By Matt Wright, Head of Product ERP, The Access Group
It’s safe to say the last year has been tumultuous for everyone, but for finance professionals in particular, the going has been tough. What with the unpredictability of the continued pandemic, the impact of Brexit and not to mention legislation changes, it’s been a busy year for accounting teams across the country.
With so many tasks already occupying finance professional’s time, it’s easy to understand why the next step in Making Tax Digital (MTD) may no longer be at the forefront of their minds. From 1 April, there comes a change to the MTD preparations that may have slipped under your finance team’s radar.
Copying and pasting is out
Because of the upheaval caused by the pandemic, the ‘soft landing period’ granted to businesses adopting MTD when it was first introduced in 2019, had been extended to April this year.
As of 1 April, your finance teams will no longer be able to copy and paste data from one application to another when it comes to your VAT. During the soft-landing period, copying and pasting your VAT data from where it’s stored, to the platform you submit it on, was still allowed.
Now though, this won’t be accepted under the new rules and could mean you put your business at risk of a visit from the VAT inspector and potential penalties. And let’s face it, this year has been tough on businesses already – any additional financial burden in the form of a penalty fee, is unwelcome even at the best of times.
HMRC instead advises that businesses should include digital links as part of their record-keeping systems. And while it’s OK for digital records to be stored on more than one piece of software or spreadsheet, it’s paramount that there is a link set up between them.
What is a digital link?
Although on paper it sounds simple enough, the phrase ‘digital link’ has thrown finance professionals into a spin, with many of them making incorrect assumptions as to what constitutes a digital link.
To avoid further confusion, and companies being penalised for accidently getting it wrong, HMRC has set out the compliance options for businesses to take note of:
- Automated data transfer: Meaning that data can be taken directly from accounting or ERP systems and uploaded to MTD software. Once added to compatible software, any changes can be made.
- Upload or download / import or export of data: Transaction data can be outputted from source data digital records into a digital format like a XML or CSV file. It will then need to be imported into the calculation spreadsheet or software to form an MTD-compliant digital link.
- Email or portable device: Spreadsheets that contain digital records can be sent via email or memory stick to a recipient like an advisor to import into MTD software.
- Linking cells between spreadsheets: Data can be transferred between spreadsheets using formulas or macros to link cells. Data should then be submitted via an API-enabled spreadsheet.
Is copying and pasting completely prohibited?
As with anything, the fine print often needs to be read carefully. In this case, HMRC allows one instance where copying and pasting is allowed.
Adjustments to the input or output tax are treated differently as part of MTD and as such, can be typed out manually, or data inputted via the simple copy and paste method. Don’t be caught out here though – this process is only accepted as long as you don’t do it directly into one of the VAT return boxes.
The changes, although subtle, haven’t been made to catch finance professionals out or add to their ever-increasing workload. Instead, it’s been implemented to reduce human error. It’s easy for a time-poor finance team to make small errors without even releasing – we’re all human, but the pressure of a heavy workload and new demands to cater to can lead to errors.
We’ve talked regularly about the usefulness of automation in the finance industry, both for streamlining workflows, increasing productivity and, in this case, mitigating the risk of human error. And digital links provide another form of automation.
We recently conducted a survey with over 1,000 finance professionals, asking them to forecast any challenges or changes in the way they work in 2021. 64 per cent of those respondents expected their business to adopt new technologies this year, with many citing the growing need for automation in their day-to-day jobs.
As 1 April is here, make sure your team’s ensured your digital links are in place to ensure you meet HMRC’s guidelines.
For more information about The Access Group, please visit: https://www.theaccessgroup.com/finance/