SYSTEM 21 / AURORA UK MTD VAT delay – early upgrades required
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The latest VAT implementation date for the UK’s Making Tax Digital, 1 April 2019, means most resident and non-resident businesses will be forced into preemptive accounting system changes in 2018.
MTD – 1 April 2019 VAT filings
MTD will require all VAT registered businesses to record all transactions digitally. In addition, they must then submit their VAT return data digitally, too, via a new API interface with HMRC.
This latter requirement will oblige an upgrade of accounting system.
However, thousands of micro-businesses maintain their accounting transactions in a spreadsheet – with no accounting package. HMRC will require such businesses to buy or build an automated API access between these spreadsheets and HMRC systems. The same requirement will apply to larger businesses which first consolidate in a spreadsheet their group VAT transactions before manually entering in the HMRC VAT Portal.
UK accounting and tax year end split creates problem
In the UK, companies and private individuals may have year-end accounting dates at any month end date of their choice. The most popular date is 31 December. However, the company tax year end is 31 March, and personal tax year end is 5 April. The new MTD regime launch date has now been set at 1 April 2019 to co-ordinate with these tax year ends.
To avoid a complex mid-year accounting package upgrade, this means that businesses will have to upgrade systems for MTD at their accounting year end prior to 1 April 2019. For example, businesses with a 31 December year end will have to implement their MTD-enabled solution for 1 January 2019 – 3 months early.
Since the detailed MTD requirements are not yet available or fully tested, vendors of accounting packages are not able to confirm if they can mitigate the above problems. HMRC has indicated that further details will be available from April 2018, including a test pilot programme.
SYSTEM 21 / AURORA UK MTD – VAT landmine for large taxpayers
The UK’s 2019 Making Tax Digital (‘MTD’) proposal, to require all business to store and report digital VAT return data, has largely been portrayed as targeting small/micro businesses. The aim of MTD to improve accuracy of submissions, and reduce fraud opportunities.
However, MTD includes a requirement for a complete digital journey for data that will catch-out most large and enterprise-sized businesses. Current, widely-used manual consolidations and submissions will be prohibited, putting most large tax payers at risk of censure and fines.
Slaying the last manual mile – VAT data transfer must be digital
Currently businesses with multiple ERPs and/or members of VAT groups are usually unable to submit their UK data via an automated upload because it first requires a manual Excel consolidation of numbers. The combined VAT return data is then typically keyed in each reporting period by the taxpayer at HMRC’s web portal.
Under the MTD proposals this will be barred because it is not a complete and secure digital journey for the data. The requirement will be to submit VAT information only via API’s (Application Programming Interface – a tool/protocol which enables the exchange of data between software, typically over the internet).
For companies with the manual Excel consolidation requirement, this would require the spreadsheet(s) to be API enabled to access HMRC APIs and report data to HMRC systems. Alternatively, bridging software, such as a VAT reporting tool, could be used to transfer data from the consolidating spreadsheet(s) to HMRC. A good tool could also allow for auditable adjustments to be processed without undermining the digital journey.
April 2018 pilot
HMRC is running a pilot for the programme from April 2018, and will be looking to work with large companies on this challenge.