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Bank Feeds and the Digital Link

MTD VAT: HMRC notice 70022's examples are remarkably silent regarding manual changes to bank feeds

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A bank feed is imported into VT Transactions+ (or Xero, or Sage etc) via the Universal Import Sheet, which constitutes an "acceptable digital link" into my "functional compatible software".

However, the imported bank transactions then have to be tweaked: coded to expense accounts; VAT calculated and inserted; and supplier or customer accounts keyed in. At the end of which the "enter" button is pressed to post the transactions.

So how come such extensive tweaking doesn't break the digital trail of these imported transactions? Or are we to suppose that the digital trail commences at the point where the "enter" button is posted?

 

Replies (17)

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By Wanderer
08th Oct 2021 16:20

I'm at the point that I really couldn't care about the minutiae of what HMRC do or don't consider 'digital links'.

We hardly ever get VAT inspections nowadays & even if we did I don't believe that even an HMRC inspector will be pedantic enough to be worried about the situation with otherwise compliant record keeping & MTD submission.

In your specific example what's the alternative? Just accept the information as imported 'cus digital links cut the tax gap'? And then accept that the information within your system is complete nonsense?

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Replying to Wanderer:
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By rmillaree
08th Oct 2021 16:29

I had to laugh at the last vat inspection i had under the new rules - inspector wasnt allowed to access any of the digital information - couldnt put stuff on his laptop and wasnt allowed to access other peoples IT (not safe) . So gibberesh looking sage printout of a few hundred pages provided - both the inspector and myself had a chuckle at how it was now near impossible to easily review the data in efficient manner - compared to old skool cashbook payments and receipts and bank summary all contained on 5 pages. With old skool cashbook vat at not 20% sticks out like a sore thumb however on sage the net and vat amounts might be 5 pages apart on the printout good luck trying to find any errors. Perhaps i shouldnt complain that its now nigh on impossible for them to find obvious errors?

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Replying to rmillaree:
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By paulwakefield1
09th Oct 2021 10:48

I would have thought a print of the audit trail filtered by date and sorted by code would give a reviewable report with the VAT and Net next to each other. OTOH don't want to make it too easy for the inspector. :-)

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Replying to paulwakefield1:
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By rmillaree
09th Oct 2021 11:16

"I would have thought a print of the audit trail filtered by date and sorted by code would give a reviewable report with the VAT and Net next to each other. OTOH don't want to make it too easy for the inspector. :-)"

I don't doubt info may be collatable in more readable format - its just that the default that the vat office have always asked for is the how the vat return is created and that report on sage separates the two on different pages - so i dogive em what they ask for :)

we would have no plant left pretty soon if we needed to print 400 pages for each vat period :)

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Replying to rmillaree:
RLI
By lionofludesch
09th Oct 2021 11:35

rmillaree wrote:
.... so i dogive em what they ask for :)

we would have no plant left pretty soon if we needed to print 400 pages for each vat period :)

The last VAT visit I went to in Feb 2020, the VATman asked where the invoices were. The director waved his hand around the room, lined with archive boxes, four deep and said "They're all there." Seriously - there must've been well over a hundred boxes.

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Replying to Wanderer:
Tornado
By Tornado
08th Oct 2021 17:45

I agree, who really cares about the detail when the whole is not going to work anyway.

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RLI
By lionofludesch
08th Oct 2021 18:35

Surely, however good your bank feed is, it's never going to replace taking a photo using John the Plumber's free app ?

More seriously, you're always going to have to say what a payment is for.

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By Jo Nokes
08th Oct 2021 18:57

I can only post a bank csv to the universal import sheet in VT, but I would suggest that once you have tweeked the coding and entered this into VT, that is when your digital bookkeeping begins. From there, one day you will post your quarterly filings. So your problem doesn't actually exist

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Replying to Jo Nokes:
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By Hugo Fair
08th Oct 2021 20:15

That's certainly my belief/understanding - otherwise it'd be truly nonsensical.

Blame the software companies (again) for deliberately conflating their messages to make it sound like they are an essential part of 'digital record compliance'. A bank feed is a bank feed, irrespective of whether it's semi-automated or requires a file to be imported or indeed is re-typed into VT (other book-keeping systems are available) ... but it's not a part of digital record-keeping.
It's just data ... and will invariably not suffice for book-keeping purposes without intervention - so the repository of digital data is your book-keeping system (which has to be software, not paper-based).

The 'unbroken link' element on which HMRC are so keen (but haven't properly explained) relates specifically to their being a mechanism for populating your return (from the 'books') without human changes to any figures - in other words, the changes must be made in the 'books' not in the file being submitted.

In reality this gives HMRC almost none of the 'security and control' that they envisage, but that's a different topic than the (relatively) simply "what do you do and is it allowed?" topic we're on here.

I'm (still) more concerned about the lack of clarity regarding methodology outside of the Quarterly returns ... subsequent corrections / additional values / re-allocations / etc + how these do or don't relate to EOPS and/or any other sets of figures that equate to SA (and not forgetting any final Declaration)!

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By AdamMurphy
08th Oct 2021 19:21

Just take a photo and you've bossed it.

Or take a photo and holler INTUIT QUICK BOOKS. That makes it all correct too.

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By petersaxton
08th Oct 2021 19:28

"Or are we to suppose that the digital trail commences at the point where the "enter" button is posted?"

You've got it!
Bank feeds are just to make your life easier.
The transactions have to be entered somehow and then the digital link is from the individual transactions fully explained to totals to data submitted to HMRC.

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Replying to petersaxton:
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By johnhemming
08th Oct 2021 19:56

This is correct. Digital links are not about not pressing any buttons. It is about having a digital audit trail that automatically adds up.

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Replying to johnhemming:
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By Hugo Fair
08th Oct 2021 21:36

"Digital links are .. about having a digital audit trail that automatically adds up."

Feel free to call me pedantic, but that's nowhere near the normal definition within software of an audit trail ... which at the minimum, for every transaction, keeps a record of the before & after values - along with who made the change, on which device and at what date/time. Any 'grown-up' audit trail will have considerably more firepower that will identify any associated (such as 'trigger') actions - and allow a roll-back to any point-in-time. This true type of audit trail will track not just changes in core data by a user (or indeed by the system itself), but the source and mode of any data being imported (via files or APIs).

So a lot more than merely ensuring that values "add up" (which personally I'd call 'reconciliation' or even for a few oldies 'balancing').

Why am I banging on about these semantic differences? Because they matter if people (including HMRC) are ever going to understand what is meant by the words they bandy around - and the impact misunderstandings will have on agents & taxpayers.

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Replying to Hugo Fair:
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By johnhemming
09th Oct 2021 08:05

Different people use the same words to mean different things which is why it is useful to have dictionaries.

If we use the cambridge dictionary definition
https://dictionary.cambridge.org/dictionary/english/audit-trail

"documents and records that show the history of a company's financial activities, examined by someone who is doing an audit "

I don't think it is a misuse of the phrase to deal with the need to have individual transactions that electronically add up to the totals being submitted.

However, if people would prefer an alternative phrase then please tell me what it is.

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Replying to johnhemming:
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By Hugo Fair
09th Oct 2021 13:20

Seriously? The dictionary definition that you quote has nothing in common with your previous assertion (that I queried): "Digital links are .. about having a digital audit trail that automatically adds up."
Your definition would apply just as well to a beginner's spreadsheet (with a Sum value) ... which we are led to believe would not be MTD compatible.

My understanding is that the phrase Digital Link is used by HMRC to describe the process by which the submitting software acquires it's data from a different source (if not the same software) ... which must not involve any human-actioned changes to the values during that process.
Or in plain English, no printing it out and re-keying it into the submission file!

So nothing to do with an Audit Trail, which is where OP's original question was coming from - in that there doesn't have to be an unbroken set of links (let alone audit trail) all the way back, for instance, to digital bank records.

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My photo
By Matrix
09th Oct 2021 08:12

You don’t have to upload the transactions digitally. Bank feeds are not mandatory.

You can still do bookkeeping the old Sage way. So in VT use PAY and REC. Plenty of clients file their MTD VAT returns from these systems without a bank feed. I assumed this was the norm.

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By I'msorryIhaven'taclue
11th Oct 2021 10:23

Thanks to all for your valuable insights and interpretations.

So if we were to reconcile the panel's collective wisdom, that the digital trail commences post-tweaking of the imported feed, to HMRC's examples at

https://www.gov.uk/government/publications/vat-notice-70022-making-tax-d...

then I guess Example #9 provides the nearest approximation in so far as it contains an EPOS billing system (which might equally be a Paypal or Stripe report, or for that matter substituted by a bank feed) that is "not compatible with the general ledger software"; because of which "manual entry from an extracted journal report is posted to the general ledger".

Can we safely suppose that the journal report icon at the top of Example #9 - which falls outside of the grey shaded functional compatible software area - is the equivalent of a Paypal/Stripe report and/or a bank feed? And, if so, that tweaking that report to calculate and enter VAT amounts, ledger posting codes etc etc would occur pre-digital trail?

Apologies for being a pedant. I'd like to be able to point clients at HMRC's examples and say "interpret them thus" (rather than reject those pearls of wisdom altogether). But Example 9's EPOS system is the nearest thing I could find to a bank feed. (Who writes this stuff!)

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