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Homebuilt API sufficient as a digital link for MTD

Is a homebuilt API sufficient as a digital link for MTD purposes.

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A limited company client has a bespoke invoicing system for their sales. They are switching to Xero for accounting after a management buyout but will retain the invoicing system. 

With regards to MTD and a digital link, I have told them that downloading a .csv from the system and uploading it to Xero, doesn’t constitute a digital link. As a result, they are building an API (they are a software company after all) to link their invoicing system to Xero from where they will submit their VAT returns.

My question is - is a self-built API sufficient as a digital link or is there some approval/documentation processes to go through?


Replies (6)

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By SXGuy
07th Jan 2020 10:16

Why do you believe downloading a csv and uploading to xero isn't a digital link?

Providing there are no manual alterations to the csv, and it can be imported as is, I do not see an issue with this.

The digital link must be a carry over of data without human intervention by copying or adjusting that data.

If the downloaded csv isn't correctly formatted to be uploaded to xero, the client can create another csv file which pulls the data from the orginal csv and imports the figures in to the correct headings. This again is fine for a digital link.

And finally, once all data is in xero and the vat return is submitted via this, there is yet another digital link to that data submitted.

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By ospevack
07th Jan 2020 10:44

I share @SXGuy's curiosity and struggle to understand what the data entry process has to do with the digital link between the VAT detailed workings and final VAT return.

HMRC certified bridging tools are built on the back of VAT return spreadsheets being linked by formulas to the underlying workings - which are also excel or csv format files - most of the time an excel version of a sales ledger, purchase ledger and cashbook.

You are uploading, from what I understand, by CSV, one part of a greater accounting system. How you enter your sales in Xero, be it through a bookkeeper entering manually, an API or a data dump from your invoicing system, seems out of scope of the MTD VAT system requirements to me.

The reconciliation between your invoicing system and Xero's debt ledger looks like a management accounting process, rather than a VAT compliance issue.

That being said, an API seems like a neater solution than import and export - but that's speaking from a tech perspective, not a compliance one.

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By ireallyshouldknowthisbut
07th Jan 2020 13:29

Unless there is a business case for the API, then I would go back to your client and tell them you got it wrong. All an API will do is much the same, suck data from one system and post it into another.

More widely how do you suppose HMRC might know what they are doing "behind the line" of Xero? All you would tell them in the extremely unlikely event of HMRC suddenly investigating bookkeeping procedures (they haven't done this since the failed record keeping checks) is "we use Xero". End of conversation, box ticked. HMRC simply don't have the resources to come round to every business in the country and sit behind them all day to work out how they do their bookkeeping.

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By legerman
07th Jan 2020 13:30

Even manually inputting the invoices to Xero is fine. The digital link comes into play when extracting the data from your accounting system/spreadsheet to the HMRI API, which can either be direct (as in the case of Xero) or by bridging software (as in the case of spreadsheets and accounting software that doesn't have the MTD part built in)

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By johnhemming
07th Jan 2020 13:47

Downloading the CSV is almost certainly a digital link, but without the expenditure it will be difficult to submit to the API as you won't have the input vat etc. Hence I am not sure the solution actually works even if the problem was a problem which I don't think it is.

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By ShayaG
09th Jan 2020 10:49

There's several layers of human intervention involved in downloading, saving, then selecting and uploading a file, and quite likely mapping columns (and with the inconsistencies and ambiguities in the .CSV format, sorting out the different ways that characters like " and , are encoded).

It was HMRC's original intention that this wouldn't qualify as a digital link. It was originally advertised as a system of systems linked by APIs. An API is a protocol for software to speak directly to software without a human

They backtracked in the months before MTD became compulsory after realising that they had stumbled into a vast world of accounting applications that they didn't realise existed, that many of the developers of these applications weren't specialists in networked API calls - indeed some had been developed in frameworks which predated the internet - and that what they were asking for was not viable.

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