Big Four saddle up for the MTD bridging software race

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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.

MTD for VAT workflow

Source: KPMG

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.

* * *

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.

* * *

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.

* * *

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.

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have a story that might interest us or wish to comment on the site's coverage get in touch via the site's private message function or Twitter DM (@AWebTom)


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31st Oct 2018 15:20

For me this is the aspect of MTD which gives me the most confidence. From experience in industry I know just how complex these VAT returns can be. For one thing, large multinationals are constantly restructuring which would put massive pressure on the accounting software to sort out in the VAT quarter, inevitably you are looking at spreadsheets. Almost certainly the new group acquisition does not use the same software that the group does.

What this means is that for once it is not just the small business sector who'll be getting frustrated by the MTD car crash. The biggest businesses in the land, with the loudest voices, will be at the front of the queue.

HMRC will ignore their cries at their peril.

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31st Oct 2018 16:00

One wonders at all the effort that is being put in by UK software suppliers to develop this functionality on system which HMRC ought to provide for free, as they do now.

And people wonder why UK productivity is low.

What a complete waste of everyone's time and money.

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to ireallyshouldknowthisbut
01st Nov 2018 18:01

ireallyshouldknowthisbut wrote:

which HMRC ought to provide for free, as they do now.

I could not disagree more. In my opinion, HMRC have done exactly the right thing in NOT trying to develop a dog's breakfast of a software tool (as they have in the past) but have, sensibly, realised that they are tax collectors and not software developers.

HMRC have opened up their APIs so that we can choose our preferred developer to create the tools that do exactly what we want. The developers will keep developing and refining these tools, as we request new features, which HMRC would never do (as that WOULD be a waste of taxpayers' money).

If an accountant cannot afford a few pounds a quarter to use software to run their practice, then they should find a new profession.

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to charliecarne
05th Nov 2018 10:19

I think the point is Charlie that we are forced to use paid for software to file something you can do for free right now. There ought to be at least a minimalist free option when you copy and paste (or indeed type) your 4 numbers in and press send.

HMRC have huge amounts of input screens now of various types that we are allowed to sit and type into, I don't see why they can have a basic VAT portal like they do now.

The only people who don't like that are software co's trying to make a buck out of people forced to use a paid for product. The fun thing from my point of view is that there are so many co's jumping on this now, that most will be losing money with a bit of luck.

Let us not forget, you can also currently use an API to file VAT, but guess what, no-one has bothered developing it very far as there is no perceived demand for it as software companies figure that typing in 4 numbers is a non-job we wont be willing to pay out for unless forced to do so.

Its not a question of affording to pay, its a question to compulsion to have to pay.

Thanks (1)
to ireallyshouldknowthisbut
07th Nov 2018 11:18

ireallyshouldknowthisbut wrote:

There ought to be at least a minimalist free option when you copy and paste (or indeed type) your 4 numbers in and press send...... I don't see why they can have a basic VAT portal like they do now.

I think that you have completely misunderstood the point of MTD. Firstly, you are not allowed to copy and paste the numbers (and there are 9 of them, not 4, albeit boxes 3 & 5 can be calculated from the others). The whole point of MTD is to ensure that the summary numbers entered on the VAT return are directly linked to the underlying data, so you need to have an integrated system. That can be a single tool that both maintains the books and then files the return, or you can use one piece of software to maintain the books and a piece of compliant bridging software that reads the data in the books and then files the VAT return. In either case, the direct link between each of the nine boxes on the VAT return and the underlying data is maintained.

ireallyshouldknowthisbut wrote:

Let us not forget, you can also currently use an API to file VAT, but guess what, no-one has bothered developing it very far as there is no perceived demand for it as software companies figure that typing in 4 numbers is a non-job we wont be willing to pay out for unless forced to do so.

All of the software that files VAT returns under MTD uses the API. That is how the filing works. It's not about what we are willing to do; the law now demands this new system, whether we like it or not. MTD is not about forcing us to pay for software to type a few numbers for us. It's about the link to underlying data.

You may question the need for this, especially when the only data submitted are the nine boxes on the VAT return. But this is merely the first stage in a long process that will, I believe, lead in the long term to granting HMRC direct and permanent access to all of the data within the bookkeeping system. Once that day arrives (even if you see that as overly Orwellian), the purpose of forcing us to use compliant software becomes clear. HMRC will then be able to run algorithms that can automatically check both sides (supplier and customer) of every transaction to ensure that what is claimed as a deduction by one taxpayer has been declared by another.

As for payment for this, I'm afraid that every industry is forced to pay for tools to make them compliant with legal requirements. Does your car mechanic complain that, in order to do your MOT, he now has to have special equipment and computer links to DVLC? Try not to see this as a new cost, but as an opportunity to attract new clients and charge sensible fees.

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09th Nov 2018 20:18

when I first read the MTD for VAT stuff, I thought that the easy bit would be a macro-enabled spreadsheet with hard coded credentials and internet access to submit the return information , but that the complicated bit would be handling the return messages over the API which would consist of alerts re inconsistencies identified at the HMRC end. Doable in Excel but requiring periodic internet polling of the interface to check for incoming messages so probably better implemented in a standalone application. However, presumably the commercial bridging software is handling that as well

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