Making Tax Digital – The Latest Digital Journey from HMRC
For those not yet in the know, Making Tax Digital, or MTD, is part of HMRC’s transformation project to create a seamless reporting process. Once implemented, the new mandate is expected to create a more auditable, digital trail that will link the ultimate VAT submission numbers to their original calculation source.
The End of Manual Data Entry
Citing a number of benefits to the customer, such as better use of information, tax in real time, and a future bright with the prospect of a more comprehensive financial picture on their digital accounts profile, the new mandate aims to replace the current status quo: a series of disparate reporting systems or spreadsheets cobbled together out of necessity in order to cater for adjustments and generate the final VAT returns (sound familiar?).
The HMRC portal will no longer accept manual keying, and firms will need to show evidence of “cradle to grave” documentation of their numbers’ journey through a “digital link”. In the furtherance of this digital link, HMRC has released publicly available technical guidance that will allow firms and their chosen software partners to build an API (Application Programming Interface). This will facilitate the data transfer from source to submission by plugging into the HMRC portal.
The Latest News from HMRC
HMRC suggested a number of changes to implement which will bring current processes in line with their expectations. Because of the ever-evolving nature of technology, this will require revision from time to time and should be regularly referred to until the standards are more mainstream.It is clear that the digitalisation of the Tax process is a work in progress, and that HMRC sees the initial VAT phase as one step on the journey in advancement towards the digital age. It is also clear that HMRC is expecting to see both change and additional compliance from their customers.
In light of this, Arkk Solutions conducted a survey within its existing client base (which represents 25% of the FTSE 500) to find out what Making Tax Digital looks like internally. Nearly 70 % of respondents are seeing MTD as an opportunity to transform their finance function in order to future proof for what is likely coming down the road. For many, this means an overhaul of existing systems and processes, moving towards smarter technology that mitigates manual interference.
The Start of the Journey
It’s true that HMRC is scaling back digital projects to ‘release project capability to EU Exit work’. Before you breathe a sigh of relief, you should note that according to the email from HMRC to its stakeholders in April, mandatory reporting for VAT for those with taxable turnover above the VAT threshold (currently £85,000) is indeed still on track to begin in April 2019. And with a pilot scheme already underway, there is no turning back now.
Firms who meet the threshold but are less complex in their makeup are beginning to test through a pilot scheme. The plan is to continue rolling out the pilot on a voluntary basis to all firms that express an interest in joining the testing phase. HMRC encourage as many firms as possible to make use of the pilot phase. This will allow HMRC to gain sufficient test-cases through from their end, and ensure that every firm’s chosen mechanism does what it says on the tin to comply with the mandate.
If you’re interested in hearing about how Arkk Solutions is assisting firms with their digital journey, register your interest here.