Technical Officer Association of Tax Technicians
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Making Tax Digital: More time for digital links?


HMRC has announced that some businesses may qualify for an extension to their MTD for VAT ‘soft landing’ period. However, the Revenue is taking a strict line on who qualifies. Emma Rawson digs into the detail.

18th Oct 2019
Technical Officer Association of Tax Technicians
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Under the Making Tax Digital (MTD) for VAT rules, any transfer or exchange of data between software programs, products or applications has to be done digitally rather than manually.

However, a soft landing period of one year applies, meaning that businesses have until their first period starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) to get these digital links in place.

On 17 October, HMRC announced that some businesses may qualify for an extension to this initial soft landing period.

As set out in new paragraph in VAT Notice 700/22, businesses with complex or legacy IT systems can apply for additional time to put the required digital links in place, subject to meeting certain qualifying criteria. If a business qualifies then the additional time will be granted as a specific direction from HMRC.

However, it’s important to note that there is no blanket extension of the soft landing period and it appears that HMRC is taking a fairly strict line as to who does, and doesn’t qualify.

Why is an extension being offered?

In recent months, both businesses and professional bodies have highlighted to HMRC the difficulties some businesses will face in getting digital links in place by next year.

This is a particular problem in industries that use specialist software, which can often be difficult (or even impossible) to link to accounting and VAT return systems.

For example, veterinary practices often use specialist practice management systems to manage bookings, keep records, manage drug stocks etc, as well as to bill their clients. It is quite common for them to then manually post totals from these systems into accounting software on a weekly or monthly basis. Such manual transfers won’t be allowed once the soft landing expires, but replacing them with a digital link has proven difficult in some cases.

Similar problems have been reported in the hotel industry, with hairdressers and beauticians, and at universities. Whilst some of these businesses may fall within retail schemes, which allow daily gross takings to be recorded rather than individual transactions, this is not clear in all cases, and may not solve the problem of the digital links completely.

Other businesses that may benefit from an extension to the soft landing period are those with internally developed systems and software that will take time to update. Those that have just acquired another business may also need additional time to get different software packages to talk to each other.

How generous is HMRC likely to be?

Although businesses struggling to get digital links in place will be pleased to hear that an extension might be available, they may not want to get their hopes up too much.

It’s important to note that businesses have to apply for an extension, and they will only get one if HMRC agrees it is needed.

HMRC is very clear that cost alone will not be sufficient grounds for an extension, and that businesses are expected to make every effort to comply with the 'digital links requirements'. Instead, they state that an extension will only be issued in ‘exceptional circumstances’.

The VAT Notice sets out various criteria which need to be met. Key amongst these is that it must be ‘unachievable and not reasonable’ to have digital links in place by the end of the normal one-year soft landing period. 

HMRC give some examples of what might be considered ‘unachievable and not reasonable’, including:

  • Part of an IT system is not capable of importing and exporting data to another part, and it isn’t possible to update or replace it in time.
  • The business is in the process of updating or replacing its IT system and the planned implementation date is not before the end of the soft landing period.

It should be noted that, even where an application is successful, all HMRC will grant is an extension to the one-year soft landing period and not a permanent relaxation of the rules on digital links. 

Businesses still have to consider how they will put digital links in place and will need to set out a clear explanation and timetable for when and how they will do this in their application to HMRC.

The length of any extension will be decided on a case by case basis, though HMRC has indicated they do not expect that this will ordinarily be more than a year.

What should businesses do?

If any business thinks they may benefit from an extension they should first look at the detail in the VAT Notice and consider whether they meet HMRC’s criteria. 

If they believe they do, then a formal application has to be made to HMRC. The VAT Notice sets out the information which this must contain, including an explanation of why it is ‘unachievable and not reasonable’ to have digital links in place by the end of the normal soft landing period, a map of current VAT systems, a timetable and plan to put digital links in place and details of controls for manual transfers of data in the meantime. 

Applications have to be submitted before the current soft landing on digital links expires. Given the amount of information required businesses may want to make a start on their applications sooner rather than later, especially if they are in stagger 1.

It will be interesting to see how HMRC approaches applications in practice.  If you, or your client, apply for an extension we would be interested to receive any comments or feedback at [email protected]  

Replies (8)

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By johnhemming
19th Oct 2019 11:40

I have bridged from a number of legacy systems including ones which use ebcdic.

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By bendybod
21st Oct 2019 09:50

And how long are HMRC going to take to respond to any requests.....

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By martinhayward
21st Oct 2019 10:22

This nonsense just shows the extent to which the tail is wagging the dog.

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By AndrewV12
21st Oct 2019 11:32

Its never to late to scrap MTD.

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By stepurhan
21st Oct 2019 13:05

HMRC is very clear that cost alone will not be sufficient grounds for an extension

The same people that said MTD compliance would have next to no cost not allowing actual cost as a reason not to have to comply.

You could not make it up.

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By adamsmith72
21st Oct 2019 21:46

It's almost as if the Government had announced something is happening without thinking it through.....

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By Dandan
22nd Oct 2019 13:10

There are a large number of businesses out there that are not able to get the digital links in place. HMRC are finally recognising this but make it look as if it is a small minority.

Will they publish the number of businesses that are granted the exemption ? I would be curious to know. How long will the exemption last ?

Many businesses are using ERP systems that their overseas parent and affiliates use and it is simply not practical (and costly) to modify the software just for the sake of UK's MTD. In addition , how do you consolidate international subsidiaries when you start to mess around with one local software. I have come across some businesses that face this problem.

There are also other scenarios where businesses use customised software and the MTD modification is simply not possible or viable from the point of view of the provider. As usual HMRC are showing their complete lack of understanding of business reality.

The offer of an extension will do nothing except reveal to HMRC the extend to which MTD has adversely affected businesses .

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All Paul Accountants in Leeds
By paulinleeds
26th Oct 2019 19:18

Why is it so important to have digital links between every piece of a system? I know HMRC and the law say that you have to, BUT....

I use Excel for most of my small clients' recordkeeping and VAT returns. It's cheap (or free), simple to use, train and learn and very flexible to update and adapt.

If you have anything more complex than a simple electronic cashbook then you can create digital links between the various records. However, as we all know with Excel, it's very easy to pick up the wrong cell or make a formulae mistake.

In my opinion, whilst auto-linking Excel tabs and workbooks SHOULD avoid errors, it CREATES more chance of making errors, especially as you don't review / check the transfer of data. It also increases the chance of mistakes.

People have been preparing VAT return for years. I do not agree that digital links are always the best way of doing your VAT return.

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