Caution for businesses as MTD for VAT “soft landing” period comes to an end

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From 1st April 2020, HMRC’s Making Tax Digital (MTD) for VAT one-year “soft landing” period for digital links will be coming to an end, meaning businesses with turnovers above the VAT threshold will no longer be permitted to “copy and paste” or manually transfer data from different elements of their accounting systems. With instances coming to light of software companies giving misleading information about this area, we are advising businesses on what they need to know – and what they should watch out for – as April approaches.

Under MTD, all businesses whose taxable turnover exceeds £85,000 per annum have, since 1st April 2019, been required to keep digital records and send VAT returns digitally to HMRC using API enabled software. As many small and medium-sized enterprises (SMEs) were unaware of the changes until very close to this date, a “soft landing” period was allowed for businesses to comply with the digital links requirement of MTD.

As this period draws to a close, many businesses will be considering a range of software solutions – and it’s here we are keen to clarify HMRC’s requirements and offer a word of warning to those who believe costly, specialist systems are necessary.

Businesses must have digital links in place to transfer data between different parts of their accounting software by April 2020 (or October 2020 for businesses where they were deferred from requiring to be compliant).

Our Senior IT Manager, Tony Hyde, explains: “Businesses need to be clear on what HMRC sees as a digital link. Some software suppliers have implied that production of sales invoices outside of the accounting system, for example using word processing software, will not meet the digital requirements of MTD.

“Having spoken with HMRC’s MTD Team, we are able to advise that businesses which use word processors to produce their invoices will still be able to do so, as word processed documents do not form part of the business’s digital record until they get entered into the accounting software.”

In addition, HMRC has extended the soft-landing period for businesses that can evidence that it is not practical for them to implement digital links across their accounting systems prior to the relevant date. HMRC has updated their Notice 700/22 to include a new section, ‘Digital links deadline extensions’, which indicates that in certain circumstances businesses may apply for a further extension.

“Businesses who remain unsure about HMRC’s digital link requirements, or who think they may benefit from applying for an extension, are encouraged to seek professional advice well in advance of 1st April,” Tony concludes.

For further information about our firm, please call the Leicester branch on 0116 254 9262 or the Loughborough branch on 01509 263500.