Did You Know: PeopleSoft Financials Can Be Made Fully Compliant With Making Tax Digital
An accountant’s nightmare: being ready by April 2021 for HMRC’s Phase 2 of Making Tax Digital
If you walk into a finance department and ask the first person in the team “What is VAT?” they will respond “it is a tax on goods and services for both sales and purchases.”
Then you ask them “Do you prepare the VAT returns?” they will probably have a look of fear and say, “Good grief — no!” and will point you in the direction of a team of accountants.
You walk in the direction of the team of accountants and ask the first accountant “Do you prepare the VAT returns?” they will also have a look of fear and say “No way! That is far too much responsibility and best left to the tax experts.” and will point you in the direction of tax team, in a little dark corner.
You walk towards the tax team and you ask “Do you prepare the VAT returns?” they will probably glumly reply “Yes”. Then you ask, “Do you get excited in preparing and submitting VAT returns on a monthly or quarterly basis?” I would probably guess they would look at you in despair and burst into tears thinking ‘why did I choose this career!’. Now that could make you feel uncomfortable.
As an accountant myself, I have dreaded the tedious preparation of VAT returns and sometimes feel frustrated with the process of collating the transactions reports, analysing the data, and reconciling it before preparing the VAT report, triple checking for accuracy knowing full well that, if there are errors it could lead to penalties for the organization and possibly even an end to my career.
And now, with the upcoming HMRC Phase 2 of Making Tax Digital in April 2021 and becoming a tax mandate in April 2022, I am certain the frustration will intensify, especially with the additional tax complications from COVID-19 support offerings.
How would you like to achieve one task in 2021: to successfully implement a fully automated VAT reporting process so the accountants can change their despair into delight and optimism?
What is HMRC’s aim behind the mandate of Making Tax Digital (MTD)?
HMRC has stated their ‘ambition is to become one of the most digitally advanced tax administrations in the world.’ They say “Making Tax Digital is making fundamental changes to the way the tax system works — transforming tax administration so that it is: more effective, more efficient, and make it easier for taxpayers to get their tax right”
Basically, HMRC are moving towards paperless VAT returns and enforcing stricter requirements on businesses, by forcing them to keep digital accounting records, using fully compliant accounting software that processes VAT and links to HMRC seamlessly, without human manipulation of reporting results.
HMRC has some basic guidelines for digital records and accounting software rules, which include:
HMRC Requirements for digital records
Organizations are responsible for keeping transactions in a digital form. The minimum requirements for each financial transaction are:
• Sales: Time of sale (tax point)
• Purchases: Time of purchase (tax point)
• Sales: Value excluding VAT
• Purchases: Value net of VAT
• Sales: Rate of VAT charged
• Purchases: Amount of VAT to reclaim
Also, HMRC requires that the following information of the organization be held digitally so they know the source of VAT return:
• The business name,
• The business address,
• VAT registration number, and
• Any VAT accounting schemes that are used.
The accounting software rules
The accounting software must comply with the following:
• Must record the organization’s details and all VAT-related transactions for up to six years.
• Must include the date and any information related to VAT paid or withheld for each transaction.
• Must be able to calculate what VAT is owed based on organization’s sales and purchases.
• Must submit VAT return directly to HMRC via an API (application programming interface).
So, what does this mean for PeopleSoft Financials customers?
Up until now, PeopleSoft Financials met all the stated requirements, except for the VAT return submission directly to HMRC. The good news is, that HMRC has now certified Version 1’s developed digital link for PeopleSoft Financials, allowing it to be fully compliant to HMRC’s mandate.
Organizations typically use either their audit firms as agents, or third-party bridging software to submit VAT returns to HMRC. However, these options allow an organization to extract data from the ERP system into an intermediate format, such as Excel, which implies that it is possible to manipulate the data before submitting the VAT report.
As stated in the previous section, HMRC is moving towards VAT reports being pulled directly from digital accounting records with no human manipulation.
Organizations using PeopleSoft Financials can take control of automating their VAT reporting processes and directly submitting the reports to HRMC using Version 1’s digital link, and therefore satisfying the HMRC’s Making Tax Digital rules.
With this in mind, would you like to delight VAT accountants this year?
Let us be honest, PeopleSoft Financials is a well-established software solution that allows organizations to automate the VAT reporting if they have not done so already. If you trade in the UK and use PeopleSoft Financials to record financial transactions, then there is no reason for not complying with the updated Making Tax Digital mandate.
PeopleSoft Financials complies with all of the HMRC requirements as a single source of records and, by adding an extension of Version 1’s MTD digital link, will make your organization fully compliant via one system and one process. This will ease the burden on the accountants and eliminate all their unnecessary manual intervention.
About the author
Sonal Patel is a qualified AAT accountant (FMAAT), with over 30 years’ experience in audit, forensic and commercial accounting and, for the last 20 years, she has been implementing business processes internationally, using PeopleSoft Financials.
If you have any questions or would like more information on Version 1’s PeopleSoft Financials MTD extension, please contact her at Sonal.Patel@version1.com.
Look out for more of Sonal’s “Did you know that” series of blogs in the near future.
