As we enter the final phase of HMRC’s MTD for VAT, we believe that the right software can deliver more than just compliance. Specialist VAT software will reduce risk, increase accuracy and control, as well as drive efficiencies.
From 1st April 2022, HMRC’s Making Tax Digital (MTD) for VAT will apply to all UK VAT registered businesses, regardless of turnover. It’s expected that this will affect some 1.1 million businesses as organisations that were previously excluded (with a VAT taxable turnover threshold of under £85,000), now fall into scope. As expected, most of these businesses will be some of the smallest, including landlords and the self-employed. However, it may come as a surprise to know that a significant number of global businesses are also affected.
UK subsidiaries will be subject to MTD for VAT
Many international corporations that have headquarters in other countries, may also have a VAT registered UK subsidiary; and it is these subsidiary businesses that could now find themselves falling under the scope of this MTD extension. Arguably, it is also these businesses that stand to gain the most by being included in this next wave of MTD for VAT.
Because these UK subsidiaries are small (remember they fall under the £85,000 VAT threshold), the global organisation may simply attribute VAT as a cost to the business. i.e., the VAT amount may not have been significant enough on its own to justify adopting a more automated or digital process. Whereas previously “doing nothing” was a viable option, this extension of MTD for VAT, means these organisations now need to “do something“ to be compliant. That ”something” could be a simple bridging solution to connect spreadsheets to HMRC, or specialist VAT software that’s been designed to produce accurate calculations and deliver efficiency gains through automation.
As it’s some two and a half years since the launch of MTD for VAT, these organisations have the opportunity to reflect on some real-life experience of different approaches to using HMRC compatible software. Many organisations originally implemented a bridging solution, opting to do the bare minimum to be compliant. However, as a bridge does nothing to address the accuracy of VAT Returns, we found they circled back and implemented purpose-built VAT software at a later date. This is because manual VAT processes based on spreadsheets are prone to errors. Tax Systems found from assessments of >250 enterprise VAT processes (prior to the implementation of AlphaVAT), that nearly 80% had errors; half of which had a meaningful impact on the accuracy of submissions, exposing then to risk of penalties and HMRC audit.
Small doesn’t mean simple
Now just because these subsidiary businesses are small, it doesn’t mean that their processes and/or their data is simple – it can be quite the opposite!
Let’s look at foreign banks, as an example. Foreign banks with a presence in the UK, may be managing complex VAT requirements such as Partial Exemption Standard or Special Method which can add significant time and greater potential for error to an already heavily manual process.
It’s important to bear these complexities in mind when looking at sourcing HMRC MTD compliant software and choose a solution that is purpose-build for VAT (and complicated VAT at that).
By coming under the extension of MTD for VAT, these types of organisations have the opportunity to examine their VAT processes and look to gain benefits beyond simply becoming compliant. From our own experience of implementing AlphaVAT for our customers we have helped businesses: –
• Pay the correct amount of tax -reducing the risk of compliance audits and penalties.
• Eliminate spreadsheet errors
• File earlier, on average 3 to 5 days each period
• Reduce compliance workloads by 70%
• Save time, one client operating with a PESM has saved 3 months per year
Compliance, complexity, and clarity
Our mission is to transform the way people use technology, so they can spend more time on the things that really make a difference. We believe that compliance should be the minimum requirement, but not the benchmark. AlphaVAT drives accuracy and efficiency in VAT processes, enabling more time for business insights. Our specialist VAT technology is MTD compliant, reduces risk and increases control. We can offer clarity where there are complex data and processes.
If your organisation falls under the extension of MTD for VAT, then get in touch so we can discuss how AlphaVAT can help make you compliant and so much more.