MTD for VAT in SAP ERP: how to implement this UK HMRC VAT rule
It’s not only businesses that are caught up in the current trend of Digital Transformation – governments and financial authorities are also realising the benefits of digitising and automating their processes and responsibilities. E-Invoicing initiatives such as SDI (Italy), CFDI (Mexico) and SII (Spain) enable tax authorities to increase the timeliness, completeness and accuracy of incoming tax reporting data. In the UK, Her Majesty’s Revenue and Customs (HMRC) are introducing a series of initiatives under the “Making Tax Digital” (MTD) program. In this blog post you learn how to comply with the MTD for VAT regulations in your SAP ECC or SAP S/4HANA system before the deadline expiration on 1st April 2019.
Why Making Tax Digital (MTD) will bring the UK a step closer towards the digital tax revolution
The most pressing regulation of the Making Tax Digital program is Making Tax Digital for Value Added Tax (MTD-VAT). The VAT gap in the UK currently stands at an estimated £13bn (ONS, 2017-18) – the MTD-VAT program is designed to help HMRC reduce the gap. Any UK-based company which is over the VAT Threshold (Annual VAT taxable turnover £85k+) is affected by MTD.
VAT Notice 700/22 mandates that as of April 2019, UK organisations must report their VAT returns via the Making Tax Digital interface. Currently, the majority of VAT returns are submitted by filling in an online form (form VAT 100, also known as the “9 box” return). MTD-VAT requires that VAT returns are submitted directly from a company’s accounting software, using the booked accounting data as the basis for the return.
Challenges for compliance with MTD-VAT
HMRC recognises that it may take some additional time for accounting software, such as SAP, to be updated for MTD compatibility. Therefore, until March 2020, it will be possible to submit data via an MTD-enabled “bridging” tool (for example, an MTD-enabled spreadsheet) – HMRC refer to this as the “soft landing period”. However, by March 2020 at the latest, data must be submitted via a “digital link”.
Even with the extra “soft landing” time, MTD-VAT presents a number of challenges for businesses to ensure that they’re compliant. Whilst some UK-focused accounting packages already support data submission via MTD, software with an international focus (such as SAP) may require extra development and configuration to meet the MTD requirements. Additionally, as most UK businesses submit their returns on a quarterly basis, there are limited reporting opportunities to ensure that staff are correctly trained and familiar with the process surrounding MTD reporting.
What are the Making Tax Digital (MTD) requirements for VAT Reporting?
Fundamentally, MTD-VAT requires organisations to submit their VAT returns directly from their accounting software, such as SAP ECC or SAP S/4HANA, using the booked accounting data as the basis. The software should automatically calculate and submit the return – figures are not able to be manually entered or adjusted. Therefore, VAT-relevant postings already need to be correctly coded with the correct type and amount of VAT. For most organisations which manage their accounts with software (for example, SAP), this will already be the case.
It should be noted that MTD-VAT is not an e-invoicing topic like SDI and CFDI – individual invoices do not need to be submitted to HMRC via the MTD-VAT interface for approval. Only the standard “9-box” summary information needs to be provided.
How to make your SAP ERP system MTD-compliant with the PIKON SAP Add-On for Making Tax Digital
PIKON are currently developing a native MTD solution for SAP ECC6 and SAP S/4HANA which we will make available to customers in early 2019. As our PIKON UK affiliate must also report its VAT data via MTD-VAT in the future, and we also run SAP ERP, we decided to create our own on-premise solution, avoiding the need to integrate with SAP’s standard cloud-based offering for meeting the MTD requirements.
Our UK-based consultants are co-ordinating the development of the application which will select, calculate and submit VAT data to HMRC. This solution is being developed with multiple use-cases in mind (e.g. different network topologies, SAP tax setups etc.), with certification from HMRC estimated to be completed in mid-February. (Update 19.02.2019: PIKON is recognised by HMRC as having an MTD-compatible solution)
Assuming that your accounting processes are MTD-compliant (i.e. accounting data is recorded with the correct VAT codes and amounts), filing the VAT return with PIKON’s MTD solution is a simple process, and your existing accounting processes / procedures are not affected. As part of our MTD offering, we provide an “MTD Health Check” before implementing the PIKON MTD SAP Add-On to ensure that your existing tax accounting configuration and processes are MTD compliant.
For more information about PIKON’s MTD solution, or if you would like to arrange a web meeting with one of our MTD team to discuss how PIKON can help you to fulfil your MTD obligations with SAP, please click the button below.