A non-finance manager recently said to me “VAT is simple – how hard can it be?” Well, it is simple until you get it wrong, undergo a VAT inspection and then incur significant fines for incorrect returns. If VAT really is that easy, then why the need for VAT accountants and experts? That said, at its lowest level, VAT is relatively straightforward and a correct IFS setup makes it more so.
The new Making Tax Digital (MTD) initiative has thrust VAT in to the spotlight. The countdown down to the 1st April 2019 is on. From this date, all businesses with a VAT turnover that exceeds the threshold of £85,000 will be required to keep records in digital form and submit their VAT returns using MTD compatible software. The software will use HMRC’s API (Application Programming Interface) platform to submit information to HMRC. The current HMRC online tax return services will be withdrawn for those within the scope of the MTD rules. With less than 4 months to go until the legislation comes in to force, there is a lot to consider and most businesses are as yet, unprepared.
Our job at Cooper Software is to help make the transition to MTD as smooth as possible for every IFS customer. We have developed our own Making Tax Digital solution for IFS – TrAX Digital for IFS. HMRC have recognised the solution as being compatible for MTD for VAT and we are the only IFS Partner to be included on HMRC’s solution provider list. IFS themselves have also fully endorsed the solution.
Until TrAX Digital for IFS is available to be deployed, there are various things you can work on now within your IFS setup, to ensure you are ahead of the game.
Are you using IFS Tax Ledger? You should be!
For IFS customers, the good news is that IFS have a very comprehensive Tax Ledger which can be configured to meet all the digital record requirements needed as part of HMRC’s changes and can also prepare the VAT returns in the required formats to be submitted.
However, one thing I’ve learned during my time as a senior IFS Finance Consultant is that the use of the Tax Ledger functionality varies greatly between customers. Most will use it to some degree but how many use the full functionality to take advantage of the automatic tax proposal and tax reports? Did you even know this was possible? A number of IFS users even calculate the VAT return outside of IFS adding a lot of unnecessary time and work in to your processes.
You need to configure your IFS solution for MTD now.
So, how do we approach Making Tax Digital within IFS? We take a three-strand consultancy approach:
- Work with you to understand your VAT landscape. Do you have VAT Groups; any special exemptions; manual adjustments; monthly or quarterly returns; any current issues etc. One outcome of MTD will be validating tax point dates – do you understand the rules on this?
- Review your current setup in IFS for tax. Tax offices; tax codes etc. I came across a customer recently that was manually posting lines to account for EU purchases as they weren’t aware of the calculated tax setting in IFS that automates this.
- Validate the VAT return preparation and submission process.
Once we have established these three areas we can help:
- Correctly configure the IFS Tax Ledger.
- Define the reporting process for monthly or quarterly returns.
- Install and configure the new tax template and tax report needed.
- Setup the connectivity to our MTD solution, which will automatically and seamlessly handle the submissions to HMRC.
- Fully test and support alongside the client to ensure submissions will work first time.
From talking to a number of customers it is clear that there is some confusion over how Making Tax Digital is resolved. We are working closely with HMRC to ensure that both IFS and our solution will meet the requirements. As mentioned above, we need to install a new tax template to form the basis of the VAT return and capture the digital records.
For customers on:
- IFS Applications 9 update 12 and IFS Applications 10 update 3 – the new tax template is now available to be used but this will still need to be set up and configured and you will still need a solution to manage the digital link (submission process) to HMRC. Our solution plugs that gap.
- Earlier IFS systems, from IFS Applications 7 – we will provide the new tax template as part of our overall solution.
- IFS Applications 2004 and earlier – you will need to contact us separately as we will need to define a more bespoke solution for those versions, but the intention is that our solution will work for all IFS users.
Our Specialist Certified IFS Finance Consultants will work alongside you help guide you through this important change so that you are ready for April 2019 and also setup for the additional changes coming in April 2020.
Contact us to find out more.