MAKING TAX DIGITAL - Ernst & Young2019/04/01 · I know what the Making Tax Digital rules are, but...

MAKING TAX DIGITALOur guide provides information on HMRC’s Making Tax Digital for VAT requirements, the questions that we’re seeing organisations ask, and how we can help.

FIRSTQUESTIONS

Click buttons for answers


Why is Making Tax Digital being introduced?Global tax administrations are embarking on transformational digitisation programmes as they seek to use existing and emerging technologies to manage and use data more effectively.

Their aim is to improve the collection of tax by making better use of their resources to reduce errors and non-compliance.

In the UK, this has resulted in a £1.3 billion government investment to introduce Making Tax Digital.

The changes are being implemented in relation to VAT first, but other taxes are expected to follow at a later date.

01 First questions


What are the Making Tax Digital for VAT requirements?Under the Making Tax Digital for VAT rules, organisations which fall into the regime must:

• Keep digital VAT records

• Evidence a digital journey from source systems through to the VAT return

• Use authorised software to submit the 9 box VAT return figures to HMRC

01 First questions


Who do the rules apply to?• All organisations VAT registered, or required to be, in the

UK with a taxable VAT turnover which exceeds the UK VAT registration threshold (currently £85,000) will need to meet the Making Tax Digital requirements.

• The £85,000 Making Tax Digital taxable turnover threshold applies to UK established businesses, non-established businesses and distance sellers.

• If a business is voluntarily VAT registered, i.e., its taxable turnover is below the £85,000 taxable threshold, it can choose whether to submit its VAT returns and keep its VAT records in accordance with the Making Tax Digital requirements.

01 First questions


When do I need to be Making Tax Digital ready?• The majority of organisations needed to be Making Tax

Digital compliant by 1 April 2019.

• Deferred organisations needed to be compliant by 1 October 2019. Deferred organisations include VAT groups, those with a VAT division, NHS Trusts, local authorities, overseas traders and those required to make payments on account.

• Entities using the GIANT (Government Information and NHS Trust) service will not be required to join MTD before April 2022.

• There will be a 12 month ‘soft-landing period’ in relation to the digital journey requirements.

• HMRC has also announced that businesses can apply for additional time to comply with the digital link requirements where a business has complex or legacy systems. Click here for more information on the extension to the digital journey requirements.

01 First questions

WHAT IS A DIGITAL JOURNEY

AND WHAT ARE DIGITAL

LINKS?



What does HMRC mean by a digital journey?HMRC will require organisations to demonstrate a clear digital audit trail from source systems to VAT return filings. This includes digital links throughout the VAT return process.

02 What is a digital journey?


What is a digital link?Where data is transferred, exchanged, recaptured or modified this must be done via a digital link.

A digital link is the transfer or change in data via electronic means. There should be no manual intervention or involvement such as manually typing information from one piece of software to another or a person copying and pasting data across. The digital link can be very basic, e.g., linking two cells in a workbook using a formula.

However, HMRC accepts that there are adjustments which need to be made outside approved software, for example, partial exemption calculations. These manual adjustments are acceptable so long as they are backed up by a clear audit trail.



When do I need to have digital links in place?Digital links will need to be in place in line with the organisation’s Making Tax Digital commencement date. However, HMRC has introduced a 12-month soft landing period for all businesses during which the Making Tax Digital, digital link requirements will be relaxed.

HMRC is also allowing a further extension to the digital links requirement by application only. This is aimed at businesses with complex or legacy systems. Further information on this extension application can be found here.


ARE YOU READY?


I know what the Making Tax Digital rules are, but how do I assess how ready we are?EY offers two readiness styles which are scalable and can be tailored according to the organisation’s needs.

Electronic questionnaires

• On-site or desktop review• Online questionnaire completed by organisation through

EY Client Portal• Automated scoring and risk rating• Heat mapping and report of findings identifying• Making Tax Digital gaps• Prioritisation of areas requiring further analysis and remediation• Particularly beneficial where there are a high number of VAT

returns across the group

On-site or desktop review

• On-site or telephone detailed walkthrough of processes• Process mapping• Identification of Making Tax Digital gaps• Options and recommendations to close gaps• Focus on tactical and strategic fixes

03 Are you ready?

I am not sure which areas I need to focus on to become Making Tax Digital ready. What actions should I take in the short and long term?Short to medium term

• Identify key data, systems and processes to understand how the changes will impact your overall VAT reporting process.

• Areas of manual intervention should be identified and digital links should be developed to replace these.

• Ensure that all stored data sets are complete and that a process is in place to digitally store and readily access data.

• Ensure that approved software is in place for mandated ‘go live’ date.

Medium to long term

• Gap analysis of the VAT source data and reporting process should be carried out and possible tech solutions should be evaluated and recommended based on any gaps identified.

• Ensure accuracy of manual calculations such as partial exemption calculations.

• Map out potential risks and controversy areas.• Re-assess the digital tax strategy and tax function effectiveness,

particularly as Making Tax Digital gathers pace.

03 Are you ready?

I am pretty sure we are compliant so why spend time and money on readiness assessments?• All businesses should have a tax risk framework and Making

Tax Digital should be approached in the same way. Taking time to prioritise any readiness issues may save time, cost and resources in the long run.

• Readiness assessments should provide a level of comfort allowing organisations to consider short term fixes against long term solutions and plan the best way forward.

• Examples of Making Tax Digital best practice can be considered if a more in depth risk analysis is undertaken.

• You can work towards ensuring that the appropriate budgets for the tactical or strategic fixes which might be necessary are in place.

• You can also demonstrate to HMRC that you understand the requirements.

03 Are you ready?

EXTENSION TO THE DIGITAL

JOURNEY REQUIREMENTS


What is the extension to the digital journey requirements?• A 12 month ‘soft-landing period’ currently applies to all

businesses under MTD. However, HMRC has announced that businesses can apply for additional time to comply with the digital link requirements if they are unlikely to be ready by the end of the current soft-landing period. HMRC has given a number of examples in the public notice, e.g., where a business has complex or legacy IT systems or where it has acquired another business.

• This extension is intended to be granted only in exceptional circumstances and must be applied for using a detailed application form and additional documentation.

• The application for an extension must be made before the end of the current soft-landing period.

04 Extension to the digital journey requirements

What must I include in my application?The application for an extension must be made before the end of your soft-landing period.

The following details must be included in your application:

• Explanation of why you will not have digital links in place in time

• Details of the systems which are unable to be digitally linked, including system maps

• Explanation and timetable (this should be no more than a year after your original soft-landing period) of when and how you will be MTD compliant

• Details of the controls that will be put in place to ensure any manual transfers during the VAT return process are accurate

NB. Cost alone is not a sufficient reason for an extension to be granted.


What happens while my application is being considered?Businesses are expected to continue progressing their plans to become MTD compliant while their application is being considered. If your application is declined, you will be expected to be compliant.


What should I do before making an application?Given the detailed application necessary, and the risk that the application may be denied, we recommend all business considering an extension undertake a readiness assessment as soon as possible.

This will give you a better understanding of the likelihood of an extension being granted, as well as highlighting the key areas where you are currently noncompliant with MTD, which will feed into the explanations and system maps you need to provide to HMRC.


http://mation on readinessassessmentsI-know-what-the-making-tax-digital-rules-arebut-how-do-i-assess-how-ready-we-are31748406

COMMON QUESTIONS


Is Excel compliant with Making Tax Digital?Yes, as long as it meets all the Making Tax Digital requirements, in particular, the digital links requirements.

05 Common questions

I have lots of manual adjustments, what should I do?Manual adjustments such as partial exemption calculations and capital goods scheme adjustments can be completed outside the Making Tax Digital return records.

However, once a final figure is added in, it will need to meet the Making Tax Digital requirements — for instance, if the figure is added to an Excel workbook, certain controls would need to be in place to ensure the figure is locked down.

05 Common questions

My organisation uses a number of different systems and is complex. How can you help me?Complex organisations which are not able to adapt their VAT/GST compliance processes to fit within the rigid requirements of a standard off-the-shelf VAT compliance software may wish to think about a bespoke proposition.

More details about our bespoke global VAT return reporting tool is available here in Section 06 — How we can help.

05 Common questions

Our data quality needs improving. What should we do?Improving data quality can reduce time and costs going forward by increasing accuracy and reducing the risk of errors.

Organisations can either:

• Review and improve data in-house, or

• Ask a third party, for instance, EY uses EY Data Schema

05 Common questions

HOW WE CAN

HELP


Readinessassess,emt Making Tax Digital readiness assessment

Tactical fixes Strategic changes

Beneficial where there are a high number of VAT returns across the group and desire for overview of Making Tax Digital readiness

Readiness assessments enable organisations to prioritise, plan and budget for any necessary remediation steps to become Making Tax Digital compliant

Beneficial where there are a limited number of VAT registrations or processes in place and desire for detailed assessment and solution identification

Assess

Change

Source systems

Data reliability

Electronic questionnaires

On-site or desktop review

VAT return

process

Quick fixes to address manual touchpoints and enable API (Advanced Programming Interface) submission

► Enhancements to Excel spreadsheets

► API solution

Step change in compliance processes to address digital journey

► ERP system improvements

► VAT compliance technology (e.g., EY’s Global VAT Reporting Tool)

EY offers two readiness styles which are scalable and can be tailored according to

the organisation’s needs

Readiness assessments

06 How we can help

Readinessassess,emt

06 How we can help

Excel based reportingFor organisations comfortable using Excel to prepare their VAT return and working papers, we can assist by enhancing workbooks and processes to be Making Tax Digital compliant, reducing the risk of error.

06 How we can help

Data extraction

Data consolidation

Handling exceptions and errors

Handling one-off corrections

Handling adjustments of various complexity

► Eliminate copy/paste

► Eliminate copy/paste ► Eliminate manual keying

► Automated filtering and exception identification

► Automated calculations

► Formula based calculations ► Clear audit trail

VAT process step

What can be achieved with Excel functions

Readinessassess,emt

06 How we can help

Global VAT Reporting ToolOur VAT return tool is called the Global VAT Reporting Tool or GVRT for short. GVRT is MTD compliant, and is available in three different formats:

06 How we can help

Type of outsourcing

Relevant to Summary

Accelerated GVRT Organisations with structured data and a relatively simple VAT return process.

A standardised version of GVRT, compliant with Making Tax Digital , which reduces internal compliance time and costs.

Bespoke GVRT Organisations with complex data and transactions; a large number of manual adjustments and calculations; low level confidence in the reliability of source data; concerns over the accuracy of VAT determination on transactions.

A fully customisable tool which can be used with unstructured data.

Software as a Service GVRT

Large/medium-sized organisations looking to drive efficiencies through automation and standardisation.

A standard version of GVRT, hosted on the cloud.

Our VAT return tool is called the Global VAT Reporting Tool (GVRT). GVRT is Making Tax Digital compliant, and is available in three different formats:

Data analysis and process

tracking

Check tax technical accuracy

Review and correction

VAT return production

Load finance system

transactional data

Generate return and

working papers

Readinessassess,emt

06 How we can help

OutsourcingSome organisations are choosing Making Tax Digital as the driver for outsourcing. We offer two main outsourcing options in response to Making Tax Digital. For further information, please contact your usual advisor or one of our Making Tax Digital contacts.

06 How we can help

Type of outsourcing Relevant to Summary

VAT compliance outsourcing Businesses who want to outsource the VAT return process on a UK only or a global basis

We can assist by providing a standardised outsourced process which is fully Making Tax Digital compliant.

Full finance outsourcing (EY Absolute)

Generally small/ medium-sized businesses

We have a specialist team who can assist with outsourcing the entire Finance function — the VAT compliance element meets Making Tax Digital requirements.

Readinessassess,emt

06 How we can help

e-filerAll businesses caught by the Making Tax Digital rules will need Making Tax Digital compatible software to submit the VAT return.

Our e-filer is our technology solution for Making Tax Digital. We have successfully submitted a number of live VAT returns using the e-filer.

Hosted within a secure EY Client portal

• Uploads and submits VAT return files to HMRC’s portal

• Businesses will need to set up a Business Tax Account with HMRC

• Requires no systems or software changes

06 How we can help

Watch a video of our e-filer here

https://www.youtube.com/watch?time_continue=5&v=YY6YY3Pj0Kk&feature=emb_logohttps://www.youtube.com/watch?v=YY6YY3Pj0Kk&feature=emb_logo

To find out more about Making Tax Digital for VAT please contact your usual EY contact, one of the people listed here or visit our Making Tax Digital page.

Fiona CampbellAssociate PartnerKnowledge and Go-to-Market Indirect Tax [email protected]+ 44 20 7951 3625

Chris TaylorSenior ManagerTransformation [email protected]+ 44 20 7951 4329

Ben WoodfieldSenior ManagerTransformation [email protected]+ 44 20 7951 1123

Millie LawrenceTax AdvisorKnowledge and Go-to-Market Indirect Tax [email protected]+ 44 20 7951 7101

FURTHER INFORMATION

AND CONTACTS

https://www.ey.com/en_uk/tax/making-tax-digitalhttps://www.ey.com/en_uk/tax/making-tax-digitalmailto:fcampbell%40uk.ey.com?subject=mailto:chris.taylor%40uk.ey.com?subject=mailto:ben.woodford%40uk.ey.com?subject=mailto:mlawrence2%40uk.ey.com?subject=

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MAKING TAX DIGITAL - Ernst & Young2019/04/01 · I know what the Making Tax Digital rules are, but...

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