As the race hots up ahead of next year’s rollout of the Making Tax Digital for VAT regime, accountancy’s Big Four are jockeying for position on the starting line with the release of their in-house bridging software tools.
Deloitte and PwC have both walked their products into HMRC’s ‘available now’ software paddock, while at time of writing EY and KPMG are both listed as ‘in development’. But why have the Big Four set out to bridge the digital tax gap, and what products have they got available?
What is bridging software?
When the initial proposals for the government’s digital taxation project rolled out, spreadsheets were originally cut out of the loop. However, following a Whitehall rethink in early 2017 the beloved tool of the accountant received a reprieve.
When HMRC agreed that a spreadsheet would be an acceptable medium in which to record and preserve digital records, it invented the term ‘bridging software’ to fill the gap between the spreadsheet and the API used to submit tax data to HMRC. At that stage bridging software was still a figment of HMRC’s collective imagination, but now it is a reality.
While organisations with more complex requirements were recently given a six-month digital tax deferral, the news has done little to dampen the enthusiasm of the UK’s biggest firms for all things MTD.
Why are the Big Four bridging the gap?
While 99% of VAT returns are filed online in the UK, only around 13% of VAT returns are currently filed direct from software (source: CIOT). For the remaining 87%, the VAT return figures are typically entered manually into the HMRC government gateway page. This is due to a variety of reasons, including complexity further down the VAT calculation chain, cost, and the lack of a - something MTD will change for a large proportion of VAT-registered businesses.
While for many smaller entities the transition to digital VAT filing can be achieved relatively easily by using MTD-compliant accounting software, for the majority of the Big Four’s clients, compliance is less straightforward.
Whereas smaller businesses often take information straight from an accounting engine and report VAT numbers to HMRC via API, many Big Four client businesses are on the complex end of the spectrum, pull data from different sources and make adjustments on spreadsheets before submitting the numbers to the tax authorities. Almost all rely heavily on spreadsheets to manage final completion of the VAT return.
Indirect tax-filing products for enterprise-level companies do exist - for example, Thomson Reuters ONESOURCE and Avalara’s end-to-end solution - but there are many reasons why their take-up has not been wholesale – the initial difficulty of adopting and implementing these solutions across large, often disparate organisations is one; cost is another.
Big firms are currently billing their bridging software tools as a tactical interim solution that prevents clients from having to rush into potentially expense software implementations. However, given the progress of digital taxation across Europe it is evident the firms are also asking clients to think about the longer-term, transactional elements as well.
Runners and riders
Deloitte’s VAT Return Filer is the firm’s product to allow spreadsheet clients to stay the right side of the MTD for VAT rules.
Clients sign up to the VAT Return Filer service and are provided with a single spreadsheet page they drop into their VAT return spreadsheet. This additional sheet contains the nine boxes, summary information and a few other checks. The client then maps over the numbers via a formula and saves the spreadsheet as normal.
When the client is ready to file, they log in through Deloitte’s myInsight cloud portal, click on the tile within the interface, then drag and drop the VAT return into the system. This pulls in the summary information, prepares it and, at the client’s request, files it with HMRC. Nothing apart from the nine numbers is stored.
A short demonstration of the tool can be viewed via the video below.
Deloitte did not have a complete list of costs available at time of writing.
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EY has unveiled its VAT e-filer, which allows clients to upload and submit spreadsheet-based VAT returns to HMRC. Clients log on to EY’s portal, through which they are given access to an online piece of software that pulls in the relevant VAT details and makes the return through HMRC’s API. No software downloads are required.
The e-filer summarises the status of clients’ returns at a glance and allows them to see when their next return is due. Clients can also access PDF copies of submitted VAT returns, and view all amounts due.
In addition to the submission of the VAT return, the VAT e-filer will also collate benchmarking and trends data will also be added later to allow clients to track their returns.
Currently listed as ‘in development’ on HMRC’s list of MTD software vendors, the price of the e-filer is £500 plus VAT.
The firm also offers a range of other MTD-related products and services to clients, including a readiness assessment, solution review and its Global VAT Reporting Tool (GVRT), which manages the entire VAT return process starting with data from ERP systems and finishing with a populated VAT return. The price of EY’s various MTD solutions is available on application.
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KPMG’s Tax Bridge can integrate with any Excel spreadsheet using specified input cells that allow the application to import the values associated with each box on the return.
The cloud-based tool interacts via HMRC’s API to allow users to submit their VAT returns in a digital, MTD-compliant way. According to KPMG, the solution is also scalable allowing for the process to adapt as HMRC requirements evolve.
Tax Bridge allows users to retrieve filed returns, view VAT liability and payment information. Other features include notifications for upcoming filings and storage of previous submissions.
For partially exempt businesses with complex VAT return processes, MTD is not introducing any changes to the VAT calculation rules, but there will need to be a digital link from these calculations to submit the VAT return. KPMG’s PX Cube, which helps businesses manage partial exemption calculations, has also now been approved by HMRC for MTD for VAT.
The Tax Bridge tool is currently listed as ‘in development’ on HMRC’s list of MTD software vendors. According to KPMG, prices are available on application.
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PwC’s VAT e-file is a simple API connector that allows clients to submit UK VAT returns direct to HMRC using a spreadsheet. According to PwC, the tool is built in Excel and has been reviewed by Microsoft.
The firm provides clients with access to the PwC Excel e-file, the client links the cells from their own spreadsheet to the PwC excel e-file, selects submit return, and they’re done.
The VAT e-file solution is available to any unrestricted UK business. Prices start from £90 + VAT per annum, which will allow agents to file up to 10 VAT returns. It is available free for registered charities.
PwC also provides MTD consulting and services on request and offers compliance software to manage complex partial exemption needs.
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While this guide predominantly covers the Big Four, an honourable mention should also go to Grant Thornton’s API VAT filing solution.
Listed as ‘in development’ on HMRC’s MTD for VAT page, the solution bolts on to clients’ existing VAT working spreadsheets, which will allow submission of VAT returns via an API link to HMRC.
Once set up, the solution enables users to be just four clicks away from being able to submit their VAT return data to HMRC.