Making Tax Digital and spreadsheets: Transition before you transform

It’s the end of the tax return as we know it: Making Tax Digital (MTD) is an HMRC run initiative that aims high. Designed to transform the UK tax system, MTD endeavours to do what it says on the tin by making tax digital, more efficient and simpler for taxpayers and advisors alike.

It’s a compulsory digital tax system that will initially be applied to those over the VAT threshold and will ultimately look to transform the filing of VAT into a seamless, end-to-end fully digital experience. Currently the HMRC’s online service accounts for nearly 90% of all VAT submissions, but by April 2019, this service will be removed. Businesses with a turnover above the VAT threshold of £85 000 will be driven to either use an advisor (who must use software) or use online software that is API-enabled to perform the submissions.

Some firms are concerned that they won’t be able to make the transition to the fully ‘digital’ software environment in time for the deadline. While most firms file online, the software journey taken to reach data entry into HMRC’s online portal often involves a self-selected set of support tools frequently featuring spreadsheets, the use of which has been highly debated as MTD compliance legislation has been released.

Bridge the gap: Spreadsheets and MTD

Simply put, when MTD states that VAT return data must be kept and filed digitally, it means this: the software businesses use must can provide information to HMRC and receiving information from HMRC digitally via their Application Programming Interface (API) platforms.

Technically, Excel exists outside of the end-to-end digital software category that HMRC is ultimately positioning for the new initiative. However, in July HMRC released its final addendum to the VAT notice which states that spreadsheets can continue to be used, providing they are used in conjunction with a solution that can submit to HMRC and the information can be submitted digitally. This means a transition to bridge software or API-enabled spreadsheets to digitally submit VAT return data to HMRC when using Excel for calculations.

Transition before you transform

The continued use of spreadsheets in the VAT process should allow the transition to MTD to be more straightforward, with advisors able to maintain current VAT calculations they have today within spreadsheets.

The fact is, spreadsheets are still regarded as a highly valuable tool especially when it comes to VAT calculation and filing not only thanks to its flexibility, but because it can accommodate different processes amongst different advisors within a firm, where there is often a bible for how to file VAT.

While MTD is encouraging firms to move to fully digital accounting software, it’s essential that businesses walk before they run. Advisors will need support with how the digital link from these spreadsheets to the VAT filing tool will work in practice as they make the transition to MTD.

Additionally, many advisors have significant legacy calculations and formulae within spreadsheets for specific clients that may require some thought and planning. ‘Spreadsheet-aware’ products will begin to emerge on the market, which can monitor and file VAT submissions from multiple bookkeeping solutions, meaning that advisors can keep using existing processes and software with minimal disruption.

Overall, while it’s great news that spreadsheets can continue to play an important role in the MTD digital journey, advisors should still be thinking about how MTD will impact their practices and their clients. Ultimately, MTD is a great opportunity for firms to make a step-by-step move to digital to improve processes and offer clients a better service. If the transition is handled correctly, firms can indeed expect MTD to transform business over time, with increased efficiencies giving advisors valuable time to grow their client base and capitalise on new revenue opportunities.

For more insight and guidance on MTD and embracing digitalisation, keep an eye on the Wolters Kluwer insight as we continue to bring you the latest updates.

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