• Steve Cox , Chief Evangelist at IRIS Software Group


• 25.02.2019 12:45 pm
undisclosed

Sliding quietly into the Making Tax Digital (MTD) discussion recently was news from HMRC: it announced an extension to the MTD pilot, so all eligible businesses mandated to use the MTD service from April 2019 are now able to access the public pilot.

During the first stage, only certain types of business could join, so firms based overseas, partnerships, those submitting annual returns, and those making VAT payments on account were not able to use it. These restrictions have now been lifted.

The pilot has also been extended to groups, allowing them to start testing the service, even though they will not be mandated until October 2019. However, the news has no impact on the six-month deferral for complex businesses, which still stands[i].

The initial pilot announcement in October 2018 left businesses unsure as to how, when and even if they were supposed to submit VAT returns. For UK corporate businesses, HMRC’s initial phase exemptions provided a little thinking time for finance professionals to consider the best route to handle their complex VAT arrangements, and start developing longer-term plans. 

However, even if a business falls under the ‘deferred’ category, there is little time to prepare for the changes. So how are enterprises going to cope with MTD for VAT? Steve Cox, chief evangelist of IRIS Software Group outlines the big three areas corporates need to address.

Complex VAT 

Many enterprises use bespoke financial management systems to manage business-critical functions such as accounting, purchasing, budgeting and reporting. 

Managing corporate taxes has become complex over recent years due to globalisation of revenue streams, distributed supply chains and of course, a myriad of different currencies – all of which have added to the complexity of tax. 

Behind the scenes, legislation has added to the minefield financial teams need to navigate. Depending on the VAT scheme being followed, getting to the numbers behind the boxes can be difficult.

The introduction of iXBRL tagging almost ten years ago provided a good stepping stone from accounts production to the preparation of financial statements in a format that provides the structured data regulators and analysts require. However, with so many changes sweeping the globe, it’s pertinent to check these are correct.

Data integration

Data integration falls into two parts: firstly, creating digital links between silos. Much as the days of paper records are thankfully diminishing, anecdotal evidence from enterprises has found paper is still used. This results in manual extraction of data from documents – a process which is time consuming, inefficient and potentially fraught with human error. For enterprises who have digitised their financial operations, they must ensure the data is compatible when extracted from one system to another.

Once an enterprise has reached its final accounts position, it needs to make the submission to HMRC. However, most financial management systems do not have this capability, leaving a gap between final accounts and MTD submission. Enterprises must find solutions to bridge this gap.If a company (through acquisition for example) is using multiple financial management systems, they typically export data from each system to an Excel spreadsheet to combine the figures to create a Group VAT position. In the MTD regime they need to ensure the export process is automated and ensure the master spreadsheet automates the creation of the final figures.    

Plan, plan and plan

Are you a VAT expert? Accountants in practice tend to develop specialist areas of expertise, but in-house professionals manage a far broader scope; from expenses and tax treatments to car policies, healthcare and pensions. 

Take time to ensure there is specific ownership and planning behind the process. As time goes on HMRC may move to restrict the use of Excel spreadsheets and bridging software. This will present challenges and may require enterprises to revaluate their choice of financial management systems and to standardise on a single platform. Enterprises must give finance teams time, capacity and budget to ensure they can manage these changes and thrive in the post-MTD economy.

Taking control

There are of course, other issues facing the UK’s largest businesses in the new digital financial landscape; trading environments, hiring the right talent and capitalising on new technology are equally as pressing. 

Budgeting and financial control are the backbone of business accounting. Gaining control of these can be a time-consuming task. However, every business must adapt to changing circumstances to remain profitable. If your enterprise doesn’t believe MTD for VAT is a pressing issue, I strongly urge you challenge the status quo. Without compliant, accurate, digitally submitted accounts, enterprises will be confronted with far more serious financial implications.