HMRC grants MTD VAT companies extra time on digital links

Small companies with legacy or complex IT systems have been offered extra time by HMRC to put digital links in place across their Making Tax Digital software.

Tabled as an add-on to the ‘soft,’ non-extendable ‘landing period’ which all MTD VAT businesses already have, the Revenue said it would consider applications for extra time on a “case-by-case” basis.

The concession has come about after HMRC heard that “exceptionally complex” IT systems at a small number of firms might prohibit them from meeting next year's deadline to sort the digital links.

'Apply for additional time'

Now, such firms can go forward to the department to secure an extension to their MTD VAT submission deadline, as long as they can demonstrate to officials why they are unable to link their accounting or software systems.

“We have introduced a process to apply for additional time so that businesses are not penalised while making their best efforts to comply with all other MTD requirements,” an HMRC spokesman said.

“Businesses should review HMRC guidance and criteria for issuing a digital link extension carefully before applying.”

'Digital links'

The guidance says a ‘digital link’ can include linked cells in spreadsheets (where a formulae in one sheet mirrors the source’s value in another cell); and XML, CSV import and export.

Emailing a spreadsheet with digital records so the data can be imported into another software product also qualifies as ‘digital links,’ as does transferring the records onto a memory stick to someone who physically takes the stick and imports its contents into their software.

By contrast, noting down details from an invoice in one ledger and then using those handwritten details to ‘manually update another part of the business-functional compatible software system,’ does not constitute a digital link, HMRC says.

'You could incur a penalty'

Similarly, simply ‘cutting and pasting’ does not constitute a digital link -- except during the ‘soft landing period,’ during which time (but not after the period ends) HMRC says it accepts such an operation as a link.

Accounting platform FreeAgent has said: “HMRC has described the first year following the 1st April 2019 launch [of MTD for VAT] as a ‘soft landing period’, which they explain is a period of time 'for businesses to have in place digital links between all parts of their functional compatible software'.

“However, there may be some circumstances in which you could incur a penalty for failing to comply with the initiative during this time.”

If ‘time’ is a concern, then the new applications process for digital links preparation might help affected businesses (annual turnover of over £85,000), who have been promised by HMRC that it will take a ‘light-touch’ approach to penalties during MTD’s first year of mandation, except in cases of “deliberate non-compliance.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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