UK MTD: Ready for Digital Links, or Need a “Soft Landing” Extension?

Jeff Gambold
March 5, 2020

A keystone of HMRC’s Making Tax Digital for VAT (MTD) regime is that the transfer and exchange of data between what HMRC define as “functional compatible software” must be digital whenever that data remains a component of the business’s digital records.  This is to maintain a wholly digitally linked audit trail between systems.   

Soft landing

When the MTD legislation was introduced, HMRC offered businesses a soft landing period of up to one year to incorporate digital links from the date they became obliged to adopt MTD.  During this period, businesses wouldn’t be liable for non-compliance penalties.  In practice, this meant:

  • Businesses required to apply MTD for VAT periods from 1 April 2019 must have digital links in place for the first VAT period starting on or after 1 April 2020 (i.e. soft landing ends 31 March 2020);
  • Businesses required to apply MTD for VAT periods from 1 October 2019 must have digital links set up for the first VAT period starting on or after 1 October 2020 (i.e. soft landing ends 30 September 2020).

A further lifeline

Due to feedback on the difficulty in applying the new rules, HMRC recently announced it would consider written requests for an extension on a discretionary case-by-case basis where there are genuine reasons for non-compliance (for example, those operating large corporate groups with disparate legacy systems). However, it’s clear an extension will only be granted in exceptional circumstances and businesses will need to have:

  • Approached HMRC as soon as they realised they wouldn’t meet the digital links requirement, and requested an application before expiry of their soft landing deadline
  • Provided a detailed explanation why the requirement can’t be met by that deadline
  • Provided details of software that can’t be digitally linked, along with a blueprint/process map showing how all systems are currently linked
  • Offer a calculated timeframe by which the digital link requirement should be met (which must be no later than 12 months beyond expiry of their soft landing period) and
  • Explained what actions, processes and controls will be set up to ensure data handled manually in the meantime will be transmitted accurately.

After review, HMRC will either reject the request or grant a written Direction extending that “soft landing” period by up to 12 months.

What might constitute a genuine reason:

  • A component part of one piece of software can’t import/export data from other software and it can’t be updated or replaced by the soft landing deadline
  • The business is in the course of updating or replacing its ERP and the expected implementation date is after the deadline.

What wouldn’t be considered a genuine reason:

  • Business leadership hasn’t signed-off system changes (unless this is for reasons such as those given above)
  • The cost of replacing/updating systems or components is deemed too expensive.

Key action points

  1. Know when the soft landing period for digital links comes to an end – it could be as early as 1 April 2020
  2. If digital links haven’t yet been set up to HMRC’s requirements, businesses should re-evaluate program requirements and timelines. Digital links do not include programs or processes that involve ‘cutting and pasting’ of data
  3. If you don’t think the “soft landing” deadline will not be met, gather evidence to support a request for an extension and contact HMRC before the deadline. (HMRC recommend they contact their Customer Contact Manager initially if one has been assigned, or the MTD Specific Directions Team).
  4. There’s no penalty for requesting an extension – the request can be withdrawn at any time but it’s important to continue working towards the digital link requirements in the meantime
  5. Finally, ensure any commercial solutions that might be able to resolve system gaps have been explored.

 

Take Action

Sovos provides VAT reporting technology that is fully compliant with MTD, including digital link. Discover more.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Jeff Gambold

Jeff Gambold is a Senior Regulatory Specialist at Sovos, with responsibility for ensuring that the SVR product is kept updated and compliant with the latest VAT legislative changes. Prior to joining Sovos, Jeff worked in various VAT advisory and management roles within HMRC, UK Top 15 accounting practices and commercial business.
Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on email

North America Sales & Use Tax
April 22, 2021
Why You Need Scalable Sales Tax Technology

Sales tax is a necessary evil for all businesses but you don’t want to spend more time thinking about it than you have to. Implementing the right sales tax solution can help your business continue to grow while ensuring you meet all sales tax obligations. Choosing an efficient, reliable, always-up-to-date solution will help you keep […]

North America ShipCompliant
April 22, 2021
New Florida Economic Nexus Law to Impact DtC Wine Shippers

Florida Governor Ron DeSantis signed SB 50 into law on April 19, which makes Florida the latest state to adopt economic nexus rules to impose a sales tax liability on remote sellers, including direct-to-consumer (DtC) shippers of wine.  Unlike most other states, Florida does not currently require DtC wine shippers to assume a sales tax […]

April 21, 2021
The Rise of Continuous Transaction Controls in Eastern Europe

We’ve recently seen several Eastern European countries begin their journey of implementing continuous transaction controls (CTC) as an efficient tool for combating tax fraud and reducing the VAT gap. The CTC frameworks may vary in nature, scope and implementation, but they all have one thing in common: an ambition to achieve operational efficiency for businesses […]

North America Unclaimed Property
April 21, 2021
Healthcare Industry Insights into Unclaimed Property

Historically, the healthcare industry has experienced challenges in identifying and reporting unclaimed property. This is due to several reasons including a lack of clear statutory guidance, limited understanding of the potential unclaimed property liabilities which they are truly subject, and conflicting laws (i.e., refund recoupment, prompt payment, HIPAA, etc.).  The fundamental understanding that healthcare entities […]

ShipCompliant
April 21, 2021
The Data: Wine DtC Shipments and Off-Premise Retail (March 2021 Special Report)

Fluctuation in the wine market is not showing any signs of easing as producers, retailers and consumers continue to navigate the impacts of a global pandemic. It has never been so critical to keep a pulse on marketplace data given these shifting dynamics. Nielsen is collaborating with Wines Vines Analytics and Sovos ShipCompliant to provide […]