UPDATED 03/31/20: Making Tax Digital (MTD) is the UK’s electronic tax compliance program. A year after its launch, the UK tax collection administration, Her Majesty's Revenue and Custom (HRMC) has managed to phase out pen and paper VAT returns and digitalize tax records. As of April 2021, tax declarations will only be accepted in digital format.
HRMC hopes to become one of the most digitally advanced tax administrations in the world. Their VAT declaration system, Making Tax Digital (MTD), was created to further this objective.
MTD was launched on 1st April 2019 with the aim of increasing efficiency, preventing tax fraud and streamlining tax procedures.
Companies with more than £85,000 in invoiced VAT are required to use the system. The system is used to keep VAT records in digital format and to send them to HMRC via an Application Programme Interface (API) electronically, without the need for pen and paper. This is done quarterly or periodically.
Electronic tax compliance will also be mandatory for companies based outside the UK from October forward.
What does MTD involve in technical terms?
Working with HMRC-compliant management software that can:
Record and store records in digital format.
Automatically generate VAT records in a structured format (JSON).
Communicate with the HMRC using web services protocol via API.
Receive information from HMRC using the API platform.
Store VAT records electronically.
Towards greater digitization
As of April 1, 2021, after data has been entered into the application all additional transfers or changes must be made using digital hard links, i.e. links that can transfer data or exchange products or applications between software programs.
Compliance with MTD is more than just a technical change, businesses will need to transform their management processes, implementing solutions that integrate with their ERPs to transform the data into the format required by the tax authority.
Apart from MTD, the benefits of transformation for companies include:
Reception and processing of the notifications received from the HMRC and storage with the reports.
Fewer errors compared to manual processes thanks to automation of VAT declaration.
Greater control of information and documents recorded and archived.
EDICOM offers a solution that transforms the required data by mapping to the format required by the HMRC, securely connecting and automatically sending the VAT report. Finally, the solution stores documents electronically with all of the required data. The EDICOM solution receives and processes notifications received from HMRC and can store them together with reports.