Making Tax Digital Extension Announced

As a result of the current Coronavirus pandemic, HM Revenue & Customs (HMRC) have announced that they will be extending the time allowed for Making Tax Digital businesses to put in place digital links between all parts of their functional compatible software.  This was due to be introduced for VAT return periods beginning on or after 1 April 2020 and will now be deferred until 1 April 2021.

This means that, if required, that you now have more time to ensure that your software has a digital link between each piece of functional compatible software.

What is functional compatible software?

Functional compatible software is the name given to any software program, or set of programs, that have the ability to:

• Record and maintain accounting records in an electronic format
• Provide VAT return information to HMRC using their Making Tax Digital API
• Receive information from HMRC

You may have more than one piece of functional compatible software, for example, if you maintain your VAT information in Excel spreadsheets and use our MTD for VAT Filer.

What is a digital link?

A digital link is the term HMRC use to describe “data transfer or exchange within and between software programs, applications or products”.  In effect, this means that when you enter information into one of your software programmes, that information should not need to be re-entered into another program.  Examples of digital links include, but are not limited to:

• Export and re-import of information from one system to another without the data needing to be altered
• API transfer where products are linked – for example an integration between AutoEntry and a cloud software package such as Xero or FreeAgent
• Linked cells within a spreadsheet – for example, a formula in one sheet that mirrors the source value in another

HMRC does not consider copy and paste as being a digital link to move information from one program to another. In the “soft landing period” that has now been extended, however, HMRC will accept the use of copy and paste as a digital link.

We would suggest using digital links if they are already available to you, If you need any assistance to become compliant over the next year our Cloud Accounting team will be happy to help.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

Photo by Georg Eiermann on Unsplash