HMRC report: Digital VAT compliance increases productivity

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UK tax authorities have issued a new policy paper on extending the Making Tax Digital for VAT programme. Currently, VAT registered businesses trading above the compulsory VAT registration threshold must comply with digital VAT filing. From April 2022, VAT registered businesses that do not trade above the compulsory threshold will also be required to operate MTD for their VAT reporting. According to HMRC, approximately 1.1 million VAT registered businesses meet that criterion.Businesses that are currently required to comply with MTD should note that Making Tax Digital Phase 2 takes effect on 1 April 2021. Authorities had initially planned to introduce Phase 2 in 2020, but extended the deadline.

Digital VAT compliance is good for business

HMRC’s policy paper lays out numerous benefits of switching to digital VAT compliance. “These benefits include reducing or eliminating paper-based or manual processes through use of software and an integrated approach to business administration and tax, allowing for greater accuracy in tax returns.”

In terms of business productivity, digital compliance “reduces the time businesses spend on administration, providing businesses more time to maximise business opportunities, productivity and profitability.”

Moreover, the benefits do not just apply to large corporations. The paper cites a study showing that switching to web-based accounting software made micro-businesses more efficient.

Automation eliminates error

The report further notes that automating VAT compliance eliminates opportunities for human error.

As the paper indicates, that is useful from an efficiency perspective: “Businesses will therefore also save time through processes that help them get their taxes right first time and reduce the chances of time spent putting errors right at a later stage.”

Eliminating error is also important for another reason. Because filing is always in order, businesses can avoid penalties for noncompliance.

 

Disclaimer: Reproduced/Adapted with permission from VATGlobal.

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