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Making Tax Digital for VAT (MTD)– Soft landing period due to end - news article image

Making Tax Digital for VAT (MTD)– Soft landing period due to end

23 Feb 2021

2 minute read

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.
 Darshil Shah, Accounts Manager for Shaw Gibbs comments “It is worth preparing for the upcoming requirements now to avoid any potential filing issues with HMRC which may result in penalties. We have advised many clients in this area and are always happy to have a conversation about how we can help

What’s next? 

From April 2022 it is planned that all UK VAT registered businesses will be required to sign up for MTD and to follow the above processes. 

It is also planned by HMRC to roll out MTD filings to other taxes as well including income tax. 

HMRC have also confirmed that there will be a pilot phase for the introduction of MTD filings for corporation tax which is planned for April 2024. Meaning that there is a potential mandatory MTD requirement for all corporation tax filings from 2026.
Making Tax Digital for VAT (MTD)– Soft landing period due to end - news article image


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