Good Morning, welcome to the latest ITESOFT webinar looking at the latest legislative change to impact on AP and Finance – the VAT element of the broader Making Tax Digital legislation.
To start, a quick look at the agenda, as you can see we will be closing with a look at some FAQ’s, and will also try and answer any questions that you pose us during the course of the webinar.
On this note, there is a box on the right of your screens, please do feel free to post questions there, we will answer as many as possible at the end of the session. Any questions that are asked will, of course, remain anonymous.
Before we really get going, it is worth noting that this notice applies only to organisations that are VAT registered and whos taxable turnover is above the VAT threshold for reporting.
However, the notice does include information for organisations whos turnover is below this threshold should they wish to follow these practices.
If you are unsure, please do check internally with your accounting team, they will quickly be able to answer whether this applies to your business, and if so, what steps they have taken to ensure compliance.
Thank you, so first, what do you need to know?
First up, does this notice even apply to your business?
Well, this is very clearly detailed within the notice, and simply put applies to any organisation that is legally required to currently submit a VAT return.
Whilst our focus here today is on one particular segment of the notice, this notice actually contains far broader implications for organisations, as the current methods of completing and submitting VAT returns will no longer be accepted.
And whilst there are some, limited, exceptions to this, the primary one is as detailed on your screens. Only business with a taxable turnover that has never exceeded the threshold will be exempt. At the time of compiling this information that threshold was £85,000 per year.
From the date of this webinar time is now critical for any organisation that has not started working on ensuring compliance.
This may not be something that you have been made aware of, but there is a very high probability that your organisation will already have started work.
You may find that the impacts on this notice are far broader than initially considered, as mentioned, part of the notice is about HOW a VAT return should be submitted, and whether particular accounting packages are compatible or not.
On this point, we would strongly recommend that you ask around your business, and check that your current accounting software is sufficient to ensure compliance. In the event that there are concerns, a very quick search will throw up some free to use software that can bridge the gap for business.
Whilst compliance is expected from the 1st of April net year, there is some flexibility built into the notice, this relates to an organisations own tax year, but also includes what HMRC has termed a soft landing period to ensure process and system compliance.
So is this legislation really your problem? Or the problem of anyone in Accounts Payable (or even Accounts Receivable!)?
Well, yes, it is.
As I have mentioned, within this notice there is one particular section that will explicitly impact on the way in which Accounts Payable and Receivable receive, handle, manage and store data.
This legislative notice contains some very specific rules around the management and storage of information, including what information is required, and in what format. This becomes particularly important for the purposes of auditability and accountability.
From an invoices received perspective, this lands this squarely in the court of Accounts Payable,
So, the section of the notice that I have mentioned is Section 3.
This is why we are interested…
To set the scene for you all, we would like to ask you…
The specific area of the legislation that interests us for the purposes of this webinar is Section 3. Titled Digital Record keeping.
This section contains some very specific information relating to the lifecycle of an invoice upon receipt.
This is highlighted with 2 examples.
The first of these, on your screens now, and taken directly from the notice revolves around what we would term a manual AP process, whereby invoices received into the business are then manually keyed into accounting software of ERP’s.
As it currently stands, an organisation that still manually processes it’s invoices can then scan these and store them electronically, however this example would suggest that doing so is not longer sufficient and that the original copy of the invoice should be retained.
We have spoken with some 3rd parties about this, and this seems to be a greyer area than it would first appear. Our recommendation would be to discuss this with your internal teams, and possibly your auditors. It remains to be seen whether there will be any further official clarity offered.
The second example relates to a more automated process, whereby there is no manual touch from receipt of an invoice (post scanning), for example where an OCR or ICR based solution is used.
Again, the example itself is on the screens in front of you.
In this example it states that the original document no longer needs to be retained for audit purposes, as long as there is an image of the invoice stored electronically, and that this image is supported with meta data confirming the lifecycle of the invoice, including date and time stamps etc.
For some older systems this is something that you may want to check happens, and that the image is not simply being stored in a document management system without supporting data.
So taking into consideration these two examples, and they are the only ones that are included in the notice, what are the impacts on AP?
Firstly, Scan to Archive solutions.
We have already mentioned that these are a very grey area, and that you should, very carefully, seek further clarity. Taking the notice at face value, the 1st example would suggest that these platforms, on their own, are simply not sufficient.
In fact the example states that “They must still keep the invoice in its original form as the data in the functional compatible software is not a copy of the invoice.”
Now, assuming that this is not amended, this means that in an AP function where invoices are manually keyed into an accounting package or ERP, the original physical copy of the invoice should also be retained.
This does appear to conflict against current rules, however, it would not be the only part of this notice that does that.
So for those organisations that have outsourced the AP process, or at least the data entry element, there could be similar issues.
An awful lot of this will depend on how your outsource provider actually received and captures the data for you, do they do this manually or electronically? The biggest question being, who now is responsible for storing what historical data and documents?
This becomes particularly important if, as a result of this notice, physical copies should now be retained.
There is a second part of this though, and this relates to how you handle the data once you have it back in your business.
You cannot “copy and paste” data between platforms or solutions, so, if you currently do then you will need to ensure that there is some software that can replace that task.
As an example, your outsource provider send you an EDI feed of all input invoice data, but you need to have internal sign off for some of the lines. You cannot simply highlight the required cells, copy these into an email and send that for approval.
The notice explicitly states that copying and pasting of data is not permitted.
So if HMRC does not consider the use of ‘cut and paste’ to select and move information, either within a software program or between software programs, what do they consider to be a digital link?
The listing on your screens now has been taken straight from the notice itself. Please note, this list is not exhaustive, so there may well be work arounds that have simply not been detailed, or even considered to date.
If we consider the worst case scenario of this notice, and that your current processes and systems simply do not comply with what is needed, what are the risks and impacts?
It stands to reason, and is likely of no surprise to any of you, that the impacts of reverting to a completely manual process within Accounts Payable, or Receivable, would be significant.
Not least the amount of time that your teams would have to spend manually processing invoices, but broader than this as well.
If you do not currently store your invoices as pieces of paper, how much office space, storage space etc. would you need to find and allocate for this?
Put simply, how much space would you need to find to store 6 or 7 years worth of invoices, reconciliation statements and so on?
Do you have enough staff to even face a completely manual process?
And something slightly less tangible is how much visibility would you have around the AP process, whilst all of the important information would be kept, this would be stored manually on pieces of paper. How could you then make use of this information to improve your working practices?
So with this in mind, surely the preference would be to move to a process that is covered within the second example, and use systems to ensure compliance, from receipt of incoming information.
As with the previous point, it is likely no surprise that digital processes (and this is called Making Tax Digital after all) should be the better fit for organisations.
I shan’t labour this point, but for every issue and pitfall a manual process has, a digital process has an answer. In fact, for every benefit of a manual process, this benefit is accentuated in a digital one.
Traditional automation solutions though are unlikely to help with the current notice, unless they are already in place, or are already selected and go live is planned. As we have seen, compliance with this notice is required as of April 1st next year
Fully tailored, on premise automation solutions take time, it takes time to select vendors, plan the solution, build and test the platforms etc. This is assuming that you even have budget allocation for a project of this nature?
In these instances, the requirement for input from multiple departments and levels of management is required, does IT have the required servers? If not, do they have the budget…
Cloud based solutions may not have been perfect, but they have come on leaps and bounds in the last few years.
No longer should a vendor be offering a one size fits all cloud platform. Whilst they will all have some standard functionality, this should come with a flexible approach to allow you to build your own business rules alongside best practices, and ensure a fit.
Why is this important?
Cloud based automation solutions can be up, live and running in a matter of days, where traditional on premise solutions would often take three to six months to go live from a vendor being selected and contracts being agreed.
Whilst we have focused, so far, on the current notice to UK business, this legislative change does appear to be part of a much wider, global trend.
What we are seeing is a move, across the globe, from Post Audit VAT returns to a Clearance process.
Why? Well, according to a report in late 2017, there are some pretty significant gaps in VAT paid against what is estimated as owed.
The European gap is estimated at 150 to 250 billion euros, and the global gap is estimated at half a trillion euros…
The advantage of Clearance processes for VAT and tax, is that the process is transparent, digital, and easily controlled.
Currently, the majority of Europe’s VAT reporting is done Post Audit, as is seen in a number of other regions around the world. What is interesting to see id the move towards Clearance processes, whereby all submissions for purchases, Invoices, payments etc. are managed via one centrally controlled system.
Currently there are very few European countries that are following this, but this is changing with the likes of Portugal and Italy being early adopters, and Spain considering it.
Certainly, if this trend continues we can reasonably expect that most of Europe and Northern Africa will adopt this process in order to ensure compliance, visibility, control and, importantly, ensure that the VAT that is owed is paid.
The graphic that you see on your screens highlights very nicely the changing, global, trend towards a Clearance VAT process.
As you can see, it is expected within the next handful of years that more and more parts of the world are expected to move to a Clearance process.
Making Tax Digital could be seen as simply the first step along this pathway.
Before I come to the questions you have posted during the webinar, I would like to take a few minutes to highlight some of the frequently asked questions we found online relating to this notice.
Answer 1: The term “soft landing” was introduced early in the MTD for VAT discussions and the meaning has changed over time so it’s important to understand the legal meaning which is defined in the VAT Notice. This is particularly important for organisations whose Finance package is not compatible, out of life, legacy systems etc.
During the first 12 months, HMRC will accept cut and paste of data (or copy and paste) as a digital link. However, even though this is done solely via a computer, it’s not automated, so isn’t considered a digital link as defined by the MTD for VAT regulations. This is the case even if you’re cutting or copying and pasting within the same software program.
The one exception to this is where data is transferred, following preparation of the information required for the VAT Return, to another product (for example, a bridging product) that is API-enabled solely for the purpose of submitting the nine-box VAT return data to HMRC. The transfer of data to this product must be digital.
According to HMRC, the soft landing period is only to allow businesses time to update legacy systems.
In short, NO. As of 1 April 2019, filing must be done via MTD-compatible software, so cannot be done manually via HMRC’s website (or via paper forms-based filing). This would constitute a break in the digital transfer of information.
MTD for VAT will apply for your first full VAT period that starts on or after 1 April 2019. Here are examples dates that assume quarterly filing: 31 March 2019 end date: Your first VAT quarter under MTD for VAT will start on 1 April 2019. 30 April end date: Your first VAT quarter under MTD for VAT will start on 1 May 2019. 31 May end date: Your first VAT quarter under MTD for VAT will start on 1 June 2019.
Outside of turnover being below the threshold, exemptions are allowed under the following conditions:
(a) religious beliefs are incompatible with the requirements of MTD for VAT. This is typically that the individuals running the business are unable to use computers because of their beliefs. (b) reasons of age, disability, remoteness of location or in HMRC’s words “any other reason” that mean it’s not “reasonably practicable” for the business owner to use digital tools to keep business records or submit returns. For example, a business without an internet connection because it’s on an island that’s off the grid might be considered exempt. (c) the business is subject to insolvency procedures.
To apply for exemption, you will need to contact HMRC’s VAT Helpline
Please remember, this is our understanding of the potential impacts to AP and Finance. Every company is individual and will have its own circumstances to consider.
We would strongly advise you speak to your own auditors to ensure that what you are doing, or planning to do, will be compliant with this legislation.
Who is responsible for ensuring compliance?
What are the repercussions of non-compliance?
How can we find out if our finance system is compatible?
A copy of the slides, and the recording of this webinar will be made available online, and will be sent to all attendees following the webinar.
Please feel free to contact us should you have any questions or queries.
Making Tax Digital for VAT
MAKING TAX DIGITAL FOR VAT (MTD FOR VAT)
John Stovold – UK Marketing Manager
November 2018 1
• What you need to know.
• Why is this an AP issue?
• What are the potential impacts for AP?
• What can be done in AP in preparation?
• Wider VAT trends – Global view.
• FAQ’s & Questions.
Making Tax Digital for VAT requires VAT registered businesses with
taxable turnover above the VAT registration threshold to keep
records in digital form and file their VAT Returns using software.
Making Tax Digital Explained
“Making Tax Digital for VAT requires VAT registered
businesses with taxable turnover above the VAT
registration threshold to keep records in digital form
and file their VAT Returns using software.”
VAT Notice 700/22: Making Tax Digital for VAT
Published 13 July 2018
“Only businesses with taxable turnover that has never
exceeded the VAT registration threshold (currently
£85,000) will be exempt from Making Tax Digital.”
MTD for VAT
WHO DOES THIS IMPACT?
“With effect from 1 April 2019, if your taxable turnover
is above the VAT registration threshold you must
follow the rules set out in this notice.”
MTD for VAT
WHEN DO WE NEED TO BE
Whilst the filing of tax returns may not be something
that AP is directly involved in, this legislation has a
It is concerning the full audit trail of information that
your business receives, how this is managed, traced
and reported through to payment.
Now that is an AP problem!
IS THIS REALLY AN ACCOUNTS
How do you currently move data from received
invoices to your finance system?
• Manual input of data from supplier invoices
• Automated capture and processing of data
• Example 1
– A business receives an invoice and types selected data
contained in the invoice into functional compatible
software. They must still keep the invoice in its original
form as the data in the functional compatible software
is not a copy of the invoice.
SECTION 3 DIGITAL RECORD-
• Example 2
– A business has functional compatible software that
scans the invoices received and puts the information in
its ledger. If the image is retained and contains all the
detail required for VAT purposes then the business does
not need to keep the original invoice unless it is
required for another purpose.
SECTION 3 DIGITAL RECORD-
• Likely to no longer be sufficient, as of 01.04.19,
for any business that is VAT registered and
meets the criteria of this legislation.
• All invoices must be retained in the format in
which they are processed.
– Manually processed – physical copy must be
– Electronically processed – physical copy no longer
SCAN TO ARCHIVE
“Once data has been entered into software used to
keep and maintain digital records, any further transfer,
recapture or modification of that data must be done
using digital links. Each piece of software must be
digitally linked to other pieces of software to create the
“It follows that transferring data manually within or
between different parts of a set of software programs,
products or applications that make up functional
compatible software is not acceptable under Making
Do you use a scan to archive tool, or have you
outsourced your AP processes?
• We have a scan to archive solution used after a
• We have an archive solution as part of an
• We have outsourced our AP processing.
• emailing a spreadsheet containing digital records
to a tax agent so that the agent can import the
data into their software to carry out a calculation
(for instance, a Partial Exemption calculation)
• transferring a set of digital records onto a
portable device (for example, a pen drive,
memory stick, flash drive) and physically giving
this to an agent to import that data into their
• XML, CSV import and export, and download and
upload of files
• automated data transfer
• API transfer
WHAT ARE DIGITAL LINKS?
• Applies to all VAT returns (AP & AR)
• Current processes will no longer be accepted –
online portal, or manual submission.
• ERP’s or API’s must be used to make the
• Not all ERP’s are listed as certified, nor may
SUBMITING YOUR VAT RETURNS
– Increased headcount
– DTR compliance?
– For you & your suppliers?
COST OF REVERTING TO MANUAL
• Speed of receipt of invoice.
• Visibility of processing.
• Speed of authorisation / sign off.
• Understanding of data.
• Clarity for internal & external partners.
• Faster payment terms.
• Complete audit trail.
• Compliance with legislation.
• Drastically reduced costs.
DIGITAL VS PHYSICAL INVOICE
• Cloud technologies increase speed of project
– From a historic timeframe of 3 to 6 months, to just
a matter of days.
• as-a-Service models allow for greater payment
flexibility, potentially reducing budget impacts.
– If budget hasn’t been explicitly assigned for an
automation solution, could OP-EX be the answer?
CAN NEW SOLUTIONS HELP?
• Global desire to close “the VAT gap”.
• Move to mandatory digital submissions ongoing.
– Real-time mandatory controls likely in 10 to 15 years,
• European countries starting to move from Post
Audit VAT processes to Clearance processes.
– Portugal & Italy are early adopters.
• Blue – Post Audit (Audit Years After e.g. EU)
• Yellow – Clearance (Real Time Controls e.g. LATAM)
* Trustweaver Report 2017
1. What is the “Soft Landing” period as mentioned in
2. Can HMRC’s portal still be used after MTD for
3. When will this legislation have an impact on our
4. Are there any exemptions from this policy?