Making Tax Digital for VAT – Digital Links Extension Available for Certain Businesses

Making Tax Digital for VAT – Digital Links Extension Available for Certain Businesses

Making Tax Digital for VAT launched back in April 2019 (or October 2019 for certain businesses within the deferral group, such as trusts, local authorities, and other complex businesses). However, one part of the regime that is not yet in full effect is digital links, and a recent announcement from HMRC may mean that the need to have digital links in place is postponed for even longer for certain businesses.

What are the current requirements for digital links?

Businesses within the remit of Making Tax Digital for VAT are required to file VAT returns using MTD-compatible software and must also keep digital records.

Digital links are part of the digital record-keeping process. This is because, under MTD for VAT, where information forms part of a business’ digital records, the "data transfer or exchange within and between software programs, applications or products that make up functional compatible software must be digital".

HMRC, in VAT Notice 700/22, also speaks of a “digital journey” and how each piece of software should be digitally linked to other software to create this journey. As a digital link is, by its nature, digital, this means that no manual intervention should be required to link data or pieces of software. Examples of digital links include linked cells in spreadsheets, or emailing a spreadsheet that contains digital records in order for that information to be imported into another software product.

However, cutting and pasting or copying and pasting information is not considered to amount to a digital link.

Further examples of digital links are provided in VAT Notice 700/22.

A soft landing period is currently in place

Although digital links are an important part of Making Tax Digital for VAT, businesses are not yet required to have digital links in place, despite MTD for VAT already having begun. Instead, a soft landing period is currently in effect. This means that businesses are not required to have digital links in place until 1 April 2020 or 1 October 2020, depending on the business’ mandation date for MTD for VAT.

Note that, during the soft landing period, the use of cut and paste or copy and paste is also permitted.

When can an extension be granted?

Although the soft landing period is still in effect, in October 2019 HMRC announced that certain businesses would be able, under certain circumstances, to extend their soft landing period to have digital links in place.

Broadly, two main scenarios were identified in VAT Notice 700/22, which may indicate that it could take longer to put digital links in place across a business’ functional compatible software.

  • Having complex or legacy IT systems;
  • Acquiring another business

How to apply for an extension

If you think that your business may be eligible to extend its soft landing period for digital links, there are certain criteria that should be met when submitting an application for an extension. For example, your business should:

  • Explain why it is ‘unachievable and not reasonable’ for your business to have digital links in place by the end of your relevant mandation date (i.e. April or October 2020). Note that the issue of cost alone is also not considered sufficient reason for an extension.
  • Submit details (including a current map) of the systems that cannot be digitally linked
  • Provide an explanation and timetable for when and how your business will become fully compliant with MTD for VAT.
  • Outline what controls will be in place to ensure any data that is transferred manually is moved accurately and without error
  • Any application for extension should be submitted as soon as possible, and by no later than the end of that business’ soft landing period.

How long will the extension last?

Generally, HMRC expects that any extension should ordinarily last no longer than one year from the end of that business’ soft landing period. So, a business with a soft landing period to 1 April 2020 would, ordinarily, not be expected to have an extension beyond April 2021.

It’s also worth taking into consideration that the extension is only intended to be issued in exceptional circumstances. As a result, blanket extensions are not likely to be granted. Equally, it’s not likely, based on the extension criteria outlined above, that every business could be considered for an extension.

It is therefore crucial that businesses remain committed to becoming Making Tax Digital for VAT compliant as soon as possible (if they aren’t already). This is particularly true in respect of digital links, as there are only a few more months to go before the soft landing period ends, particularly for April 2020 mandated businesses.

AccountsPortal is recognised by HMRC as an approved software provider for Making Tax Digital for VAT. Its Making Tax Digital software allows businesses to comply with the digital record-keeping requirement for MTD for VAT, while also allowing them to submit their VAT returns online to HMRC. For further information about digital links, including how to apply for a digital links extension for Making Tax Digital for VAT, see VAT Notice 700/22.

Further Reading

Survey Results Raise Question Marks over MTD for VAT

How to use Register for Making Tax Digital in AccountsPortal

Making Tax Digital for VAT - What Types of Software Are Out There?