How do companies adhere to MTD and what are the risks of not complying with MTD for VAT returns?
The current stage of MTD for VAT requires businesses to store and maintain all Accounts Payable and Accounts Receivable data in electronic form using functionally compatible software.
In other words, using technology that can store and maintain records, perform the required calculations, and submit the information to HMRC directly via their Application Program Interface (API). Those wedded to the use of spreadsheets will find that whilst they can continue to be used, they will require additional software to handle the digital submission piece.
From a UK perspective some of the risks of failing to comply remain the same, there will still be the default surcharge, for example.
Many companies are failing to meet the deadline- how can they be prepared in advance?
Our own survey, conducted in July 2019, suggests that 32% are still deciding what their final software solution will be for submitting returns, and that may be contributing to any challenges they face with compliance now.
Only a fifth are using bridging software which is widely seen as sticking plaster approach, choosing instead to consider complete digital tax reporting solutions, that will not only mean they can make MTD submissions, but are better prepared for the global shift towards digital tax reporting, with the transparency and accuracy that creates for governments.
As companies make more returns, they will of course find the process easier, whatever approach they use. The key to preparedness is having a cross-discipline team focused on defining and implementing a more efficient process driven by the right software. But perhaps one of the most overlooked areas is training teams on how processing VAT will change in the organisation and giving those team members the right level of support in those early days.
Why are some companies today reluctant to the usage of MTD? What incentives are there for them to adapt?
Change is always difficult to accommodate, but sometimes we do have to accept that in the long run it is for the better. Many British businesses are facing uncertainty at the moment, especially those with non-domestic customers or suppliers. So, I am not so sure it is a matter of being reluctant, more a matter of balancing the transition against all the other things they need to do.
Whilst companies are bound by law to comply with MTD for VAT, they should see investments in digital tax reporting software platforms as preparing for the future – they bring immediate benefits – and that is an incentive.
Overview of MTD at gov.uk
In our poll, whilst many companies have only recently started filing under MTD for VAT they already acknowledge a number of benefits to being involved in the scheme, such as streamlining tax compliance processes through automation and improved reporting. Half (51%) have reported now having simplified or more efficient processes, with 32% saying they now have more accurate VAT returns. Perhaps one of the most valuable aspects of reporting under MTD for VAT is that already 19% of companies have found they have better visibility of their tax liabilities so early into the scheme.
Do you believe the UK has entered a transitioning phase in accountancy today, especially in terms of software use for tax reporting?
Yes, we are definitely moving through a transitional phase. MTD for VAT is the start of a move towards much wider adoption in the UK of digital tax reporting. But this change is global, governments are looking to maximise technological advances for the efficient collection and verification of transaction information to calculate a wider range of taxes and ultimately generate much greater tax revenue – the submissions of indirect tax returns is just the first step.
Examples of the move toward wider digital tax reporting include Spain’s Suministro Inmediato de Información (SII), the Standard Audit File for Tax (SAF-T), India’s Goods & Services Tax (GST), and the Gulf Cooperation Council VAT.