Making Tax Digital – The Band-Aid API Solution

Having spent the past 10 months speaking to tax experts nationwide on MTD, our Director of Sales and Business Development Danielle Cyrus shares her insights and explains why the quick-fix of an API solution may not align with HMRC’s digital vision.

What I’ve learned about slapping on a band-aid for Making Tax Digital

No, I’m not referring to the plasters you hastily apply to scuffed knees in the playground.

I’m talking about the quick fix. The tactical approach. The knee-jerk reaction because time is of the essence.

I’m talking about the many “band-aid” solutions that have appeared on the market since HMRC announced their Making Tax Digital initiative; the API only stop-gap which not only delays the inevitable but can also pose unknown risks if you’re not going in eyes wide open.

Having ridden the wave of many new regulations, and with a few product launches behind me (six in total with Arkk thus far, spanning 19 jurisdictions), I‘ve had the pleasure of meeting with literally hundreds of firms over the years, bringing onboard clients of all manner of size and complexity. With this as my frame of reference, I have no hesitation in telling you with confidence that at least 80% of those which set out to plug a technology gap with something cheap and cheerful to satisfy a new regulation, have gone on to regret it.

Even those with the plan to “eventually move to something more robust and strategic later”, have paid the price. Here’s how it goes: It’s the end of summer 2018 and guess what, the Making Tax Digital mandate is staring everyone in the face – it lands in April 2019. We all thought it would go away, but it hasn’t.

The API submission will satisfy HMRC’s Making Tax Digital requirements…for now.

Common reaction: panic stations!

You know you need to find a solution to comply with HMRC’s new requirements. The contents of those nine VAT boxes need to be submitted using a software you almost certainly don’t yet possess. Gulp! So, you grab your keyboard and furiously start logging vendor enquiries.

Start the beauty parade.

We all know the drill: for every successfully chosen piece of software, you must first conduct research to find suitable suppliers that fit the bill. You then need to meet those suppliers, carefully reviewing their pitches. Ideally, you’re looking for a final three to choose from. Of course, a business case is needed to get the Board on side including a sound justification pointing to your preferred supplier. It’s all on you… and the clock is ticking, really ticking. (No pressure, right?)

During your research, you discover there’s a tempting, seemingly easy option on the table – an API only approach. And you’ve been reassured that having the API is all that you need to satisfy the first part of HMRC’s requirement in 2019. Sounds easy enough. You decide to take it.

You put together your best business case for the decision-makers, reassuring them that the API only approach is the best course of action. It’s cheap, and it does the job – box ticked. For now.

Hooray, you’ve got the green light to go ahead – you’re away! Oh, wait. You’ve still got to barter on costs, get contracts sorted and finalise the negotiations with legal, work out the invoicing and payment terms and then, line up your team for your vendor’s onboarding process: IT security, GDPR statements, training… (I’m exhausted just thinking about all of this.)

But it still feels worth it – in fact it’s a massive relief – because you’ve solved the problem, you’ve met the deadline and you’re compliant…for now.

HMRC are expecting firms to go beyond the API bridge and create a digital link across VAT returns

False economies

Here’s the thing: MTD is a two-stage approach. It’s true that a “soft landing” exists, and HMRC expects you to submit nine VAT boxes via an API in 2019. But it is ALSO true that they expect you to be working towards a digital link of how you populated those boxes, with a view to having that process up and running for the 2020 submission.

So, you’ve gone through all the hassle of courting vendors, trawling through that time-consuming, tedious selection process, and getting the business on side – for what? Only to tell them that they will have to have this back on their agenda again this time next year? That you still haven’t satisfied the digital linking requirement and now need to find something for that? That you were too busy to sort it out properly the first time around? If you think you are short on time this year, let’s be honest: what’s going to be different next year?

Does it still feel worth it?

If you recognise there is a better way of approaching MTD, then why not get in touch and hear how we are transitioning our customers through the next two years on a more strategic journey to full compliance with HMRC’s mandate.

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