Harnessing the power of digital for business growth needs to be adopted across the whole of your business in order to grow. That holistic approach needs to start somewhere; could that starting point be your tax function?
In 2015 the UK Government set out its vision for a transformed tax system with the headline grabbing ‘End of the Tax Return’. The Making Tax Digital (MTD) Roadmap explained how this would be achieved, with the objective of making HM Revenue and Customs (HMRC) one of the most digitally-advanced tax administrations in the world by 2020.
The MTD initiative aims to help minimise tax loss due to perceived avoidable errors and bring the tax system in line with other online service providers: i.e. providing a modern digital experience for users.
HMRC is also looking at how HMRC can make better use of the information it currently receives from third parties to provide a more transparent service for customers.
The key is to improve business record keeping through digital means and electronic submission – keeping digital records as near to ‘real time’ as possible and the electronic submission of returns.
The initial implementation schedule for MTD is as follows:
- VAT will be mandated from April 2019 – but only for VAT registered businesses (including unincorporated businesses, companies and LLPs) which have a turnover above the VAT threshold;
- there will be a voluntary option for the smallest businesses to join MTD; and
- mandatory scope will not be widened to other taxes before April 2020 at the earliest.
As such, for VAT return periods starting on or after 1 April 2019, VAT registered businesses with a turnover above the VAT registration threshold will need to ensure that they:
- keep their VAT records digitally;
- are able to submit VAT returns electronically via an Application Programming Interface (API) with HMRC software; and
- can demonstrate a clear electronic audit trail from source systems to VAT return submission.
It will no longer be possible to log onto HMRC’s VAT return website and input the VAT return figures manually. Looking forward, digital links will have to exist between functionally compatible software in which the original data is held, the return figures are calculated and the final VAT return figures submitted.
HMRC issued their public notice on MTD in July 2018 and last week published the list of software suppliers who have already demonstrated and tested their API software in HMRC’s test environment.
Compliance with the new requirements will require fundamental changes to the existing processes and systems of many businesses. Long implementation lead times and only seven months until the mandated start date, mean that there is a pressing need to act now: to identify gaps and implement any required changes.
On a global basis tax authorities in other regions such as Eastern Europe, South America and Spain are much further down the road on the digital journey. Given the global nature of the Energy sector we have seen an upsurge in the number of Energy businesses looking beyond the April 2019 deadline and the quick fix of an API to digital tools which enable Global VAT reporting and analysis.
MTD is likely to extend to other taxes from 2020 so while the issue today is readiness, those readiness preparations must be viewed as part of the wider strategic objectives of Tax functions.
Doing nothing is not an option as HMRC has made it clear that there will not be any delays to the implementation date of 1 April 2019.