Webinar Overview - Making Tax Digital for 2021

We regularly like to host webinars discussing a range of topics around tax transformation, process improvement, automation and other subjects. This time we partnered with BDO and HMRC to cover everything Making Tax Digital 2021 related, as we’re sure you’re aware HMRC have delayed the phase 2 launch due to COVID-19.

The speakers for the event were as follows:

Stephen Tucker, ARKK
Chris Evans, BDO
Verna Gallagher, HMRC

HMRC’s three strategic objectives

HMRC currently have three key strategic objectives; COVID 19, Brexit, and Making Tax Digital.

It’s important to remember why HMRC have implemented MTD in the first place. The mandate introduced in 2018 was not primarily put in place to tackle fraud and evasions but instead to help businesses get their taxes right first time.

Myth busting

There were four key misconceptions and myths around HMRC which Verna, from HMRC, set straight during the webinar:

• Frequency of filing

MTD has no impact on the frequency of filing. If you file on a quarterly basis you will continue to do so, the same for monthly filers.

• Payments

Equally, payment frequency remains the same as before the mandate.

• Records

The digital linking requirement does not mean that firms need to keep ‘new’ records. The content and make-up of the VAT submission doesn’t change, only the digital method.

• Visibility

One of the biggest misconceptions is that HMRC can see transactional data – they can’t! All HMRC receive is the 9-box figures just as before. MTD does not allow HMRC to go behind the scenes and interrogate your data.

The key points to remember are:

1. Switch to digital record keeping as close to real time as possible
2. Use MTD compatible software
3. If you’re VAT registered, ensure you are complying with the mandate!

HMRC’s objectives around MTD have not been altered by the delay, so it’s just as important that firms are still preparing to get this right.

BDO – How to see the advantage of MTD

During our session, Chris Evans from BDO commented that “This second phase where clients find themselves is when they thought they could put this off and now realise they can’t.”

Challenges around the digital linking requirement isn’t necessarily to do with VAT profile complexity, but more the fundamental issue of not fully understanding how VAT returns are initially compiled. Many firms have a ‘that’s the way it’s done’ attitude, which may rely on a number of people working on different steps of the process with no central visibility over how this all comes together. The digital and software requirements mean having to know how to get data out of all systems in a usable format and knowing how to make any adjustments centrally.

The majority of BDO’s clients see MTD as an obstacle to get past rather than the potential benefits that it could drive.

Phase 1 was relatively easy, with many companies opting for a simple bridging software approach. Phase 2 is more challenging, however, aiming for compliance-only is creates a greater burden on organisations. Whilst there are difficulties, the additional engagement with Making Tax Digital will help companies realise the far-reaching benefits of MTD. If companies see this as an obstacle, attempting to get around the new requirements and continue with their existing process, they’ll still need to do a significant amount of work for compliance and enjoy none of the benefits.

Chris mentioned that some clients are interrogating this process in more detail as a result of most of us working from home. “Some firms are really diving into the MTD requirements; how they can fix them up and gain that added value by creating a thorough process”.

Are companies prepared?

In terms of the Phase 2 mandate, 50% of attendees are currently reviewing their processes and working through data quality issues. One third are ahead and already using compatible software, with the remainder having not yet planned how they will tackle Phase 2.

When asked specifically about digital linking, the majority of firms were either reviewing their processes or actively speaking to an MTD software partner. A handful are in the process of data cleansing, whilst a small minority have not yet started thinking about this.

The twelve-month delay to the soft-landing period is a great relief to firms in these difficult times. What was covered most in our webinar was the purpose of MTD; far from the scary box ticking exercise it has been turned into over the past couple of years, the purpose of Making Tax Digital is to create a tax process, starting with VAT, to support firms in an increasingly digital world. Information on transactions should be available as close to real time as possible, with a clear trail of how data has been acquired and manipulated.

What may seem like a burden now is setting firms up for a digital future, which is fast becoming a digital present. The time for paper bookkeeping is coming to an end, and firms will need to get their finances in digital order to meet the demands of their markets.

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