HMRC delay to final phase of MTD

The final phase of Making Tax Digital for VAT has been deferred as HMRC looks to ease pressure on businesses during the pandemic. So, where are we now, when will it be back, and how can you best keep up to date with new developments?

Postponement

The last phase of Making Tax Digital for VAT (MTDfV) is getting digital links in place between all parts of a business’s functional compatible software (FCS). This was due to take place on the first anniversary of a businesses entry into MTDfV, so the earliest affected businesses should have had this in place by April 2020.

At the end of March 2020 HMRC wrote to the professional bodies to put this on ice for a year because of the coronavirus outbreak. The announcement said:

“We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges. Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”

Coronavirus impact

With the pressure of the outbreak, news from HMRC is more disjointed than usual. As was the case with this announcement on MTDfV, the GOV.UK pages aren’t always getting it first, and to stay up to date you may need to adjust where you look for information. Alternatively, your local accountant like us, will be able to keep you up to date.

Avoiding agenda slippage

MTDfV compliance has been phased in in several stages. In practice, that’s meant some easements on the requirements to have digital links between all parts of a business’ FCS, and initially, a more lenient approach to penalties.

But both of these are time-specific, and though they now apply for another year, given that the government is going to need to claw back the cost of coronavirus business support, it’s unlikely that it’s going to ease back on MTDfV in the long run. You need to be aware that when life starts getting back to normal, HMRC still has the MTD agenda waiting in the wings. And remember that although you may have made some VAT submissions under the new rules, you may not be 100% compliant yet and eventually it’s all got to be by the book.

The need to have digital links in place has been covered by what HMRC called a “soft landing”. This is only about digital links between different pieces of FCS, it doesn’t cover anything else. It looks like it’s essentially the soft landing that is going to carry on for another twelve months because of the pandemic.
It is therefore important to keep a review of your systems on the horizon. To be fully compliant in future, you will have to exclude manual intervention or re-keying of data once it’s entered on the FCS.

When manual links eventually get ruled out, the transfer of information from you to your accountant, where they submit the VAT return, is on the out list.

In practice, the announcement only came two days before the original deadline. It is likely that many businesses will have at least made some progress with digital linking. However, the delay shouldn’t mean complacency.

Digital links: endgame

As mentioned above, keeping up to date is important and it may be worth checking the VAT Notice for details of what you will need to aim for in the long run. As a quick checklist, these are examples of what will be permitted digital links:

The relief comes in two levels, both of which are available to loss-making companies:

• linked cells in spreadsheets
• 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, such as pen drive, memory stick, flash drive, and physically giving this to someone else to import that data into their software
• XML, CSV import and export, download and upload of files
• automated data transfer
• API transfer.

Be aware, once the soft landing period is over, cut and paste and copy and paste to select and move information, whether that’s within a software program, or between software programs, is out. HMRC won’t accept it as a digital link going forward.

What can be manual?

Even when full digital links have to be in place, it will still be acceptable for you to enter some information manually, such as scheme adjustments and error corrections. These calculations can be made outside FCS with results entered in the MTDfV records by journal.

Once a figure is entered into yourt FCS, its onward journey into the VAT return, and including submission to HMRC’s API, has to be seamlessly digital. But this doesn’t rule out having manual records for items before they enter the FCS. Look at how, where and when data enters the accounting records, as this will be key when digital links become mandatory.

Reduce risk now

Look out for outdated business systems which don’t export files in a format which can be imported into submission software. It will no longer be acceptable, say, for you to print out a trial balance from your system and for the figures to be keyed into your software. Instead, the trial balance would need to be exported in digital form, perhaps as a CSV or other spreadsheet file, then uploaded, emailed or transferred on a memory stick to your accountant. Using linked cells on spreadsheets could make an alternative to cut and paste in some cases.

Another thing to think about

Thinking about MTDfV is probably the last thing you will want to do while you are worrying about the impact of coronavirus on you business, but don’t worry, the team at Adderley Hill & Co are ready to help you. We will have it in the back of our mind when we are reviewing your business and generally helping you to keep on top of figures and cash flow during the crisis.