In our recent snap poll of the readership of Taxation magazine, we found 62% were keen to pretest the process ahead of the compliance deadline. Given that the mandate also signifies the end of the soft landing period, this is no real surprise. The end of the soft landing means HMRC will be able to penalise any business that has not met the compliance requirements under MTD so it makes sense to ensure your processes are tried and tested prior to the mandation.
Prepare your process and your people
Deploying the system ahead of time confers a number of advantages. Not only does it allow you to pretest and address any issues but it also ensures your finance and/or tax team is prepared and has had the time to adjust to the new process. Adapting to a totally digital end-to-end system is likely to see workflow change substantially. Teams will need to…
Replace manual processes: HMRC has already made clear that manual actions such as cut or copy and paste will not be allowed under the digital links mandate. This means teams will need to become familiar with using automated processes to upload source data and carry out calculations, amendments and adjustments.
Identify and correct errors: Digitalisation means it now becomes possible to carry out automated data cleansing. Flagging anomalies in source data allows the necessary adjustments to be made prior to calculation and submission. This capability can identify:
- Duplicates across multiple data source
- Transactions outside the current reporting period
- Unexpected VAT rates in transaction data (other than 0, 5 or 20%)
- Transactions between entities in VAT groups that should be excluded from the Return
Automate the review process: The review process is perhaps the most time intensive aspect of the VAT process. Once regarded as ‘the simple tax’, VAT has become increasingly complex and 20% of businesses now spend over 50 days per year just producing their VAT Returns. Source and tax data analytics can be used to provide trend analysis and insights to make the review process more efficient, leading to greater confidence in reporting accuracy, and as a result, less time is spent checking figures. Data analytics enable the team to:
- Compare current and historic submissions and view period-on-period payments, helping to check for unusual deviations/errors
- View data summaries that highlight areas of potential inaccuracy (e.g. blocked, excluded, manual adjustments), allowing you to remove and recalculate
- Gain insights to support forecasting, such as forward liability projections.
- Validate data quality and error rates
Prove compliance: To demonstrate compliance with all the MTD requirements under phase 1 (digital records and submission) and phase 2 (digital links) you’ll need to be able to provide a digital audit trail. This should be fully automated and include timestamped data trails that reveal when and how calculations were made. The trail must be digitally linked to prove 100% compliance from source to submission.
Early compliance will enable you to quickly adjust to the new requirements and benefit from reduced workloads, allowing your business to benefit from extra time/resource that can then be spent more productively on other tax tasks.
To explore how we can help you comply with the digital links mandate and avoid the rush leading up to April 2021, contact us today for an AlphaVAT demo. Please click here to book your session.