The current 12 month soft landing period for digital links will end for VAT accounting periods starting on or after the 1 April 2020. Businesses that benefitted from the deferred start date for MTD (VAT periods beginning 1 October 2019) have a further six months of the soft landing period until their first VAT period beginning after 1 October 2020.
Until the Soft Landing Period – April 2020
During the soft landing period, there are two requirements that must be met:
- The final submission of the VAT return to HMRC must be made via API enabled software,
- The accounting records must be stored digitally.
Digital VAT records must include the following information:
- The business name, address, VAT registration number and any VAT schemes used;
- For supplies made, the time they were made, their value, the rate of VAT applicable to each supply and a split of values between the different rates;
- For purchases, the time of purchase, their value, along with the amount of VAT charged which the business will reclaim;
- Summary data to support the return, including output VAT, acquisition VAT, reverse charge VAT, claimable input VAT and acquisition VAT, the total VAT due to or reclaimable from HMRC and any other adjustments permitted or required.
After the soft landing period
For VAT return periods beginning after 1 April 2020 (1 October 2020 for deferred ‘starters’), with very few exceptions, digital links between the return figures submitted and VAT records supporting those figures covering VAT due and claimable will be required. A digital link is a transfer or exchange of data electronically between software programs, products or applications.
Once data has been entered into software used to keep and maintain digital records, any further transfer, recapture or modification of that data must be done using digital links. Each piece of software must be digitally linked to other pieces of software to create the digital link. This applies to moving VAT records between software and Excel and calculating the 9 box figures.
HMRC have provided the following non exhaustive list of examples of acceptable digital links
- 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 (for example, a pen drive, memory stick, flash drive) and physically giving this to someone else who then imports that data into their software
- XML, CSV import and export, and download and upload of files
- Automated data transfer
- API transfer
The use of copy and paste facilities, the manual re-typing of core data from one system or report to another, or anything else which breaks the digital audit trail from the source accounting system through to submission to HMRC is not allowed.
For businesses who use recognised accounting software and have a straightforward accounting position, it is likely that these packages will provide the required digital links, digital storage of accounting records and the ability to submit the return to the new MTD HMRC platform. For others, particular care needs to be taken when different elements of the VAT return are coming from different source systems to ensure the integrity of the digital links.
MTD for VAT requirements can be met by a number of software packages, including excel, provided they are digitally linked. So, for example, a business could record sales and purchases in an accounting package and transfer the figures to a spreadsheet which calculates the return figures before sending the information to bridging software to submit to HMRC via the approved API software.
Some adjustments and calculations are permitted outside the digital requirements, but care is needed to ensure only qualifying adjustments and calculations are treated in this way. Partial exemption and margin scheme calculations are permitted outside the digital framework for example.
It should be noted that HMRC will not provide API software but has compiled a list of approved software suppliers, please click here to view the list.
Many businesses will already be meeting the requirement for digital links particularly where an MTD compliant software package is being used, but for businesses using older or legacy systems, or those using foreign systems there could well be a need to implement or enhance digital links.
If you have any concerns please call or come and meet with your usual Mercer & Hole contact who can assist you with understanding your obligations and implementing the required changes, as well as reviewing software options eg transferring over to one of our partnered software packages (QuickBooks, Xero or Sage).