In the fourth of this six part series (4/6), in conjunction with Tax Journal magazine, we look at how a scalable Making Tax Digital solution can provide the business with additional functionality as well as ensuring compliance.
Making Tax Digital is here. For those businesses still unprepared, there is now a sense of urgency to find a solution to avoid the risk of non compliance.
As covered in our previous article, the options are: outsource, develop in-house or adopt an off-the-shelf HMRC recognised solution. Outsourcing to a third party can be cost prohibitive, developing in-house is not feasible given the time frame (and can see the business encumbered by solutions that don’t scale), and purchasing software, while the most pragmatic solution, leads to the problem of selection.
With MTD having attracted multiple new software suppliers to the market, it’s hard to choose from over a hundred solutions all of which seem very similar and many of which have focused primarily on the bridging element, the lowest common denominator required to be compliant.
The easy option is to settle for a solution that will provide basic 2019 compliance without considering the longer term and asking: Is the solution a one trick pony or will it pave the way for digital linking mandated from April 2020? Will it automate processes, validate calculations, empower staff, and streamline workflows? Will it integrate with systems and scale to meet more complex VAT reporting requirements? What is the level of experience of the vendor and the customer support on offer?
Four steps
To successfully deliver on all fronts, a solution needs to evolve alongside compliance requirements and take into account the business’ appetite for automation. If the business can align its processes and software accordingly, disruption and costly integration projects can be avoided. This overcomes the main problem associated with MTD: change management. To achieve this evolution, the MTD strategy needs to cover these four steps:
Step 1: Satisfy the 2019 requirements by adopting a solution that creates a digital bridge between the existing VAT calculation and the HMRC API for submission.
Step 2: Implement a solution that provides digital links from relevant source data and seamlessly integrates with the VAT calculation spreadsheet or compliance engine, satisfying the 2020 requirements.
Step 3: Deliver business benefits by implementing a comprehensive end-to-end compliance solution which provides detailed calculations, data analysis, diagnostics and the benefit of having everything in one central location for audit purposes.
Step 4: Implement a solution that integrates with your existing systems to provide a data connector designed to run autonomously in the background converting the stored data created by your accounting system into a single unified form for integration with your VAT and CT compliance solutions. This ensures the business is well placed to meet future compliance requirements e.g.MTD for corporation tax.
This approach removes the need for teams to revisit their investment as compliance requirements evolve. It delivers operational benefits, improving accuracy by eliminating spreadsheet dependency, and provides the means to carry out data analysis to inform decision making. These benefits go above and beyond those conferred by basic MTD bridging software.
Functionality
So how can these steps be achieved in practice? Let’s look at the first three steps (step four will be covered in the next article).
Step 1 – The Digital Bridge
This is a very simple offering that takes data from the digital record, automatically populates the nine boxes, and submits the return. Yet with some additional functionality this can become a much more useful tool. The ability to create “test” entities and simulate the end-to-end process helps the business identify issues before signing up to MTD and is a useful training tool. Seamless integration of the bridging worksheet template into existing calculation workbooks streamlines the process. Add a dashboard displaying obligations, payments and liabilities data and suddenly we’re not just looking at a submission tool but one that delivers added value.
Step 2 – Digital Linking
Embracing full digital links from source to submission from day one, rather than taking a piece-meal approach, provides a digital audit trail and business process. It reduces the risk of errors and mistakes and makes it easier to review and analyse the data. This is achieved by implementing a solution that provides a connector, programmed to collect pre-determined data points at set intervals from the accounting system, creating a pool of data that can then be utilised to upload the data directly into the compliance calculation, while also providing a rich data source for data analysis. Furthermore, the business can avoid the need for costly systems integration and minimise disruption to existing processes. Getting this step right now will pave the way for future compliance because the same systems can be used to populate other tax returns, such as corporation tax.
Step 3 – The VAT Compliance engine
For organisations who report on multiple entities, handle large transaction volumes or have complex reporting, a compliance engine is the next step. This enables the business to automate and streamline processes while benefiting from in-built tax logic that is constantly updated, covering complex requirements such as groups, partial exemption calculations, fuel scale charges, prior period adjustments etc. providing assurance though reporting, diagnostics and checks that the calculation is correct.
If this sounds of interest, Tax Systems have developed the AlphaVAT family, comprising AlphaBridge, AlphaLink and compliance engine, AlphaVAT, to allow the business to adopt a step-by-step migration to MTD. To learn how AlphaVAT facilitates VAT compliance and beyond, sign up for one of our webinars on ‘How to get compliant in 20 minutes’ or have a look at our AlphaVAT datasheet.
