Our VAT registered clients have been focusing on the mechanics of getting their VAT returns into HMRC using MTD-compatible software. But there are two other requirements of the MTD regulations; to record VAT data digitally and to transfer that data via digital links to the VAT submission software.
Many business systems contain points where different software programmes or spreadsheets do not communicate, so summary totals are transferred by hand (retyping) or by copying and pasting. This non-automated data transfer must be replaced by a digital link to fully comply with the MTD regulations.
HMRC has agreed a one-year concessionary extension (the soft landing) to the requirement to have digital links at certain points in the business system. Section 8 of VAT Notice 700/22 explains where the digital links are compulsory and where the lack of a digital link can be covered by the soft landing concession.
The one year soft landing period runs out at the start of the first accounting period commencing from 1 April 2020, or 1 October 2020 for business that have a deferred start date for MTD. However, in the latest version of VAT Notice 700/22, new paragraph 18.104.22.168 introduces the possibility of an extension to the digital link concession.
This is not an automatic extension, the business must apply to HMRC for the extension to be granted, giving reasons why it will be “unachievable and not reasonable” to have the digital links in place by the deadline, and provide a timetable of when those digital links will be inserted. The business must also provide a map of the VAT recording system which highlights the points where a digital link is missing.
Drawing up such a system map requires an accurate audit of the VAT processes, which we can help our clients with (see examples in VAT Notice 700/22). HMRC also require an explanation of the controls which ensure that any manually transferred data is moved accurately and without errors.
Note that any extension granted to the soft landing period for digital links can only last a maximum of one year, and it must be applied for before the current soft landing period expires.