporting obligations and demands for increased tax transparency. Digitalisation will ensure tax processes become more efficient and accurate, helping the tax authority to reduce the margin for error and shrink the tax gap, but it also holds gains for the business.
The increased regulatory burden created by HMRC has seen resources stretched and Chief Financial Officers seek to do more with the same resource. Traditional manual approaches have struggled to cope with the scale of the challenge, forcing businesses to embrace technology to automate processes, identify areas for improvement and increase efficiency. But adoption has been piecemeal, posing a problem for HMRC.
MTDfV will change all this by making automation a must-have but it shouldn’t be the ‘end game’ for the business. By taking a more holistic view of automation we can see it as a strategy that has the power to confer multiple advantages.
Benefits of Automation
- Increased productivity: frees up tax professionals to focus on other tax activities better utilising their specialist skill sets.
- Operational efficiency: streamlines data collection, calculation and submission processes.
- Greater governance: provides more control over data by bringing the processing of data in-house.
- Cost savings: advisor time spent on compliance work should reduce, as a result many businesses will reap substantial cost savings of up to 50 percent on annual advisor spend.
- Attract and retain skilled staff: appeals to latest generation of technology-savvy professionals and makes job roles more attractive by minimising the time spent on manual data processing.
- Specialist skills: allows the business to build out the tax team and to recruit those with specialist technology skill sets while the qualified tax team are utilised for value-add such as tax planning.
- Data accuracy: enables data to be collected more swiftly and reliably which in turn makes that data more reliable and trusted. This will support data analysis that can be used to measure performance, drive innovation and aid decision making.
- Reduced errors: prevents errors from being introduced by removing the need for manual data entry.
- Reduced complexity: mines data from numerous accountancy systems to create a data pool which can be used to populate multiple computations
- Secure processes: automatic population of tax calculation and/or tax return, ensuring that data cannot be tampered with or exposed.
- Reduced risk: sees reputational and financial risk associated with non-compliance diminished through the use of automated processes. Potentially reducing the likelihood of queries from HMRC.
So what do we mean by automation in the context of MTDfV? We define it as…
“the delivery of an end-to-end compliance process, from data collection and management through to the generation of regulatory computations, culminating in compliance and electronic reporting”
The emphasis here is on end-to-end automation, not initial compliance. This is a critical distinction and one which businesses need to be mindful of when investing in MTDfV solutions.
The danger is that many will seek to implement a solution designed to meet the initial requirements for a digital VAT return, however, this could saddle the business with a short- term solution that cannot scale.
By harnessing automation to embrace all the mandatory aspects of MTDfV – from digital links to digital records to digital submissions – the business can ensure it becomes fully compliant for April 2020 AND realises the benefits automation has to offer.