Making Tax Digital for VAT
This article was updated on 31 March at 13:00.
31 March 2020 update - HMRC have announced that in light of the impact of COVID-19, the digital links requirement of Making Tax Digital (MTD) for VAT will be deferred by 12 months to 1 April 2021.
During the first year of MTD, HMRC adopted a light-touch approach and did not strictly enforce their requirements for ‘digital’ records. At the end of the soft landing period (now delayed to 1 April 2021), we expect that to change: HMRC will insist all relevant VAT records be fully digital and where more than one type of software is used, the correct digital link must now be in place for the records for their next VAT return submission.
Once data has been entered into a software package, any subsequent transfer to any other software has to be done electronically. Digital links refer to separate software (e.g. invoice and accounting systems) being connected electronically without any copy and pasting or manual adjustments between the records. Please note you will still be able to use MS Excel in conjunction with your software packages and/or MTD bridging tools but any transfers of the information from the packages will need to be exported using the software export functions.
Businesses like VAT groups, partnerships and some charities that benefitted from the deferred start date for MTD of 1 October 2019, have a further six months of the soft-landing period until their first VAT period beginning after 1 October 2020, but we expect this to be delayed to 01 October 2021. We will confirm any further HMRC announcements in due course.
Currently, HMRC have not announced any penalty regime for not complying with MTD or for ensuring your various pieces of software are correctly digitally linked but we understand there have been discussions about this and there may be further announcements in due course. Default surcharges for late submissions of VAT returns are still in force, although HMRC are looking to review and standardise the VAT default surcharge system in line with other taxes. We wait to see whether there will be any further relaxation of the rules.