9 Mar 2021

Making Tax Digital "Digital Link" Deadline

MHA Monahans Digital Solutions

As from the 1st April 2021 it will be mandatory for MTD VAT registered business to have a digital link to submit VAT returns.

MTD “digital link” deadline – 1st April 2021

What is MTD?

Making Tax Digital for VAT requires VAT-registered businesses to keep records in digital form and file their VAT Returns using compatible software. If a business is below the VAT threshold they can voluntarily join the Making Tax Digital service. The difference under MTD is that the software which businesses use must be capable of keeping and maintaining the records specified in the regulations and in preparing VAT Returns using the information maintained in those digital records and communicating with HMRC directly.

https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat

Who does this affect?

VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000)

What about Non MTD?

Any business that is not MTD registered by the 1st April and currently submits a VAT return directly through a software, will need to sign up to MTD to continue using the software to submit return.

Note: If this is not done, you will need to revert to submitting returns via the HMRC portal

What are the new rules?

Business must keep and maintain relevant VAT records digitally within a compatible software package that stores digital records and submits vat returns or to have bridging software to connect non-compatible software (i.e. Spreadsheets) to HMRC.

If a business has more than one software to keep records to submit returns, these packages need to be linked digitally. The digital links between the software packages used need to be in place before the business’s first VAT period after the 1st of April 2021. A digital link means the software must allow digital data transfer with not manual modifications.

Are there penalties if this is not fulfilled?

As from 1st of April 2021, the HMRC is introducing a penalty system for Making Tax Digital for VAT. These penalties will apply to the first completed VAT return on or after this date.

Why should I use an accounting software for MTD?

Get MTD set up with a click of a button in Xero, QuickBooks, FreeAgent and Sage. Select the MTD option in your software and log into your HMRC gateway, then you are all set up for future VAT returns. Once you have signed up for MTD you will be able to view VAT return due dates, details, notes and history. Check and make adjustments to returns before filing & submit VAT returns to HMRC direct from the software.

By using a software, you will have less paperwork to worry about, fewer mistakes will be made that cost money, easier bookkeeping saving money and time, real time tax information and a clearer vat insight at a glance.

What is the best MTD compliant accounting software?

There are various compliant software’s, with the main market competitors being Xero, FreeAgent, QuickBooks and Sage.

Other HMRC recognised VAT software - https://www.tax.service.gov.uk/making-tax-digital-software

To discuss this further, please contact our Digital Solutions team.