How to comply with HMRC digital links requirements for MTD for VAT
As of 1 April 2021, it is now mandatory to have digital links in place when filing business VAT Returns to HMRC under the MTD for VAT regime (see VAT Notice 700/22).
Since the introduction of MTD for VAT a ‘soft landing period’ has been in place, allowing businesses time to get their systems digitally-linked to comply with the full MTD for VAT requirements. This period enabled businesses to use ‘cut/copy and paste’ methods to move data from one system to another before filing to HMRC. From 1 April 2021, this will no longer be permitted.
However, there is no need to panic. It is likely you already have everything you need to continue being compliant, or some simple adjustments could be all that’s required. Find out more below.
So, what is a digital link?
Once transactional data is entered into a software package or spreadsheet, any further transfer or modification of that data must be made without manual intervention. This means that, if the data needs to be transferred to a different software package, it has to be done without copying/pasting or retyping. The software used must be linked digitally. This applies to transferring data between, for example, a spreadsheet and a bridging solution to file the return to HMRC.
- What HMRC considers and accepts as a digital link is surprisingly inclusive. Examples include:
- Linked cells, for example, a formula in one sheet that mirrors the source’s value in another cell/sheet.
- Emailing a spreadsheet for information to 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.
- API (Application Programming Interface) transfer – this is the technology used for systems to directly link and transfer data.
What if you use more than one piece of software?
As long as digital links are in place, a business can use as many software applications it wishes to meet the requirements of MTD for VAT. So if you have a bespoke bookkeeping package that’s not enabled for online filing to HMRC, you can still continue using this application – as long as you can meet the digital links requirements. For example, by exporting the values from your bespoke package into a CSV file and then using bridging software to import those values and submit to HMRC.
Can you continue to use spreadsheets for record keeping under MTD for VAT?
Yes, spreadsheets are classed as software under Making Tax Digital. Many businesses have very simple record keeping requirements and will not need to use bookkeeping packages to meet their needs. Spreadsheets can provide nice simple methods of recording your transactions and continue to meet the requirements of MTD.
What information should my record keeping spreadsheet include?
When using spreadsheets to collate VAT transactions, the link between the transactions totals and the total amounts to be reported in boxes 1 to 9 are now required to be digital, with no manual intervention (such as cut and paste). This means you need to ensure that the relevant VAT totals are present for transfer to the bridging software.
Example VAT transactions spreadsheets
We’ve prepared an example of how individual transactions could be recorded and linked through to a summary page which could then in turn be imported into TaxCalc’s VAT Filer for submission to HMRC.
The following example VAT transactions spreadsheets are available for businesses to use as a template and adapt as necessary:
Please feel free to download and take a look.
For more information on TaxCalc VAT Filer visit our website or talk to our team on 0345 5190 883.