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Digital links - MTD

With the soft landing period coming to an end, looking for some certainty on what is a digital link

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With the soft landing period coming to an end very soon businesses will be required to have digital links from the initial capture of the digital sales data. https://www.gov.uk/government/publications/vat-notice-70022-making-tax-d...

This statement seems extremely vague and the examples HMRC have provided appear to have completely missed the mark in my opinion. 

Notice 700/22 says the following are a list of digital links that are acceptable:

"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
This list is not exhaustive.

HMRC does not consider the use of ‘cut and paste’ or ‘copy and paste’ to select and move information, either within a software program or between software programs, to be a digital link."

As data can not be copied and pasted does this mean that we are not able to edit data to be in a suitable format to import to another software? Typically if a sales system does not have direct intigration with an accounting software you would need to put the data in to a preset format to import. Does saying things can not be copied and pasted also apply to inputting data to your bridging software i.e. posting to an accounting system like Xero must be done hands free?

It also says that data must be imported or use automated data transfer does this mean if a client were to send an invoice via email (digital link) I would then not be able to manually enter this invoice to an accounting system (also bridging) like Xero as this would break the digital link?

Moving on to an actual example.

Example 1

Say there is a client with high sales volume 2-4k transactions per month through an online presence all being recorded through Magento. The individual uses Xero as an accounting solution.

In this instance would you be able to pull the sales reports from Magento include formula to sum the relevant totals this could then be formula'd in to a format that would allow for an import of 1 journal to Xero for the sales for a given period month quarter. Although in the accounting system / bridging software you only have 1 transaction the full dataset is maintained in the excel sheet which can be attached. Would this be sufficient? Alternately would have to use something like datadear to import each individual transaction which would be an extremely time consuming task, is this what is required?

Example 2

Say you have a client that typically provides daily taking totals for their sales for example a hair dresser, pub ect. Say they enter this as daily totals on to a spreadsheet creating the digital records. Say this client uses again Xero however any accounting software would be the same.

In this situation would I be able to enter weekly totals as a sales journal attaching the weekly takings schedules that have a daily breakdown? Two points concern me here I have are

1. For clients making retail sales that have a requirement to keep records of daily sales per 4.5 on 700/22. Does this mean these records need to be detailed in full on the VAT return / bridging software or would a single line referencing the spreadsheet with daily information be sufficient?

2. Does manually entering the totals of a spreadsheet to a bridging software constitute a break in the digital chain? If so can I work around by formulating in to the correct format - don’t see what the point of this would be but it is possible just seems like meaningless hoops to jump through.

Would appreciate any insight / opinions held, thank you in advance!

Alex

Replies (8)

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By ireallyshouldknowthisbut
10th Mar 2021 09:06

What they are getting at is they think keying totals creates big errors. Which I guess it must from time to time, albeit thats what accountants do, rec the VAT and correct it!

They seem OK about key in for initial entries, but once its 'digital' they want to keep it that way for some fairly misguided reasons.

The reality however is the ability for HMRC to audit your data collection systems to any degree does not exist so I would not worry too much. Moreover the potential penalties amount to a slap on the wrist and a warning of a fine if you keep on doing it so you will get at least one chance before any fine can arise.

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Replying to ireallyshouldknowthisbut:
VAT
By Jason Croke
10th Mar 2021 09:31

Some countries like Italy, have real time reporting for VAT including digital invoices uploaded to the tax office. https://www2.deloitte.com/content/dam/Deloitte/be/Documents/tax/PPT/Ital...

The UK is behind the curve compared to the likes of Poland and Italy, and if we look at what they're doing in the EU, its not a stretch to see that MTD for VAT and self assessment is all about having all your records in one place and because they are digital, easy to audit and review.

The traditional VAT inspection would see HMRC attend the premises and wade through lever arch folders and terribly kept Sage records, but in future can be done by logging in as a guest to your cloud software (in same way HMRC would ask for a Sage backup previously).

So whilst MTD for now is just uploading the 9 boxes on the VAT return, the dataset behind those boxes is already there in the software and it'll be a flick of a switch to transmit the entire data set to HMRC and this is where it will go eventually, imho, because it's already happening in Italy.

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Replying to Jason Croke:
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By bernard michael
10th Mar 2021 10:06

Quote:

Some countries like Italy, have real time reporting for VAT including digital invoices uploaded to the tax office. https://www2.deloitte.com/content/dam/Deloitte/be/Documents/tax/PPT/Ital...

The UK is behind the curve compared to the likes of Poland and Italy, and if we look at what they're doing in the EU, its not a stretch to see that MTD for VAT and self assessment is all about having all your records in one place and because they are digital, easy to audit and review.

The traditional VAT inspection would see HMRC attend the premises and wade through lever arch folders and terribly kept Sage records, but in future can be done by logging in as a guest to your cloud software (in same way HMRC would ask for a Sage backup previously).

So whilst MTD for now is just uploading the 9 boxes on the VAT return, the dataset behind those boxes is already there in the software and it'll be a flick of a switch to transmit the entire data set to HMRC and this is where it will go eventually, imho, because it's already happening in Italy.


The true horror of this is that it's impossible to tell if HMRC are probing information whereas currently if they book an appointment everyone is aware and any necessary checking has been carried out
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Replying to bernard michael:
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By johnt27
10th Mar 2021 12:23

Quote:

The true horror of this is that it's impossible to tell if HMRC are probing information whereas currently if they book an appointment everyone is aware and any necessary checking has been carried out

I don't think that's entirely fair. HMRC have been quite open about the fact that they are using as many data sources as possible - VAT returns, CT returns, land reg data, for example, to verify the information filed, identify possible fraud or omissions, and benchmark return data, which in turn triggers an investigation of some description. So, if computer says no, expect a proverbial knock on the door.

As for us being behind the curve, even Italy and Poland are behind the world leaders on this Brazil from a VAT point of view (the Scandi's lead the way on personal tax digitisation). They've had a digital verification system, to combat fraud, operating in their VAT equivalent system for a decade. Every invoice issued over there has to be verified by the tax office and is given a digital signature as a result. If a business pays an unverified invoice the penalties are significant.

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Replying to Jason Croke:
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By ASkipper
10th Mar 2021 10:14

So where we have say a spreadsheet summarised and included as a single transaction in the software (with the spreadsheet attached and therefore drillable) that ultimately submitted to HMRC would this be sufficient.

If we did go down the route of HMRC needing full visibility this would do that however my reading of the notice suggests this would break the digital link?

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Replying to Jason Croke:
By ireallyshouldknowthisbut
10th Mar 2021 12:32

@Jason, I get it, but its not here yet

Whilst it is sensible to future proof new systems, and embrace the best digital tech can do for your business, I see no reason at all to force clients to jump through digital hoops that do not currently exist. Do what works, what is accurate, and above all what the client feels comfortable with.

I have been doing VAT inspections remotely for years, but they are few and far between.

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By Jo Nokes
10th Mar 2021 11:57

Wow, I could have written that post. I have been wondering the same thing. You have identified in your two examples precisely two of my clients. The one on Xero has thousands of sales invoices all produced by the separate sales sytem (actually a booking system), and I am waiting to see if the software house is able to produce an addon which will digitally post a weekly batch total to Xero. That would satisfy the requirement of a digital link. Currently, I just post the quarterly totals from the bottom of the 50 page sales listing that the software is capable of producing. If the extra addon is not forthcoming, I will just have to carry on as I have been. The client was assured that MTD for VAT would be catered for, but Xero won't cope with the volume anyway. The client has no desire to pay a fortune for a system that would conform. I remember the initial HMRC forecasts of the likely costs, a few pound as as I recall

As for the salon, the sophisticated till produces all manner of sales statistics, but it has not been designed to send anything directly to Xero, or QB or anywhere else. I get a detailed pdf showing the monthly total (not a daily breakdown) , and I have resisted the idea of getting the client to send me a daily figure which I could then post to VTT. That would be tiresome. The client on Xero was happy with an Excel spreadsheet for purchases, and is now muddling through on Xero, with handholding from me. The bank feeds are a real help, but on the sales side, no answers. So I'm afraid I'm also in the dark, this is not an answer to your post, but a post in sympathy with you. There must be thousands of traders who have interesting specialist software that does not lend itself to linking with the bookkeeping software. I don't know what to do

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By johnt27
10th Mar 2021 12:49

For your Example 1 above your suggestion of using formula to reformat the data is exactly what HMRC are looking for. As you say the format of data from Magento is totally different from the format needed to incorporate into Xero so some manipulation is required. What HMRC want to avoid is you setting up 2 spreadsheets, one for Magento, one for Xero and tap in the numbers of copy and paste.

Datadear would do this for you and maybe quicker/easier. Or for that volume of transactions I'd be looking at using one of the 3rd party connectors available and avoid any manual intervention. Obviously, there are volume loads in Xero to consider but these are much higher than many seem to think they are.

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