Making the link – how Making Tax Digital compliance can be made easier

Lyndon Firth, Tax Partner and Head of Indirect Tax Services in the North

Making Tax Digital was introduced by the Government to make administration and compliance more effective and straightforward for businesses. A rolling programme with VAT being the first tax to be included, the next milestone is that businesses must implement digital links through their systems, in order to create the so-called unbroken electronic chain of information from the accounting system to the VAT return. This must be done by the first VAT accounting period starting on or after 1 April 2021.

While this may seem like some time away, it will present a significant practical challenge for most companies, following the relatively easy requirement to using software to submit the VAT return figures to HMRC. Businesses that take this opportunity strategically to review their systems and data beyond this immediate mandate, will save cost and time when additional taxes are later added, giving them a competitive edge.

A review is more about taking a step back to re-think and allowing yourself sufficient lead time than it is about making a significant investment. We have found many cost-effective solutions which meet an individual business’ requirements and can often avoid expensive implementation and licence fees.

What does it mean for business?
Currently, digital gaps occur where manual intervention is required, for example, copying information from VAT output files across to a VAT return spreadsheet. Businesses will need to find alternative solutions to create digital links and bridging software alone will not solve this issue.
There will be a range of potential penalties for those who don’t comply with MTD, relating to non-electronic submission, late payment, failures in digital record-keeping and digital links and for VAT errors.

Where do we start with a solution?
The right solution for you will not necessarily be the same as for others and will depend on your existing data, systems and VAT return process. When deciding which approach to adopt, it’s important to consider both these initial VAT requirements, and also likely future additional VAT MTD requirements and those likely to be put in place for other taxes. Some clients, even large organisations, are able to be compliant by using bespoke spreadsheets. For others the solution may be accounting software update/implementation, cloud platform, tax engine or low code automation.

What are the benefits?
Global tax digitalisation is accelerating the timing of tax reporting and filing obligations for businesses and upping the pressure on data governance, availability and quality. Authorities will inevitably be moving on to other types of taxes and preparing for this today is relevant and appropriate. Companies must plan, by addressing the issue holistically and strategically.

The key is not to delay this process – start planning today to ensure you’re ready and compliant. We are working with businesses to execute VAT MTD Assurance, which will deliver a summary of findings and next practical steps to deliver ahead of 2021. The combined expertise of our tax technology, VAT professionals and tax governance teams means we bring practical and strategic thinking to identifying the right solution for you.

Lyndon leads a team of 15 indirect tax specialists who work with entrepreneurial businesses and large organisations across the North. Tax Partner / North Head of Indirect Tax Services
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