From 1 April 2019, Making Tax Digital (MTD) compliance became mandatory for most VAT registered businesses for VAT return reporting.

HMRC implemented a soft-landing period for the first two years to 1 April 2021, meaning that some elements of the MTD legislation were relaxed – in particular, digital links.

The soft-landing period was introduced to give businesses time to bed into the new process and get ready for the next phase.

A digital link is essentially the exchange or transfer of information from one application to another on a digital or electronic basis. Each piece of software you use for your VAT accounting purposes must link to one another without manual intervention. For example, copying and pasting data from a spreadsheet into the system used to submit the VAT return will no longer be compliant, as it involves manual input. Digital links are intended to reduce the chances of error between systems.

What are compliant digital links and how do you prepare?

In a nutshell, it is removing the need for the manual transfer of data between systems. So, if you use more than one piece of software to record your VAT information, for example one system to record sales entries (EPOS) and a separate one to record purchases (Cloud Accounting Software), or if you use spreadsheets, how do you make sure all these systems work together? This is where digital links come in.

HMRC has provided the following as examples of acceptable digital links:

• Emailing a spreadsheet containing digital records so the information can be imported into another software product
• Formulaic linked cells within a spreadsheet
• 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
• Application Program Interface (API) transfer

HMRC has confirmed this is not an exhaustive list, so other solutions may be suitable but subject to HMRC approval.

Applying for an extension to the digital links deadline

Setting up appropriate digital links between systems can take time to implement and test. If you’ve not addressed this already for your business, we’d urge you to prioritise this now to be ready in time for the 1 April 2021.

HMRC has confirmed an extension to the digital links deadlines can be applied for, but this will only be considered if businesses meet specific criteria and will be assessed on a case-by-case basis. You can find out more about the eligibility criteria for an extension and how to apply on HMRC’s website here.

We’re here to help

We’ve been helping businesses of all sizes prepare for digital links for some time now and if you’ve not tackled this yet, it’s not too late to start planning now. If you’re unsure where to start when reviewing your accounting procedures, please do not hesitate to get in touch with me, Ewan Bolt, or another member of our Digital Solutions Team and to arrange an initial chat and then we’ll take it from there.

Head of Digital Solutions, Ewan provides a range of innovative cloud-based and reporting solutions which are tailored to our clients’ needs and sector experience.