The latest phase of Making Tax Digital (MTD) for VAT came into effect 21st April 2021. This ended HMRC’s ‘soft-landing’ approach for MTD digital links requirements. During the soft-landing period, if a digital link was not established, HMRC accepted the use of ‘copy/cut and paste’ as being a digital link.

The soft-landing period has now ended as of 21st April 2021. 

The rules now require a ‘digital link’ between all software used by your business to ensure full VAT compliance.

What is a ‘Digital Link’?

A digital link is an electronic or digital transfer or exchange of data between software, programmes, or applications. HMRC have explained that that piece of software must be digitally linked to other pieces of software to create a ‘digital journey’.

For clarity, there must be digital links between each of the software programs you use to complete and file your MTD VAT returns. 

HMRC have confirmed that the ‘copy and paste’ function to move information between software does not constitute a digital link.

If you wish to continue using Excel spreadsheets, you can do so. However, it will be on the proviso that you ensure a digital link is present between the spreadsheet and any accounting software to provide an uninterrupted digital journey to HMRC.

What Else is Acceptable as a ‘Digital Link’?

HMRC have also indicated that they will accept the following 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 (for example, a pen drive, memory stick or flash drive) and physically giving this to someone else, who then imports the data into their software
  • XML, CSV import and export, and download and upload of files
  • Automated data transfer
  • API transfer

This is not an exhaustive list.

Are you compliant?

MTD for VAT has been in place now since April 2019 so it is likely that those expected to comply with the rules are already well versed. However, if you are a new business owner or you have only recently exceeded the VAT threshold, a refresh of the rules may be beneficial. 

In short, MTD means you are no longer able to keep and submit manual VAT records and returns. Instead, HMRC will only accept VAT returns sent using software that supports Making Tax Digital for VAT, like Xero or Quickbooks.

Ultimately, if your taxable turnover is above the VAT threshold of £85,000, you must follow the MTD rules.

If your taxable turnover drops below the VAT registration threshold at any point, you’re still required to keep digital records and send HMRC your VAT Returns using compatible software. This obligation does not apply if you either:

  • Deregister from VAT
  • Meet other exemption criteria

As detailed above, it is now also compulsory to ensure the presence of digital links. 

If you have any questions relating to MTD for VAT or require a review of your systems to establish whether they are digital link compliant, please get in touch with your usual point of contact. Otherwise, feel free to contact our offices on 0161 399 0121 / 0151 303 3112 or by email