All UK businesses that are required to be MTD registered for VAT reporting purposes will from 1st April 2021 have to adapt their systems to meet HMRC’s new ‘digital links’ requirement as pure filing of the VAT numbers will no longer possible.

At present, this applies to VAT registered businesses (with yearly taxable turnover above £85,000). 

The soft-landing period has meant that VAT registered businesses that had signed up to MTD were treated with leniency by HMRC in order to allow them to bed-into the new system.

 What this means for you

•  Most taxpayers rely on an ERP system to maintain and archive records. However, this ‘raw’ VAT data is not enough for the filing of future VAT returns under MTD as it won’t meet the digital links requirement.For example, some calculations are still performed in spreadsheets and when it comes to submitting the final VAT figures, they are often manually inputted into so-called bridging software such as Xero, which then submits VAT returns using API to HMRC 
• The data based on which the UK VAT return is prepared must be stored digitally. As HMRC would now like to see all the invoice information behind the VAT return filing boxes such as time of supply (date of invoice/tax point), the net value of the supply, VAT rate charged, and input VAT to be claimed 
• A ‘digital link’ is where data is transferred or exchanged between software programs, products, and applications without the involvement or need for manual intervention right from the beginning till the final submission i.e. what HMRC refer to as a ‘digital journey’. HMRC have stated that to maintain digital links, businesses can include spreadsheet formula, use XML/CSV import and export, and API transfer.