An API to HMRC is mandatory from 1 April 2019. HMRC will, however, introduce a soft landing period' until 1 April 2020. Taxpayers will, in the end, have to transfer data without manual intervention. Re-keying of large amounts of data and using copy/paste functionality will be forbidden. When Taxpayers use flat files such as CSV files and automated downloads, this may be satisfactory for the ‘digitally linked’ requirements. A proper VAT configuration of a company's tax determination logic is thus crucial for being MTD compliant.
Digitalization of tax is a trend, so more countries will follow soon. Every jurisdiction has its country-specific way and tax requirements. Countries have implemented e-invoicing with (almost) real-time electronic data submission or SAF-T based methods.
The latest tax gap figures published by HM Revenue and Customs (HMRC) show that many otherwise compliant businesses have difficulties to keep their taxes right.
Errors and mistakes, which contribute to this tax gap, are found in every sector with over £9 billion lost annually in tax.
Making Tax Digital will provide a more modern, digital service which will help businesses get their tax right, with technology making it easier for them to do so. Using Making Tax Digital will not only reduce the tax gap but also reduce the costs when HMRC is forced to intervene to put things right.
From April 2019, businesses with a turnover above the VAT threshold (currently £85,000) will be required to keep records digitally (for VAT purposes only) and provide VAT return information to HM Revenue and Customs (HMRC) through Making Tax Digital (MTD) functional compatible software on a quarterly basis.
Businesses need to keep all their records in a digital format by law. HMRC will then be able to get direct access to the accounting system or via bridging software through application programme interfaces (APIs).
Businesses will still be able to submit monthly and non-standard returns under MTD. MTD will be available on a voluntary basis to other businesses, for both VAT and Income Tax. Businesses in scope for MTD must use functional compatible software which can connect to HMRC systems via API Interface. The functions of the compatible software must include:
- business name
- place of business and VAT registration number – also including information about which VAT accounting schemes is used
- the VAT account – the audit trail between source data and VAT return - that each VAT registered business must keep information about supplies made and received
Content of digital records should contain:
- keeping records in a digital form as required by the regulations
- preserving digital records in a digital form as required by the regulations
creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally
- providing HMRC with VAT data on a voluntary basis
- receiving information from HMRC via the API platform in relation to a relevant entity’s compliance with obligations under the regulations
By 2020 most businesses will be required to keep their tax data digitally and may be requested to keep digital records and update HMRC quarterly for Income and Corporation Tax.
Detailed MTD requirements are not yet available or thoroughly tested. HMRC has indicated that further details will be available from April 2018, including a test pilot program.
It is our strategy that for every for e-invoicing and SAF-T data requests in Europe. We partner up with our clients, so via outsourcing to us, clients realize that these tax obligations including maintenance are met moving forward. All our SAP add-on products follow the same method and footprint to establish a standardized approach that goes beyond local borders. The UK is therefore currently WIP.
SAP VAT health check for e-invoicing data requests in Hungary, Italy, and Spain
E-invoicing will be mandatory gradually for residents, established or identified for VAT purposes in Italy.
The Key Group has recently delivered its Hungarian SAP health check pilot for one of its major clients, and the outcome was that quite some changes in SAP had to be made to avoid either future questions by the tax authorities or announcement of a tax audit when data is submitted mid-2018. The method used applies to Italy, Spain and countries that rolled out SAF-T as well.
The tax authorities are aware that SAP setup itself is often not in order and that tools outside the ERP system are used to remediate and manipulate tax data outside of SAP with the purpose to improve tax reporting.
The full automated legal requirement is to force taxpayers to remediate the ERP VAT setup itself and realize that taxpayers do not use workarounds as Excel sheets or similar tools outside the ERP system as human intervention is not allowed.
An incorrect SAP setup could result in inaccurate and incomplete data during submission.
Developing or purchasing a solution for automated submission of sales invoice data to the tax authorities does not solve a wrong SAP setup.
The 'garbage in' and 'garbage out' principle applies: 'the real problem is that tax data in standard SAP needs remediation as that tax data is not meeting the local legal invoice requirements itself.'
Our assessment has identified several critical gaps and also areas for improvement in the current billing process. Based on this pilot we have designed an efficient and effective assessment process that will include not only an overview of gaps but as well our view on how to remediate these weaknesses in SAP itself.
The Key Group offers an SAP health check specifically on e-invoicing data requests such as Hungary, Italy, and Spain (SII) and our method is based on the legal tax requirements defined in XML format and local VAT law.
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Written by Richard Cornelisse
Richard advises multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework.
He started his career as a manager at Arthur Andersen and then became an EY partner where he led the indirect tax performance team for Netherlands and Belgium. Currently, he is a managing director of SAP Tax Consultancy Firm.
Richard has over 20 years of experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service center migration, and post-merger integration work.