Digitization is the order of the day. Just as there was a wave of transformation during the late 20th century from paper-based filing to electronic filing in PDF or HTML among various regulators, there is now another wave of change from a plain electronic format to an interactive standard.
HMRC, the UK regulator known for its appetite for modernisation passed a mandate requiring UK businesses to file CT600 in iXBRL (Inline eXtensible Business Reporting Language). The result, improved traction by HMRC with reduced consumption cost. Making Tax Digital (MTD) is another such major initiative by HMRC mainly focussed on improving and digitizing the tax system in the UK. The path set in 2015 towards a deadline of April 2018 was later deferred to April 2019 allowing the government more time to draft the regulation.
Here is a current typical scenario of how VAT returns are handled.
According to HMRC, about £9 billion is lost annually in tax due to errors. The regulator is aiming to automate the flow of data from the transactions to the VAT return, eliminating the manual process involved.
HMRC operates with two key objectives.
To meet these objectives, HMRC understands that it needs support from software providers, and has been conducting several workshops to that end. It has a stringent evaluation process for qualifying software as MTD compatible. Software providers need to demonstrate their ability to automate the data flow to HMRC to qualify. Further, it has provided a test environment for developers to establish the connectivity and test the data flow. It’s only after this that production environment access is allowed.
The readiness of filers
Come 1 April 2019, MTD initially applies only to VAT registered businesses that exceed the registration threshold of (currently) £85,000, although other VAT businesses are still encouraged to opt-in to submit VAT returns through MTD. Even though MTD for VAT comes into effect in less than a year’s time, many businesses are either unaware of the initiative or are not sufficiently ready for the change.
A recent statement by the British Chambers of Commerce (BCC) called to delay the introduction of MTD, based on a finding that 24% of businesses had never heard of the scheme.
While some companies would agree with the BCC’s view and prefer that MTD be delayed, it’s unlikely to become a reality. If companies still prepare VAT returns in Excel spreadsheets or similar programmes, then they will need a solution in place which provides a digital link from the transaction records to the VAT compatible software to be compliant with MTD.
The readiness of software providers
HMRC does not encourage the use of software where filers can fill in the VAT form and submit through an API to ensure that it’s not just a replacement for HMRC’s existing online VAT form, but is rather an automated flow of data. This includes pulling in the reportable information from software which computes the VAT return information – even if it’s a spreadsheet.
DataTracks’s cloud-based application for MTD is capable of connecting with any data source, pulling the required data for VAT return, submitting to HMRC and retrieving the feedback, all with a click. It is also capable of preparing a VAT return from the list of transactions maintained in a spreadsheet for submission. Filers get the benefit of a quick MTD implementation, irrespective of their data source. Thanks to our 13+ years of experience in compliance reporting – that includes iXBRL reporting to HMRC since its inception – we always ensure that we’re ahead of the curve in providing reporting solutions that help our customers comply effortlessly. For more information on how DataTracks can assist your MTD reporting requirements, reach out to us at email@example.com. We’d love to help you out!