Car dealers have until next month to forge digital links to the HMRC’s VAT returns systems as the Making Tax Digital (MTD) enters the next phase of its roll-out to UK businesses.
Ahead of the application of new legislation dictating that all registered dealers submitting VAT returns using MTD need to ensure digital links are in place within their records, MHA MacIntyre Hudson this week published a short guide to the demands of the new system.
Read on to learn more about the process from the charted accountants’ VAT director, Glyn Edwards.
Making Tax Digital has three main requirements:
• Records to be maintained digitally (from 1st April
• VAT returns submissions using compatible
software (from 1st April 2019)
• Digital links (from 1st April 2020).
HMRC has allowed a 12 month ‘soft landing period’ from the introduction of MTD from April 1, 2019.
The soft-landing period allowed businesses 12 months to ensure their software would be digitally linked to comply with MTD’s requirements for VAT returns commencing on or after 1st April 2020.
What are digital links?
HMRC define a ‘digital link’ as a transfer or exchange of data which is made, or can be made, electronically between software programs, products or applications.
Practically this means HMRC require a digital trail starting from your accounting systems all the way through to the figures on your VAT return.
There should be no need for manual intervention such as the copying over of information by hand or manually copying data between 2 or more pieces of software.
In other words, any transfer of information between software programs (including exported spreadsheets) that make up part of your records must be electronic.
Can bridging software still be used?
Yes, as long as the bridging application is capable of extracting the box 1- 9 VAT summary data from the spreadsheet data.
Data can still be exported from accounting packages and uploaded to bridging software, providing digital links are either in place, or can be added following the export from the accounting package. If your bridging software requires the VAT return summary data to be input manually, it may not meet the requirements from April 2020.
What do HMRC accept as digital links?
• Linked cells within a spreadsheet
• Emailing a spreadsheet containing digital records so the information can be imported into another software product
• Transferring a set of digital records onto a portable device (e.g. a memory stick) and physically giving this to someone else who then imports that data into their software
• XML, CSV import and export, and download and upload of files
• Automated data transfer
• API transfer.
From April 2020 (or October 2020 for deferred businesses) the use of ‘cut and paste’ or ‘copy and paste’ will not be allowed.
What information will HMRC receive from April 2020? HMRC will still only receive the VAT summary information (boxes 1-9). They will not receive the transactional/backing data.
Are exemptions available?
Dealers with complex, legacy or bespoke IT systems may require a longer period to put digital links in place. A formal application can be made to HMRC requesting additional time to put the required digital links in place.
If HMRC feel the reasons for the request are acceptable and you have a timetables plan to put digital links in place, they can grant an extension.
The application must be made to HMRC before April 2020 (or October 2020 for deferred businesses). Cost alone is not sufficient reason to ask for an extension.