Making Tax Digital

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1. Making Tax Digital:

1. HMRC have a Making Tax Digital (MTD) initiative to replace many tax returns with a unified MTD quarterly return.

2. MTD will begin in April 2019 and will impact all small companies and self employed contractors. VAT returns will change after April 2019.

3. While MTD will replace the annual return with monthly and quarterly returns, a year-end return will still be required as a sum of the quarterly returns. Not all VAT quarters reconcile with an annual return date - some questions remain.

4. Every business that have used spreadsheets for accounting are now obliged to seek an expensive application with a HMRC electronic interface.

BENEFITS:

1. It was a manual task to sign in and transcribe values to the VAT and annual return, but transcription suffered from errors and potential delays. The entire process is now fully automated with direct debit payments to HMRC using a predefined schedule of dates.

2. People can view their account at any time to see their VAT and tax liabilities in real-time. This will become so automatic, people will ignore the whole procedure that is done on their behalf.

3. Making Tax Digitial is just one (mandatory) step in making the whole business digital. Every business will (eventually) be judged by others by the quality of its digital interface to customers, suppliers and all business associates.

2. Applications:

1. Businesses that do not use smart phones and computer applications will become obliged to do so - tax is not an option.

2. Where a business is not able to use the applications provided by HMRC, that business must hire sombody who can.

3. MTD will be expensive for those that choose not to embrace the technology and will be cheap for those that are already fully digitial.

123BIM:

1. The personal diary facility is very efficient at capturing each and every purchases expense; click on a date, fill in the form and the annual and VAT returns are automatically kept up to date.

2. For any work done, click the diary to open a form to enter the work done, the charges and create an invoice so the annual and VAT returns are automatically kept up to date.

3. The company diary is the consolidation of one or more personal diary accounts with monthly, quarterly and annual totals.

3. Pro-Active Method:

1. Applications will prompt people to record when they make a purchase and when they receive a payment.

2. Online training is provided using web pages and telephone support will NOT be provided.

3. Ignorance is no defence and a new set of fines and penalties shall be imposed to ensure that people use the applications as they were designed.

4. Legal Obligations:

1. A digital link must be used where a digital link is an electronic transfer or exchange of data between software programs, products or applications. Cut and paste is NOT a digital link.

2. Where a set of applications are used as a functional compatible software there must be a digital link betweent hese pieces of software.

3. This digital link is required where the data to be included in any of the boxes of the VAT return has been prepared within a software application and this data is then transferred to another application in order to submit the VAT return via the API platform.

4. For VAT returns after April 2020, there must be a digital link bfor any transfer or exchange of data between applications used as functional compatible software.

5. When output tax due on a mixed rate supply has an inclusive net amount, only one net and VAT due may be recorded.

6. Where an agent makes supplies on behalf of a business, those supplies do not fall within the digital record keeping requirement until the data is recieved from the agent. Where the agent provided summary data, then that can be treated as the invoice issued for the purpose of record keeping.

7. Wages paid to an employee is without VAT and is not covered by MTD regulations.

8. Employee expenses for travel and subsistence may be combined into a total net and total VAT for recording purposes - details do not need to be maintained digitally.

5. Application Program Interface (API):

1. The submission of information to HMRC must always be via the API.

2. Must businesses will use API enabled software to be used to keep digital records and to file VAT returns.

3. Bridging software may be used to connect accounting software to be reported to HMRC via the API, and for information to be sent digitally back tot he busienss from HMRC.

4. Business data must be kept, maintained and preserves in digital form. Invoices may be kept as paper or scanned and kept as a digital likeness

API Available Now:

1. CIS: Construction Industry Scheme: monthly returns can now be fully automated.

1. ICS: Import Control System.

1. NES: National Export System.

1. NCTS: New Computerised Transit System.

1. PAYE: Pay as You Earn.

1. SA: Self Assessment: this is expected by April 2020.

1. VAT: VAT online return: THIS IS A MANDATED DEPLOYMENT FOR APRIL 2019.

6. Digital Data:

1. Business Name and address of the principal place of business.

2. VAT registration and VAT accounting schemes that are used (cash accounting scheme = when payment is made).

3. Supply (sale) made: tax point date, net amount (without VAT) and VAT rate charged (Standard). Sum net amounts for each VAT rate on the same invoice.

4. Purchase (output) made: date, net, VAT rate (Standard, Reduced, Zero, Exempt) and those not part of UK VAT regulations (Outside the scope).

SUMMARY:

1. Total output tax that is owed on sales.

2. Total tax that is owed on acquisitions for other EU member states.

3. Total tax that required to be paid on behalf of supplier under a reverse charge procedure.

4. Total input tax claimed on business purchases.

5. Total input tax allowable on acquisitions from other EU member states.

6. Balance tax to be paid or reclaimed.

7. Any other adjustment allowed or required by VAT rules.

7. Mixed Rate Example:

1. A business sells a meal deal for 3.00 containing a zero-rated sandwich and a standard-rated drink.

2. The apportionment shows the VAT due is 30 pence - the application should record the net as 2.70 and the VAT as 0.30.

3. Many applications make a pigs ear of this arrangement with unique transactions for each VAT rate.

Mandated Compliance:

1. National Cyber Security Center: Security Design Principles.

2. National Cyber Security Centre: Guidance for secure development and deployment.

3. Transport Layer Security: principles for protecting data.

4. GDPR: General Data Protection Regulation.

5. PECR: Privacy and Electronic Communication Regulations.

6. Equality Act.

7. Information Commissioners Office: must pay to be registered.

8. Data Protection Act.

VAT

VAT Service:

1. The VAT service is the first of many HMRC integration services - the first business requirement is to fully automate the quarterly VAT return and associated transactions. Monthly CIS returns, monthly PAYE returns and annual returns will follow.

2. The VAT service has an object and glyph identity of 34. Table B34 holds all VAT associated information that is not available to any user.

3. As a temporary deployment, it is assumed that no financial transactions involving EU member states will take place. Brexit is likely to confuse forms and reports for a little while.

4. As a logical deployment, it is assumed that "cash Accounting" is the only scheme provided and each business has only one VAT return - not part of a financial group.

INPUTS:

1. Every sales invoice is generated by the application as one or more lines showing (1) labour costs, (2) supplies costs and (3) hire costs. The act of verifing the invoice automatically updates that quarters VAT record with the Sales-NET and Sales-VAT amounts.

2. Every purchase (supplies or hire) is added as a task with a cost code and VAT code that will automatically update that quarters VAT record with the Purchase-NET and Purchase-VAT acounts.

3. Every expense is added as a task with a cost code and VAT code that will automatically update that quarters VAT record with the Purchase-NET and Purchase-VAT acounts.

OUTCOME:

1. Every VAT quarter has its own unique VAT record with a start date and end date.

2. When a new VAT quarter begins, if that quarters record is not found, then it is inserted.

3. Every VAT record has a status as Pending or Paid with a scheduled submission date. When the scheduled submission date is not in the future and status is Pending, then the VAT return procedure is executed and the status changed to Paid. VAT return date may be the 7th of the month, but for automation purposes, the VAT return is made on the 1st of the month, so time is available for corrections if the return is not complete and correct.

4. Cash flow and cost analysis at the personal, project and company level become automated reports.

SCOPE:

1. Any number of businesses may be supported with their own unique and private VAT returns.

2. Every VAT Quarter record is identified by its unique business identity (site=03) and VAT registration.

3. The role of the Accountant and Bookkeeper is taken on by each person with responsibilities for their own accounts as invoiced labour, expenses and purchases.

VAT Prefix Record: (one)

1. To prevent fraud, a VAT prefix record holds field values that are known to HMRC and are used to verify each submitted VAT return. Whatever is needed to prove identity is stored in this one prefix record (B34.123456). Only one application prefix may be needed no matter how many different VAT return services are provided.

2. Domain Name, IP address, Port number.

3. Application Name, Application Version, Application Identity.

4. Contact Name, Phone, Email (link to CRM).

5. User Identity, User Password, User Certificate, Scheme is "Cash Accounting", EU trading is "None".

6. Last Submission Timestamp (date and time), Submission Number.

VAT Groups:

G1. Month Ending Mar-Jun-Sep-Dec. Return 1st May-Aug-Nov-Feb.

G2. Month Ending Apr-Jul-Oct-Jan. Return 1st Jun-Sep-Dec-Mar.

G3. Month Ending May-Aug-Nov-Feb. Return 1st Jul-Oct-Jan-Apr.

VAT Quarter Record:

1. Every quarter for each VAT registered business, a unique VAT quarter record exists. This holds all the data needed to create the HMRC API and store the result.

2. Business Identity (link to CRM record), VAT Registration Number, VAT Registration Date (on the VAT certificate).

3. Status (Pending or Paid), Quarter start date, Quarter end date, Quarter Payment date.

4. Sales VAT, Sales NET, Purchase VAT, Purchase NET. (updated by every transaction in quarter)

5. Submission VAT Quarter Identity (like 18A3), Submission timestamp, Submission number. A physical file showing the 9 VAT field return is stored as a frozen file in an archive folder that cannot be accessed from the Internet, but may be viewed by the archive-retrieval facility.

DIALOGUE:

1. Amounts may be updated by every account transaction or may be summed once a quarter and when needed. Evidence is that a real-time financial dashboard showing actual VAT accrual amounts and KPI has value and justifies updates by each transaction (when paid).

2. A person may try to change a financial transaction that has already been reported - such changes shall be rejected. Once a VAT Quarter record has a status as "Paid", it cannot be changed in any way. Cash accounting means that Payment dates are used, rather than Invoiced dates - any unpaid transactions can be overlooked for VAT return purposes.

Data: (B34)

01. INT. Key (6 digits).

02. INT. Active (3 digits).

03. INT. Site (business key as 6 digits with index).

04. INT. Key (6 digits).

05-06-07. INT. Spare (3 digits).

08. INT. VAT Registration Country Code (123=UK as 3 digits).

09. INT. VAT Registration (9 digits).

10. INT. Status (0=Pending, 1=Paid with index).

11. INT. Start Date (first day of month as 8 digits with index).

12. INT. End Date (last day of month as 8 digits with index).

13. INT. Return Date (first day of month as 8 digits with index).

14. INT. Change count.

15. INT. Sales count.

16. INT. Purchase count.

17-18-19. INT. Last Change user, date, time.

20-21-22. INT. Created user, date, time.

23. INT. Sales VAT (pence up to 9 digits).

24. INT. Sales NET (pence up to 9 digits).

25. INT. Purchase VAT (pence up to 9 digits).

26. INT. Purchase NET (pence up to 9 digits).

26. VC8. VAT Quarter Identity (4 characters such as "18A3").

26. VC16. VAT Submit Identity (up to 16 characters).

27. VC32. Archive File Name (32 characters).

28. VC32. HMRC Reply (32 characters).

Dialogue:

1. Optimised for updates by transaction using (1) site and (2) date between start and end.

2. The VAT quarter identity is unknown to any transaction, but every transaction has a paid date.

3. The archive file serve no purpose other than being yet another encrypted copy of this valuable data. It would be a reportable data breach if VAT information was lost or stolen - the archive ensures it cannot be lost - encryption ensures it cannot be stolen.

4. By design, the B34 table does not contain any Personally Identifiable Information (PII) and may be worthless to a criminal. By design, the B34 table contains many thousands of fake records that hide the real data. B34 records are encrypted and hidden in a massive image library that cannot be accessed from the Internet.

5. UPDATE B34 SET c23='Sales-VAT', c24='Sales-NET', c14=c14+1, c15=c15+1, c17='User', c18='Date', c19='Time' WHERE c03='Site' AND c11<='Date' AND c12>='Date' AND c10='0'.

6. UPDATE B34 SET c25='Purch-VAT', c26='Purch-NET', c14=c14+1, c16=c16+1, c17='User', c18='Date', c19='Time' WHERE c03='Site' AND c11<='Date' AND c12>='Date' AND c10='0'.

7. SELECT c23,c24,c25,c26 FROM B34 WHERE c03='Site' AND c13<='Date' AND c10='0'.

Key Perfomance Indicators (KPI):

1. VAT Accrual as balance Sales-VAT minus Purchase-VAT as what is to be paid.

2. Cash Accrual as balance Sales-NET minus Purchase-NET as to cash flow.

3. Next VAT return date (13).

4. Sales-VAT (23).

5. Purchase-VAT (25).

6. Sales-NET (24).

7. Purchase-NET (26).

8. Count of account transactions (14).

9. Count of sales transactions (15).

10. Count of purchase transactions (16).

Document Control.

1. Document Title: Making Tax Digital (MTD).

2. Description: Making Tax Digital, policies and guidelines.

3. Keywords: Making Tax Digital, policies and guidelines.

4. Privacy: Shared with approved people for the benefit of humanity.

5. Edition: 1.1.

6. Issued: 12 Nov 2018.