The MTD ‘grace’ period is over – so what now?

The ‘soft landing’ introduction of MTD for VAT comes to an end this year, so what happens next?

For the great majority of businesses the soft-landing for MTDfV will end after 31March this year. A relatively small number with more complex affairs will have an extra 6 months, up until 30 September 2020.

After this date, businesses required to account for VAT must have a digital link between the data in their record keeping systems and the software that submits the VAT Return.

HMRC’s goal is end-to-end dynamic data, removing the possibility of human error that exists in cut and paste.

Digital links

The end of the grace period does not mean that businesses need to move all of their financial records out of spreadsheets and into cloud accounting software.

HMRC recognises spreadsheets as a component of ‘functional compatible software’, which is necessary to file returns through MTD. But a spreadsheet isn’t enough on its own.

A business will require a ‘digital link’ in order to receive the return. HMRC classifies a digital link as an exchange of data between two systems within a business, or the transfer of data to an agent, such as accountant. HMRC has listed some common examples of what they classify as digital links:

  • emailing a spreadsheet containing digital records so the information can be imported into another software product,
  • transferring a set of digital records onto a portable device (such as a pen drive, memory stick, flash drive) and physically giving it to someone who imports that data into their software,
  • XML, CSV import and export, and download and upload of files,
  • automated data transfer,
  • API transfer.

Grace period extensions

Businesses with complex legacy systems can apply for an extension of the grace period to get the right software in place.

Likewise, where a business has acquired another company, it can also apply for an extension.

These applications will be reviewed by HMRC and if the business qualifies, additional time will be granted as a specific direction.

HMRC has stipulated that cost alone is not enough to win an extension. It is also expected that businesses would have applied for an extension at the earliest possible date, with a complete map of their existing VAT systems, a plan and timetable for compliance, and an outline of controls to avoid errors in manually transferred data.

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Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.

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