In the midst of everything that the business community has been dealing with in the last year the date of the 1st April may have passed as just another day. In the VAT context, however, it was a notable date as it saw the completion for many VAT registered bodies of their roll out of the now required Making VAT Digital internal accounting process. Our reflection on how this requirement for an internal digitally linked build up for the VAT return data for submission – could be summed up as a bit of a “Curate’s egg” – some good bits, some bad!
In helping our clients prepare for the digital integration we were certainly seeing technology come to ease manual processes as accounting teams started to utilise more reports within their systems which previously had been unused. Time, for some of our clients, was saved as we looked at a “better way” of doing things and not surprisingly by doing a run through of VAT processes, issues were identified in coding, allocation of income and costs, VAT risks and VAT opportunities that could be benefitted from.
Not so good for some has been the dawning realisation that computer “packages” bought, in reality, still need work to tweak them to the nuanced needs of the sector they operate in or activities within their particular organisation. Post April we are still hearing of an internal VAT accountant allocating three days of their working week to “get” the Making VAT Digital process to work for them.
For us this has raised the question of what is the exposure to a penalty from HMRC if errors start to occur – there’s no specified penalty for not getting MVD “right” and HMRC have stated that they will be realistic in their approach as long as the taxpayer has been taking steps to ensure compliance with MVD requirements. But what is the exposure to a penalty of “not taking reasonable care” if you don’t yet know whether the VAT answers coming out of the system reflect the correct VAT liability for inclusion on a VAT return?
New systems take time to bed in – many will by now have submitted their first VAT returns using these new processes. Are the VAT flags on income and expenditure correct – does the resulting VAT nine boxes of data reflect what was expected – is there a risk that with the huge impact of COVID on the scale of figures that VAT processing errors are being masked?
One solution we offer is to undertake a Post MVD walk though of the VAT return data now dropping out of these new, hopefully, MVD compliant processes. Time this review for the submission of your second or third VAT return of this new era. Take the opportunity to ensure that your organisation can demonstrate it has taken a truly proactive approach to reasonable care of your VAT data collection and in doing so, reduce or even remove the risk of a 30% penalty should errors drop out of the processes.
Additional processes planned for Digital Platform Businesses!
We’ve always known that this MVD roll out was the first step on digital tax integration and the collection of tax relevant data. This Consultation paper, published on the 30 July, is for Digital Platforms to consider and is more evidence of that integration journey. This paper will be of interest to any Digital Platform, not just those involved in facilitating the sales of goods. Those that operate across services sectors including taxi and private hire or transport rental; food delivery or accommodation letting, should give the paper a read as it carries important details on how HMRC is looking at the way Digital Platforms should collect information about the income of “sellers” on that platform and report it to HMRC.
These are issues that reflect the thinking of the Organisation for Economic Co-operation and Development (OECD) on models for the exchange of tax information and address concerns over the challenges for compliance and tax collection that the growth of the digital economy is creating for Tax Authorities across the globe. The consultation will run until the 31 October 2021 and we would encourage businesses to engage with these discussions either individually or through their industry group. Chambers Wales can also channel industry feedback through to UK Government ministers via the Tax Policy Group at the British Chambers of Commerce.
Should any of these digital VAT related issues raise questions then do get in touch. With our VAT expertise and support why not use our Post MVD review process to look for not just areas of risk but also VAT opportunities. Don’t leave your MVD experience as a “Curate’s Egg” – Centurion can help make it a proactively delivered experience with a positive outcome. Contact us at 0330 124 7740 – email at firstname.lastname@example.org – or get in touch with your usual Centurion VAT specialist.