In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital from April 2022, regardless of turnover.
In essence, this means all eligible businesses must now implement digital links from their source data through to the creation and submission of each VAT return to HMRC.
With that, it’ll no longer be possible to use the HMRC website for your VAT accounting. Instead, you’ll need to use specialised software in place of it. Your organisation must fully comply with these new regulations.
As the deadline for Making Tax Digital for VAT is due, businesses may now feel confident in their knowledge that they’ve correctly established the required connections, eliminated any manual transposition, and met the compliance criteria.
What may not have occurred to them is that being compliant is not necessarily synonymous with being correct. It’s feasible to have a digitally linked VAT procedure that nevertheless contains mistakes, resulting in the submission of an inaccurate return.
To avoid this risk, you must be able to check your digitally linked procedure for errors; some method of flagging possible problems for examination is required.
The trouble is that manually checking for errors can be both time-consuming and open to human error itself.
How can businesses reconcile their VAT returns and be confident they are captured accurately and completely?
The answer lies in the use of solutions designed to automatically correct errors. This helps you save time on preparing and reviewing data, ensuring your return is correct the first time.
How to easily drill and provide the digital link requirement
If an error is found or if HMRC queries your return, you’ll need to be able to trace back through your digitally linked procedure, potentially all the way down to the transaction layer.
A digitally linked process won’t necessarily give you this capability. For example, you may use a procedure to perform certain computations outside of the process, which is then incorporated into the return. This is completely acceptable but it makes error tracking difficult.
Ideally, you would want to have the whole process electronically linked, as well as a means of timestamping your computations. This digital audit trail then enables you to not only submit the result but to ‘prove your workings’ so that in the event of an audit, you have the evidence to hand that shows when and how a calculation was made.
Using software with capabilities for digital audit trail, you can create a full ‘digital signature trail’ of your return, helping you to identify and correct errors. This software can be used to compare the data that you’ve inputted against the data that’s been processed by HMRC.
For instance, our reporting tools would allow you to easily drill and provide the digital link requirement. You’d be able to see not only the totals but also the underlying data that feeds into these calculations.
This would help you to identify and correct any errors in the return before submission.
Digital links are the future of Making Tax Digital, but they don’t have to mean more work for you. Automated error-checking can take the headache out of VAT returns, freeing up your time to focus on other areas of your business.
Please contact us today to find out more about our software and how it can help you meet your Making Tax Digital obligations.
