As Benjamin Franklin famously said: “In this world, nothing can be said to be certain, except death and taxes.” As both subjects are continually quoted as the only two certainties in life, and since death doesn’t seem like a particularly cheery topic – I thought I would focus on the subject of taxes instead.
In the UK, one of HMRC’s stated ambitions is to become one of the most advanced tax administrations in the world. Plans to achieve this are set out in the Making Tax Digital roadmap, which will transform tax administration by 2020 so it is more effective, more efficient and simpler for taxpayers.
What is the Making Tax Digital Initiative?
The first step of this journey mandates the use of the Making Tax Digital system for businesses that meet the threshold criteria, which is a turnover in excess of £85,000, to meet their VAT obligations from April 2019. The requirements set out include:
- Keeping records digitally (for VAT purposes only)
- A digital link between software applications involved in the recording of VAT relevant transactions
- Providing VAT return information to HMRC through Making Tax Digital compatible software
VAT Notice 700/22 (Making Tax Digital for VAT) stipulates what information needs to be recorded and retained digitally. Simplifying this slightly, it boils down to the time of supply (tax point), the value of the supply (net value excluding VAT) and the rate of VAT charged or claimed.
What does this mean for businesses using SAP?
The first two requirements (digital records and digital links between systems) are at the core of any existing SAP ERP solution – so are already covered with no need to do anything differently.
Businesses are not required to record any additional information over and above what they already capture.
The more interesting question arises when it comes to the digital submission of the VAT return – businesses will no longer be able to use their current processes of submitting via the government gateway.
Instead, with the need for submission via API, businesses may need to consider the use of SAP’s Advance Compliance Reporting Service (ACR), as existing SAP based electronic VAT return solutions will no longer be valid after 1 April 2019.
What is SAP ACR?
SAP’s Advance Compliance Reporting Service (SAP ACR) is an SAP SaaS product developed on SAP Cloud Platform that enables a central framework for reporting compliance delivery. A key advantage is that the solution can take feeds from multiple systems, and is independent of the source SAP system. The solution offers much more than just meeting HMRC Making Tax Digital obligations, and in fact, covers a wide range of other compliance reports (such as EC Sales List and Withholding Tax Declarations) across a wide range of countries – so may well be of additional benefit to customers with a global SAP installed base.
For customers using S/4HANA (both on-premise with releases 1610 and above and cloud versions), the ACR scope item offers more flexibility as full data replication is not required since the solution has an inbuilt Advanced Compliance Reporting framework which prepares the VAT report. The ACR service, in this case, is therefore used to handling the submission to HMRC.
For ECC (and pre-1610 S/4HANA) based source systems, data must be replicated from the source systems to the ACR solution, and the VAT report preparation and submission then takes place within the ACR service. Additionally, data can also be loaded to the service via Excel, meaning that it can also be used for submitting VAT returns for legal entities not currently on the SAP landscape.
Within S/4HANA Cloud, ACR requires an additional license of use when the customer prepares more than 24 declarations per year, and hence is not included in the standard provisioning. The additional SAP components required are:
- For submission of returns: ‘SAP Localisation Hub, Advanced Compliance Reporting Service’ (SKU: 8005693)
- For S/4HANA Cloud: SKU 8006141
The SAP ACR Service provides the pre-packaged Making Tax Digital requirements for rapid service activation and on-boarding including guided setup. The administrative setup will confirm the API and secure connectivity with the HMRC System. This solution offers a dashboard for customer compliance monitoring plus value-add capabilities like analytics, audit trail and enables businesses to stay compliant with continuous legal changes. The solution also offers a design-time environment which allows customer specific legal report creation and extensions.