Making Tax Digital (MTD) is an HMRC initiative to bring change in the UK tax system and eventually bring an end to the self-assessment system.
The main aim of Making Tax Digital for VAT was making the VAT returns more efficient, cost-effective, and simpler for the taxpayers by implementing a fully digitalized tax system this 2020, while also dropping HMRC’s expenses for administering the tax affairs.
These changes apply to an array of taxpayers, that comprise most businesses, self-employed specialists, and landlords. This innovative and improved system necessitates the majority of the business owners to maintain digital records with the help of compatible software.
Why Do You Need MTD Software?
Businesses that are VAT registered and have a taxable turnover of above the VAT threshold, will have to comply with the Making Tax Digital for VAT rules.
It is not new for businesses to keep their accounts digitally, maybe on a computer or tablet, or in a smartphone app, or preserved on such a device and kept using a cloud-based application Businesses have long been doing this, so then what is new about MTD.
Under MTD it is necessary that the software which businesses use is capable enough to maintain the records as per the specified norms, preparing for their VAT Returns make use of the data maintained in those digital records and communicating digitally with HMRC through the Application Programming Interface (API) platform.
This clearly shows HMRC’s intention to digitally keep the full VAT journey of business starting from recording and storing of transactions, VAT return preparation and filing the same at HMRC. MTD rules laid down responsibility on businesses to maintain a digital link between their VAT accounting records and HMRC’s systems. The prime objective of the need for MTD software is to comply with the digital link requirement by MTD for VAT rules.
What is MTD Compatible Software?
The sole solution to ensure your firm’s VAT affairs are 100% in compliance with the new rule is using a functional compatible software, in other words, we can say VAT management software that is recognized by HMRC and is capable of establishing digital links with the MTD systems.
If you have kept your digital records up to date, then here’s what happens step-by-step
Functional compatible software is a software program, or set of software programs, products or applications, that must be able to:
- Record and preserve digital records
- Provide HMRC with the information and returns from data kept in those digital records by using the API platform
- Receive information from HMRC using the API platform
As per HMRC’s expectation, there may be some of the software products which can perform all the above functions. But apart from those, there may also be some of the software products like Spreadsheets is capable of recording and preserving digital records may not be able to perform the other 2 functions listed above, but can still be a component of functional compatible software if it is used together with one or more programs that do perform those functions
The complete set of digital records needed to be MTD compliant does not have to be kept in one place or in one program. You can keep the Digital records in different compatible digital formats. All these together, form the digital records for the VAT registered businesses.
You can use spreadsheets to evaluate or recapitulate VAT transactions and work out what information you need to send to HMRC, provided either cell in spreadsheets are linked or spreadsheets are linked to other software in a way that data flow will be automated. You can read our latest blog on Digital Links to help you understand Digital record-keeping and its importance in MTD.
What to Look for When Choosing MTD Software?
When looking for an MTD compliant software cost element in itself is not the only factor to consider but is one of the prime factors amongst others those are required to be kept in mind.
Seamless Integration & Data Extraction
Your MTD software should be able to seamlessly integrate and extract the data from source ERP, CRM and accounting systems without any hassles so that you can easily extract data for the VAT return.
Automated VAT Return Preparation & Filing
The MTD software you choose should be enabled with automated VAT return preparation and filing so that you don’t miss out on the important dates. It also ensures you also don’t miss out on anything important for filing your VAT return.
Automated VAT Adjustments Calculations
It should automatically calculate the VAT adjustments to avoid any kind of issues in the later stage.
Complete Audit Trail
The software should be able to give you details of the audit trail. Right from collecting data, to auto-populating it and filing your VAT return.
Strong Compliance Check
The software should have a robust compliance check. It ensures that your VAT returns are MTD complaints and should be able to take care of your VAT obligations.
The software should be fully customizable based on the need of the business. Having features that cannot be enhanced based on your requirements will only add to issues in the later stage. Change is the only constant, and every year there will be new features, added in the system hence your software should have the capability to make customization as and when required.
Active Customer Support
Having active customer support is a basic need when you buy anything, but this is VAT and you need to ensure that if you are stuck anywhere the customer support team is available to help you.
R7VAT – An HMRC recognized VAT Management Software for MTD
R7VAT is one of the best Making Tax Digital software for your business. It has a 7-step automation process that ensures everything is done in the right way and format.
Here is our 7-step automation process that we call R7.
- Retrieve: Extracting relevant data from source ERP & accounting systems.
- Remodel: To convert the source data into the mandatory formats.
- Recalibrate: To validate the data as per HMRC norms.
- Review: Producing comprehensive & accurate error reports and run the transactional level database through in-built validation rules
- Return: Auto preparation of VAT returns with the correct data in R7VAT, that can be filed at HMRC directly via the tool
- Reporting: Producing an intuitive dashboard to give access to important statistics.
- Record: Maintaining all relevant records for up to as many years as statutorily required
Why Choose R7VAT?
R7VAT has a team of experts to make your VAT returns HMRC MTD compliant and ensure they are filed on time. Here are the reasons why you choose R7VAT as your VAT partner.
To know more about R7VAT and understand how we can assist you please get in touch with our team on firstname.lastname@example.org or call us on +44-20-8099-1653