Millennium

VAT News: MTD ‘Digital Links’ Deadline Extended to 1 April 2021

Does your business still need to get its VAT accounts 100% digitally linked? If so, HMRC has announced some welcome breathing space.

The ‘soft landing period’ for Making Tax Digital (MTD) for VAT was due to come to an end on 31 March 2020, but has now been extended by a year. It means that all businesses have until their first VAT return period starting on or after 1 April 2021 to put full digital links in place.

Here’s a closer look at the scope of this extension, the broader requirements of MTD – and at how to make sure you stay on the right side of the rules.

Making Tax Digital: A Quick Overview

First announced in the 2015 Spring Budget, MTD is the government’s initiative for modernising the UK’s business tax framework. It’s aim is to make tax admin more effective, efficient, and fairer.

The plan, ultimately, is to bring all business taxes under the MTD umbrella. It’s an ambitious project, involving a fundamental shift from paper to digital record keeping, and from annual to quarterly reporting. To ensure compliance, it requires businesses to reassess both their reporting procedures and the accounting tools they currently have in place.

VAT has been the first area of focus in the plan. As from April 2019, the vast majority of VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are now covered by the MTD framework.

Software requirements for MTD

Businesses caught by MTD are required to shift their VAT accounting to “functional compatible software”. In short, the software must be capable of storing and maintaining the organisation’s VAT records. It must enable the preparation of VAT returns using the information maintained in those records. It must also be capable of linking up with HMRC digitally through HMRC’s own API platform.

But what happens if your accounting processes involve more than one software application? Or what if you use spreadsheets for your accounting?

Where data is scattered across more than one location or systems, you can still be MTD-compliant, so long as you have a digital link in place for transferral of the data.

What is a digital link?

Budget 2020 and the government’s support package: What it means for UK tech

Rishi Sunak’s first Budget was remarkable for several reasons. The first was its sheer scale, including an estimated £30bn of coronavirus-related stimulus. The second was the speed at which the package was overtaken by events.

Less than a week after the Budget was delivered, the government announced a £350bn package of grants and loan guarantees designed to help see businesses through the crisis. Next came a scheme for the government to pay the wages of furloughed employees, followed by similar arrangements for the self-employed: spending commitments that are expected to top £75bn.

But alongside the headline announcements and the unprecedented support package that followed it, the Budget (and subsequent announcements) also contained a number of provisions directly relevant to the UK’s tech sector. Here’s a roundup of what you may have missed…

IR35 changes pushed back by one year

With independent contractors forming such a significant part of the UK’s tech sector workforce, the proposed changes to the off-payroll working legislation (IR35) has been a cause of considerable concern.

IR35 is meant to address the perceived problem of ‘disguised employment’, whereby workers operate notionally as independent contractors and bill for their services via an intermediary (usually a limited company), resulting in a lower tax and NI liability. However, Many tech firms routinely use contract labour to help de-risk their business models as a flexible way to plug temporary skills gaps.

Originally, changes to IR35 impacting large and medium-sized private sector organisations were due to come into force on 6 April 2020. These changes shift the responsibility for determining a worker’s employment status from the contractor to the hirer. It’s a big burden for many firms – and reports suggested that many employers and contractors were simply not prepared for it.

Welcome news came shortly after the Budget, when it was announced that these IR35 changes have been pushed back until April 2021. Be warned though: the Business Secretary, Steve Barclay made it clear that this decision was “a deferral, not a cancellation, and the government remains committed to reintroducing this policy”.

Rishi Sunak’s first Budget was remarkable for several reasons. The first was its sheer scale, including an estimated £30bn of coronavirus-related stimulus. The second was the speed at which the package was overtaken by events.

Less than a week after the Budget was delivered, the government announced a £350bn package of grants and loan guarantees designed to help see businesses through the crisis. Next came a scheme for the government to pay the wages of furloughed employees, followed by similar arrangements for the self-employed: spending commitments that are expected to top £75bn.

But alongside the headline announcements and the unprecedented support package that followed it, the Budget (and subsequent announcements) also contained a number of provisions directly relevant to the UK’s tech sector. Here’s a roundup of what you may have missed…

IR35 changes pushed back by one year

With independent contractors forming such a significant part of the UK’s tech sector workforce, the proposed changes to the off-payroll working legislation (IR35) has been a cause of considerable concern.

IR35 is meant to address the perceived problem of ‘disguised employment’, whereby workers operate notionally as independent contractors and bill for their services via an intermediary (usually a limited company), resulting in a lower tax and NI liability. However, Many tech firms routinely use contract labour to help de-risk their business models as a flexible way to plug temporary skills gaps.

Originally, changes to IR35 impacting large and medium-sized private sector organisations were due to come into force on 6 April 2020. These changes shift the responsibility for determining a worker’s employment status from the contractor to the hirer. It’s a big burden for many firms – and reports suggested that many employers and contractors were simply not prepared for it.

Welcome news came shortly after the Budget, when it was announced that these IR35 changes have been pushed back until April 2021. Be warned though: the Business Secretary, Steve Barclay made it clear that this decision was “a deferral, not a cancellation, and the government remains committed to reintroducing this policy”.

When it comes to ERP deployment, who exactly does what? Read on to discover the skills you’ll need to bring on board for the smoothest possible implementation…

The promise of Enterprise Resource Planning (ERP) software is a compelling one. In an ideal world, the right ERP solution means no more workplace resource decisions made on a hunch. Instead, businesses are able to take a joined-up, data-driven approach to resource planning: one that’s aligned to the organisation’s financial goals, and which takes into account what’s happening on the ground.

95% of businesses benefit from an improvement in their processes after ERP implementation. At 68%, average customer satisfaction levels are also very high. So far, so good: but that’s not to say that deployment and implementation is totally risk-free. After all, this is the type of software that draws on data from all corners of your company, helping to reshape multiple business processes – so there is plenty of scope for potential ‘teething troubles’!

To reap the full benefits of ERP, to keep disruption to a minimum and to ensure buy-in from across the organisation, you need a strategy – and you also need the right people involved. With this in mind, here are the challenges to be aware of, and who to include in your implementation team…

ERP Challenges

Internal hardware limitations

Trying to run next-gen software on underpowered systems is a frustrating experience. Internal networks, servers and other hardware need to be assessed prior to deployment, and updated where necessary. Cloud deployment can be an effective way of mitigating issues associated with limited existing hardware and storage capabilities.

Choice of ERP system

When businesses are asked what they want from a system, ease of use, overall functionality and total cost of ownership tend to top the list of concerns. The ability to customise is also important: especially for functionality relating to manufacturing and logistics, where the modules will ideally need to be adapted to mirror the unique processes you have in place.

Data quality

This is particularly relevant where legacy data is set to be deployed in an ERP system for the first time. You need to ensure the accuracy and integrity of that data, to avoid poor integration and to ensure your people can trust the numbers once the system goes live.

Employee buy-in

Unless staff understand the purpose of the new system, it can be difficult to convince them to put it to work. Clearer inventory management, more accurate assessment of staffing needs, easier reporting, greater scope for cross-department collaboration: make sure your people are aware of the positive difference ERP is going to make.

Meeting the challenge: who to include in your ERP implementation team

Project manager

The project manager defines the steps necessary to execute the ERP implementation and ensures all relevant tasks are covered to keep the project on-time and on-budget.

For this, the PM should have a solid working knowledge of the specific software being put into place. Bear in mind that your new ERP system will be effectively integrating all departments of the business, from production and quality control through to HR. The role therefore demands a thorough understanding of how these departments operate, how information flows between them (understanding the personalities involved helps, too!).

Data engineer

Prior to migration, data engineering input is likely to be required for the purposes of data cleansing, including the removal of suspect records and reformatting where required.

Data analyst

An analyst should have a leading role in testing the ERP layout to ensure the system meets your organisation’s specific needs. This person should also be well placed to make recommendations for optimal configuration and (where necessary), system customisation.

Post-deployment, your head analyst should regularly assess the effectiveness of the system and advise on optimisation. Liaising with stakeholders is essential here: your analyst should check in regularly with users from other departments to ensure your new ERP is continuing to meet the needs of people on the ground.

Application developer

The typical ERP system tends to come with A LOT of configuration options: just one of the reasons why detailed knowledge of the product is necessary to get the most from it.

That said, to ensure it matches your unique processes, you may need to go beyond system configuration and actually build in additional functionality.

Time to partner up…

You would never settle on an actual ERP package without giving careful consideration to your options. Likewise, your choice of implementation partner is crucial, too – not least, because of the product-specific knowledge demanded to make the project a success.

To help you choose wisely, we’d suggest asking yourself the following questions:

• Does the consultancy have experience in deploying the full range of market-leading ERP packages – or are they tied to a particular vendor?
• Are they able to understand our business and grasp our way of doing things?
• Can they advise on configuration – and assist with customisation where necessary?
• Is there a well-worked installation plan, including help with data cleansing – to ensure minimal business disruption?
• Is there role-specific training available to ensure end-users get up to speed as swiftly as possible?

Are you considering a first-time ERP implementation – or looking to update your existing system? Are you weighing up different packages? Need help with filling skills gaps? For a no-obligation chat about any aspect of ERP, speak to Millennium Consulting today.