Sarah Halsted

Written by: Sarah Halsted and Tom Gilbert

Sarah Halsted

Technical Associate Director

Making Tax Digital for VAT – coronavirus forces ‘digital links’ delay

The requirement to submit VAT returns to HMRC using Making Tax Digital (MTD) compatible software came into force during 2019. For most businesses, this took effect from the first VAT return period beginning on or after 1 April 2019, although for some organisations, the roll out of MTD was delayed until October 2019.  MTD rules also require businesses to ensure that digital links exist to cover the entire end-to-end VAT return process, linking the original digital recording of a transaction through to the digital submission of the final VAT return numbers. However, HMRC initially granted a 12 month soft landing period to allow businesses time to ensure a clear digital audit trail was in place throughout their VAT accounting systems. This was due to come to an end on 1 April 2020, or 1 October 2020 for those in the deferral category. 

In the light of the impact of the coronavirus on business, HMRC has now decided to allow more time for VAT registered traders to meet the digital links requirement of MTD for VAT. In an email sent to selected stakeholders on Monday 30 March, HMRC stated that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place. This includes those for whom the soft-landing period had not been due to end until the VAT return period starting on or after 1 October 2020. HMRC intends to update VAT Notice 700/22 Making Tax Digital for VAT as soon as possible to reflect this change. 

This postponement of the MTD digital links requirement is extremely useful, if not vital for some struggling businesses as it gives them more time to consider their options and implement the right solution in light of the challenges coronavirus is creating. 

While many firms will already be meeting the digital links requirement, those with complicated (often heavily spreadsheet based) processes, or legacy/bespoke accounting systems find the digital links requirement presents a challenge that can take time and resources to meet. For these businesses especially the announcement will be a relief.

Combined with the recent VAT payment deferral, it is clear that HMRC are trying to help businesses with their VAT compliance obligations as much as possible during these extremely difficult times.

However, it is important to note that organisations in the ‘October deferral’ category, which includes public bodies, unincorporated charities, public corporations, overseas businesses and those in VAT group registrations and/or required to make payments on account, have only been given an extra six months to put their digital links in place. 

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