UK’s Making Tax Digital – 1 April Brings End to Soft Landing Period

Andrew Decker
March 3, 2021

Since April 2019, the UK has required the submission of VAT returns and the storage of VAT records to be completed in accordance with the requirements of its Making Tax Digital (MTD) regulations.

One of these requirements is that data transfer between software programs be achieved through ‘digital links.’ This requirement was initially waived during a ’soft landing’ period which is set to expire on 1 April 2021. As a result, to remain complaint with MTD requirements, businesses must ensure they can meet the digital link requirement.

What are the basic requirements of MTD?

Under MTD, businesses must digitally file VAT returns using ‘functional compatible software’ which can connect to HMRC’s API. Additionally, businesses must use software to keep digital records of specified VAT related documents.

What is a digital link and when is it required?

A digital link is required whenever a business is using multiple pieces of software to store and transmit its VAT records and returns pursuant to MTD requirements. For example, if a business stores its VAT records in its accounting program but then submits its VAT return using an approved piece of bridging software, the data must be transferred between the accounting and bridging software via a digital link.

A digital link occurs when a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications without the need for or involvement of any manual intervention.

The key to this requirement is that once data has been entered into a business’s software there shouldn’t be any manual intervention in transferring it to another program. This means that data cannot be manually transcribed from one program into another. Additionally, using a ‘cut and paste’ feature to transfer data doesn’t constitute a digital link.

For example, manually typing or copying information from one spreadsheet into another doesn’t count as a digital link but connecting the two spreadsheets using a linking formula does.

Additional examples of digital links include:

  • XML, CSV import and export, and download and upload of files
  • Automated data transfer
  • API transfer
  • Transfer of data and subsequent import of data into software by means of email or tangible digital media (i.e. flash drive).

The digital links requirement will apply to all businesses subject to MTD rules, however businesses that fulfill certain requirements can request an extension to delay the requirement.

For more information on MTD, including details on extension requests and criteria see VAT Notice 700/22: Making Tax Digital for VAT on HMRC’s website.

Important dates to remember regarding MTD for VAT

1 April 2019 –Business with annual turnover of £85,000 and over became liable to follow Making Tax Digital rule for VAT

1 April 2021 –Digital links requirement will be enforced

1 April 2022 – Taxpayers with turnover under £85,000 will be required to comply with making tax digital (MTD)

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

Andrew Decker

Andrew Decker is a Senior Regulatroy Counsel at Sovos Compliance. Within Sovo’s Regulatory Analysis function, Andrew focuses on international VAT and GST issues and domestic sales tax issues. Andrew received a B.A. in Economics from Bates College and J.D. at Northeastern University School of Law. Andrew is a member of the Massachusetts Bar.
Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on email

Tax Information Reporting
April 15, 2021
Managing Form 1099-NEC Reporting After Publication 1220

Form 1099-NEC changes in 2020 Since the IRS released Publication 1220, announcing that Form 1099-NEC—for nonemployee compensation—would not be included in the Combined Federal/State Filing (CF/SF) program starting tax year 2020, 37 states have implemented direct state reporting requirements for new Form 1099-NEC.  Though there are 32 states that participate in the CF/SF program, the […]

North America Unclaimed Property
April 15, 2021
Delaware Unclaimed Property VDA Notices

Delaware VDA Responses Due Monday, April 19, 2021 If you received one of the recent unclaimed property DE VDA invitations sent February 19, 2021 your response is due Monday, April 19, 2021. Holders that received an invitation and do not respond by April 19th will be referred to State Escheator for audit examination. Double check […]

North America Unclaimed Property
April 14, 2021
When Are Unclaimed Property Reports Due and Other FAQs

When are unclaimed property reports due? This is a fairly common question asked by holders that are new to the escheat reporting process, or not as well versed in the intricacies of escheatment reporting. Fortunately, Sovos has provided answers to some of the most frequently asked escheat reporting questions to help your organization survive unclaimed […]

North America Unclaimed Property
April 14, 2021
Unclaimed Property Landscape for the Life Insurance Industry

Most unclaimed property professionals are familiar with the story of Verus Analytics, LLC’s (“Verus”)[1] appearance on the contract audit “field of play” some ten years ago, as it cut a swath across the life insurance industry with audits focused on the industry’s failure to report and remit unclaimed life insurance proceeds based on the insurers […]

Brazil E-Invoicing Compliance Tax Compliance
April 13, 2021
E-invoice Data Reveals the Impact of COVID-19 on Brazil’s Economy

Increased visibility into, and control over, taxpayer financial and trade data is the key benefit highlighted by governments that have introduced continuous transaction controls (CTC) regimes. Its importance cannot be overstated. Transactional data cleared by or exchanged through a tax administration authorised platform becomes the new source of truth for tax authorities to assess the […]