Don't forget the link: The latest MTD change you may not be aware of

12th Mar 2021
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The past 12 months have thrown a lot at finance professionals, from the unpredictability of the ongoing pandemic to preparations for Brexit, with a handful of legislation changes in the mix too. With so much going on, you can’t be blamed if the next step of Making Tax Digital (MTD) for VAT has slipped under your radar.

For many, MTD may feel like old news, but there is a subtle yet important change being introduced on 1 April 2021 that every finance team needs to be aware of.

No more copy & paste

From that date, the soft landing period of MTD, which began with its introduction in 2019 and was extended again last year, comes to an end. This means that from April, the copying and pasting of data from one application to another will no longer simply be discouraged – it won’t be accepted.

Carry on working that way beyond this point and you’re likely to be contacted by a VAT inspector and may face a penalty, so there are serious consequences.

Instead, businesses need to include digital links as part of their record-keeping systems. It’s perfectly fine for digital records to be held between more than one piece of software or spreadsheet but there must be a digital link set up between them. Data can’t simply be copied and pasted between sources.

And it’s the phrase ‘digital link’ that is still causing confusion for many, with some making incorrect assumptions as to what constitutes a digital link.

What classes as a digital link?

HMRC’s definition of a digital link is slightly long winded: “data transfer or exchange within and between software programs, applications or products that make up functional compatible software [and these] must be digital where the information continues to form part of the digital records”

It is perhaps more useful to look at the compliance options that HMRC sets out:

  • Linking cells between spreadsheets: Data can be transferred between spreadsheets using formulas or macros to link cells. Data should then be submitted via an API-enabled spreadsheet.
  • Upload/download or import/export of data: Transaction data can be outputted from source data digital records into a digital format like a XML or CSV file. It will then need to be imported into the calculation spreadsheet or software to form a compliant digital link.
  • Automated data transfer: This means data can be taken directly from accounting / ERP systems and uploaded to MTD software. Once the data is in compatible software, adjustments can be made.
  • Email or portable device: Spreadsheets that contain digital records can be sent via email or device like a memory stick or flash drive to a recipient like an advisor to import into MTD software.

Has copy & paste been completely outlawed?

It may seem that copy and paste has become a taboo subject, but under MTD there is one instance where it is still applicable.

Adjustments to the input or output tax are treated differently as part of MTD and can be journaled manually into VAT accounting. So, this is the one area where it is still acceptable to either manually input or copy and paste figures, as long as you don’t do it directly into one of the VAT return boxes.

A reduction in errors

Of course, this process hasn’t been implemented to make life more difficult for finance pros, but to reduce the potential for error. We have frequently discussed the power of automation in reducing human error and digital links provide another form of automation.

Ultimately, automating accounting processes frees up finance professionals to focus on business growth and adding value. With 24% of those we interviewed as part of our recent Financial Pain Points survey saying an increased workload is their biggest challenge in 2021, any working practices that relieve some of that pressure are sure to be welcomed.

As we approach April, the most important thing to remember is that if you’re unsure if your digital linking processes are correct, now is the time to consult HMRC.

Access Group has helped many companies make the switch to Making Tax Digital compliant software, which can help eliminate errors which may prove costly after April 2021.