New guidelines are coming from HMRC in April 2020 – make sure you’re using MTD-compliant software or get your digital links in place to avoid penalties.
Making Tax Digital (MTD) was launched in April 2019, requiring all businesses over the VAT threshold to:
- Keep VAT records digitally
- Submit VAT returns to HMRC through MTD-compliant software
In April 2020, a third requirement will be enforced:
- There must be a digital link for any transfer or exchange of data between software programs, products or applications used as functional compatible software
So what is a digital link?
A digital link is a connection between software programmes or applications that does not require any manual intervention such as copying and pasting information between pieces of software. HMRC give examples of digital links, including:
- linked cells in spreadsheets (for example, if you have a formula in one sheet that mirrors the source’s value in another cell, then the cells are linked)
- emailing a spreadsheet containing digital records so the information can be imported into another software product by your agent
- transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to your agent who then imports that data into their software
- XML, CSV import and export, and download and upload of files
- automated data transfer
- API transfer
HMRC are also very clear that cut and paste or copy and paste is NOT a digital link. So from April 2020, your business will need to digitally link all software being used to prepare and file your VAT return.
What do you need to do?
If all your accounting is done within MTD-compliant software such as Quickbooks, Sage or FreeAgent, you don’t need to worry about digital links.
However, if you use more than one piece of software, or if you still use spreadsheets, you’ll need to get them digitally linked by April 2020 (unless you’re in the deferral group, in which case you’ll have already heard from HMRC and your deadline will be October 2020).
For spreadsheet users
One solution is for you to invest in MTD bridging software. This will allow you to link your spreadsheet data to the bridging software which can then be used to submit your VAT return directly to HMRC. All five of our recommended cloud bookkeeping solutions have bridging software, but you will need to buy the full product to take advantage of it.
The other solution is to send your spreadsheet to Warr & Co, who can then deal with the linking and submission of your VAT return for you. Please get in touch with us if you’d like us to deal with it for you.
For those with more than one piece of software
To comply with MTD legislation, all the software you use must be digitally linked to create what HMRC call a “digital journey” for your VAT payments. At least one of those pieces of software should be able to record and preserve digital records for the purposes of VAT submissions.
If you’re unsure, get in touch with Warr & Co for further advice.