If you are VAT registered then life may just be about to get more complex.
The “soft landing” introduction of Making Tax digital (MTD) for VAT comes to an end after 31st March this year for most businesses. After this date, all eligible businesses must have a digital link between their data and compatible software in order to submit a VAT return.
This does not mean that businesses need to move from spreadsheets to cloud accounting software. However, a spreadsheet on its own isn’t enough. A business will require a “digital link” in order to receive the return.
HMRC classifies a “digital link” as an exchange of data between two systems within a business, or the transfer of data to an agent, such as your accountant. Examples of digital links includes:
- 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 a memory stick, pen drive or flash drive) and physically giving it to someone who imports that data into their own software.
- XML, CSV import/export, and download/upload of files.
- Automated data transfer.
- API transfer.
There must be “Digital Links” between software programs or applications where more than one part of the software makes up the digital data submitted to HMRC. You cannot enter data into a spreadsheet, then manually copy this into a different bit of software, as there will be no digital link.
Under MTD, records must be kept digitally within functional compatible software, which is a software program, or set of software programs, products or applications, that must be able to:
- Record and preserve digital records.
- Provide to HMRC information and returns from data held in those digital records by using the API platform.
- Receive information from HMRC using the API platform.
A spreadsheet or other software product that is capable of recording and preserving digital records may not be able to perform the other 2 functions listed above, but can still be a component of functional compatible software if it is used together with one or more programs that do perform those functions.
The complete set of digital records to meet MTD requirements does not all have to be held in one place or in one program. Digital records can be kept in a range of compatible digital formats. Taken together, these form the digital records for the VAT registered entity.
From April 2020, these digital records must have digital links if held in separate places, before submission to HMRC.
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.