End of the MTD transition period in the UK as from April 2021

HMRC postponed the implementation date of stricter requirements in MTD due to Covid-19. This extension is coming to an end.

14 January, 2021


Applicable Deadlines

In April 2018, HMRC launched a test phase of a new digital system for tax purposes called Making Tax Digital.

Until 1 April 2022, only UK businesses with turnover above the VAT registration threshold in the UK are required to utilize the Making Tax Digital (MTD) method for VAT reporting. Businesses below the threshold could also voluntarily sign up for MTD.

As of April 2022, all VAT registered businesses will need to comply with Making Tax Digital irrespective of their annual turnover. This will be a significant change for very small businesses who currently prepare their accounts and taxes manually, as the digital links requirement will apply to these businesses also.

Digital links: What does it mean and when is it required?

MTD requires businesses to have digital links between the data reported in the VAT return and the recording of their invoices issued and received. This means that data cannot be manually changed at any stage of the process. For example, if you manually exclude non-deductible VAT, or if you check and delete those invoices that were booked incorrectly in an Excel Spreadsheet, the digital link requirement would not be met.

MTD was implemented in two phases: a first period in which the “digital links” obligation was more lenient and a second period in which HMRC would require a strict digitalization of VAT data processing.

During the first period, some manual changes were acceptable. Copying and pasting data in an Excel sheet and using bridging software to submit manually updated data was considered compliant with MTD. However, as of April 2021, the digital link requirement becomes a stricter obligation. It will not be possible to copy and paste data and bridging software will be allowed only where there have been no manual changes to the data reported.

What is MTD?

Making Tax Digital is a scheme rolled out by the UK government that aims to make declaring tax to HMRC fast, effective, and simple by doing it all digitally. Businesses must keep digital records with information on their VAT accounting schemes, the time and value of supply for goods bought and sold, VAT rates, reverse-charge transactions, as well as important business information such as the full company name, address, and UK VAT number. Click here for more details on the information required.

How can your business prepare for MTD?

To be compliant with the MTD requirements, businesses must take into account compatible software packages and digital links for digital VAT reporting.

Software

In addition to the importance of digital record keeping mentioned above, it is crucial to download a software package that is compatible with MTD reporting and authorize it to be able to submit the VAT returns correctly. This software must allow digital data transfer – in other words, manual modifications and transfer of data will not be permitted. Moreover, the transfer or modification of this data must be performed with digital links.

Extensions

Businesses that have multifaceted IT systems might qualify for an extension on integrating digital links into their software programs. These companies must submit an application to HMRC with an explanation and a plan of how they will comply with the MTD requirements.

Visit this link for even more information about MTD requirements.

Let us help

Marosa complies with MTD with dedicated and approved software. Our team will evaluate your ERP processes to identify any gaps that require updates in your system.

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