Making Tax Digital (MTD) for VAT – Soft-Landing period for Digital Links ends 1 April 2021

The soft-landing period is coming to an end for VAT return periods commencing on or after 1 April 2021, meaning that if your records are not compliant HMRC could issue penalties.

What are the requirements?

• MTD requires that all MTD VAT registered businesses have a complete set of digitally stored data
• For many businesses, transactions are all stored in one system so if you record and maintain all your records in MTD compliant software such as Sage, Xero, QuickBooks or equivalent then you should be compliant
• However, you need to consider the requirements in more detail if you use separate systems for recording sales, purchases, or other transactions that then feed into the main accounting system; or if you maintain manual or spreadsheet-based records that then feed into a digital system
• Specifically, it is a requirement that any data transferred from one system to another is digitally linked

What is a digital link?

• A ‘digital link’ is one where a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications without the need for manual re-entry

• HMRC accepts that the following are digital links (noting this list is not exhaustive):
  • emailing a spreadsheet containing digital records so the information can be imported into another software product
  • transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to someone else who then imports that data into their software
  • XML, CSV import and export, and download and upload of files
  • automated data transfer
  • API transfer
• A digital link includes linked cells in spreadsheets, for example, if you have a formula in one sheet that mirrors the source’s value in another cell, then the cells are linked

 
What is not a digital link?

• HMRC does not consider the use of “cut and paste” or “copy and paste” to be a digital link
• Any situation where information is noted from one system and manually entered in total into another system is also not a digital link.

 
Can I still use bridging software?

• Any business recording sales and purchases data in workbooks and use a bridging software to collate the data into an MTD compliant return can continue with this approach on the basis that this does form a digital link

 
Other information

• Businesses using a retail VAT scheme need to keep a digital record of Daily Gross Takings, so whilst these can be entered weekly, they need to split by day
• Businesses that have partial exemption for VAT are still able to make manual adjustments to reflect the partial exemption calculations
• Detailed HMRC guidance can be found here

 
 
We are here to help, so if you have any queries please contact us