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Making Tax Digital; An interim briefing for business owners

With an interim planning stage approaching, this briefing provides guidance for business owners on the steps they need to consider in connection with the next phase of Making Tax Digital (MTD).

12th March 2021


As business owners start to think about and plan for MTD phases two and three, it’s important to be aware of an interim stage that also needs to be planned for. From the 6 April 2021 Her Majesty’s Revenue and Customs (HMRC) will be seeking to continue consolidating all VAT returns and records onto one single platform.

For VAT periods starting on or after 1 April 2021, all businesses with taxable turnover above the VAT registration threshold and who are not exempt[1] from MTD must have digital links set up for any transfer or exchange of data between software programmes, products or applications used to prepare their VAT returns.

Businesses with complex or legacy IT systems (or those that have acquired another business using different software) can apply for additional time to put the required digital links in place (subject to qualifying criteria).

Going forwards, those business owners and their bookkeepers who have historically prepared their VAT returns without digital links will no longer be able to do so for VAT periods starting on or after 01 April 2021. Instead, they will need to choose between:

  • Using an API-enabled accounting and VAT software allowing for direct submission to HMRC
  • Using an accounting system with a digital link to API-enabled VAT software allowing for submission to HMRC
  • Using a spreadsheet with a digital link to approved bridging software which allows submission to HMRC via API
  • Prepare adjustment calculations (e.g. for capital goods scheme, partial exemption, or agent corrections on behalf of their clients), and transfer these through to API-enabled software either manually or via digital link
  • Any combination of the above as long as a digital link trail is maintained from initial records through to HMRC submission via API.

Businesses who are not on MTD-compliant software should by now have had correspondence from their existing software supplier advising them what steps they need to take.

 

[1] Exemptions include where HMRC are satisfied:
  • It’s not reasonably practicable because of age, disability, remoteness of location or for any other reason
  • The business is subject to an insolvency procedure
  • The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.
Note that from April 2021, copy and paste is not deemed an acceptable digital link. (Data must be imported/exported between programmes without manual intervention).

FAQs

What is a digital link?

Digital links include linked cells in spreadsheets, import or export of spreadsheets, API transfer, and transfer of data onto and from a portable storage device or via e-mail.

I am a business owner. What do I need to do to enable me to submit my VAT return after 8 April 2021?

Ensure that your business’ accounting and VAT software allows for a digital link trail to be maintained from initial records through to HMRC submission via API. If this is not the case, please discuss this with your software provider or look into the range of options available to make this possible.

I have had no communication from HMRC on this matter. What do I need to do?

In the first instance, check if you are required to comply with MTD at this stage. Is your business’ taxable turnover above the £85,000 threshold? If under the threshold you will not need to comply with these rules until April 2022.

I am an agent for one or a number of businesses. What do I need to do to enable me to continue to submit VAT returns on behalf of my clients after 8 April 2021?

A digital link must be ensured between the client’s software and your agent API-enabled software. Calculations of adjustments to correct errors may be made outside of this software and manually imported into your software before submission.


For more information or to discuss anything mentioned in this article please contact Judith Baker or click here…