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Unbroken data chain

MTD digital links mandated from 1 April


The beginning of the tax year often brings new compliance obligations. Not to be overlooked in a particularly busy April, our old friend the digital link has finally arrived as a mandatory requirement under the Making Tax Digital filing regime.

8th Apr 2021
Editor in Chief AccountingWEB
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Among the new rules taking effect from the beginning of this month is the mandatory requirement for digital links within the Making Tax Digital for VAT filing workflow.

According to HMRC’s announcement in March 2020 of the last minute delay, “all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place”.

The measure is less controversial than some of the other tax changes, but is still potentially troublesome for accountants, who have been debating digital links on Any Answers for more than two years.

Drawing on insights from AccountingWEB members, software experts and an HMRC webinar on 7 April, this article welcomes the arrival of mandatory digital links with some basic pointers about how to ensure they are maintained to HMRC’s satisfaction.

VAT Notice 700/22 offers the following definition, which it emphasises, has the force of law:

A digital link is an electronic or digital transfer, or exchange of data, between software programs, products or applications.

The use of ‘cut and paste’ or ‘copy and paste’ does not constitute a digital link.

Jon Hemming from Cyrrostratus has devoted a lot of effort to educating AccountingWEB members on the issue. In a July 2020 blog, he explained: “Digital links were required to provide an electronic audit trail between the transactions and the nine VAT boxes.”

Those audit trails can break down between different programs, but the gaps can be patched with bridging software – typically spreadsheets – that maintain the digital integrity of the numbers.

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Replies (8)

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By ireallyshouldknowthisbut
08th Apr 2021 09:42

Mandatory, but with no mechanism for HMRC to check its happening, or indeed any real interest so long as the tax is right.

Thanks (3)
Replying to ireallyshouldknowthisbut:
By Charlie Carne
08th Apr 2021 10:16

ireallyshouldknowthisbut wrote:

but with no mechanism for HMRC to check its happening

How is that different to any other aspect of filing a VAT return? There has always been "no mechanism" to check the numbers on a VAT return, which is why the option exists for HMRC to open enquiries. They can just as easily enquire into the existence of digital links as they can into the numbers filed.

Thanks (0)
By tedbuck
08th Apr 2021 11:22

Which all comes back to a complete waste of time.

This is just an extension of the 'fines' tax - the new way for HMG to raise money to waste on HMRC computer projects and the malfunctioning NHS.

Sounds ridiculous does it? but look at the GDPR fines for data breaches. And who can be insulated from data breaches - no-one, however careful, is protected against hackers or disgruntled employees - well not no-one - I should have said no-one but government departments who can be as careless as they want because we would pay the fines. I seem to recall that the first breach of GDPR rules was one of the departments enforcing them - no more than one would expect really.

Thanks (3)
By dmmarler
08th Apr 2021 11:28

What HMRC seems to want to do when it has a query is to ask for the electronic accounting system information behind the return data so it can trace things through. However, the business is only going to be able to produce this if it stays with the same accounting software provider. If the taxpayer moves to new software (and stops paying the old provider) then HMRC may not be able to access the transactional data electronically ... Interesting.

Thanks (0)
Replying to dmmarler:
By Tornado
08th Apr 2021 14:04

We use complex spreadsheets with bridging software but only a small proportion are created using Excel or even Windows software. The transfer of information from the spreadsheets is by .csv files, which are universal and permitted, but if HMRC want to see the original spreadsheets on screen then they will need to obtain the related Operating System and Program themselves. This will of course apply to all other combinations of programs and bridging software that people are using.
I could, of course, send them a hefty print-out of the records or a massive .pdf to view on screen.

The solution to MTD was pointed out by me several years ago on AWEB when I suggested that HMRC produced universal software that we could all use for free which was written in such a way that produced the information and reports that HMRC wanted to collect and the format was easily adapted to cater for all types of businesses.

I am, however, pleased that they did not do this for a number of reasons, and what joy there is in observing the mess they have got themselves into. Long live Wonky MTD.

Thanks (1)
Replying to Tornado:
By SteveHa
09th Apr 2021 09:17

Perhaps I should write software that only runs on BSD, OS/2 or Amiga OS, just to stump them.

Thanks (0)
By tedbuck
08th Apr 2021 15:27

Wonky software isn't, unfortunately, the exclusive right of HMRC. I have recently had cause to take apart a VAT return from one of the major bookkeeping providers and found it a very interesting exercise. From purchases in sales as credits to a difference between VAT on sales and that shown as VAT due on the VAT return with the latter being more than 20% of sales. Mostly input errors but hard to see and easy to do for an inexpert bookkeeper. If I were HMRC I should be spot testing the accounting systems they think are so s**t hot to see how easy it is for 'the man in the street' to get the wrong answer - like the client who hit the 'VAT inclusive' button instead of the 'exempt' button and claimed VAT back on all his insurance premiums and landed himself with a large underpayment of VAT which we, the accountants HMRC wish weren't there, had to point out to him. HMRC live in cloud cuckoo land where they believe that digital = correct whereas it really means 'we believe what it says because it's a computer and GIGO is an expression we (and HMRC) don't understand'. Wonky MTD is about right!
As for MTD for other taxes it seems to me to present wonderful opportunities for those who don't want to pay. Just think of all the spurious expenses that could be entered and because it's a digital submission it must be ok and HMRC won't query it and probably wouldn't understand it anyway. Utterly dysfunctional and typical for an organization that cannot even answer letters sent to it - they just have to be joking.
Unfortunately for us all I think that they may be serious so in 10 years time they will be a laughing stock but they won't admit it! They will sent that person out again to tell the world what a Godsend MTD has been and how much help it has been to the business world. She should get the 'Grand Cuckoo' prize!

Thanks (1)
By Chris Pittock
09th Apr 2021 13:15

It isn't quite true to say: “all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place”. It is only for VAT registered businesses who have a Turnover of more than £85k, the others have another year, and anyway, the deadline we were originally given was April 2019 so we got all our clients sorted for then. So I am not sure what all the fuss is about for April 2021!

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