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Additional Making Tax Digital (MTD) for VAT requirements from 1 April 2021

When HMRC first announced MTD, it was a two phase process

24 Mar 2021

When HMRC first announced MTD, it was a two phase process.

  • Phase one: The first phase was considered a ‘soft landing’ period and came into effect from April 2019. Under phase 1, businesses with an annual turnover of more than the registration threshold of £85,000, were required to submit their VAT returns electronically.
  • Phase two: The second phase was initially planned for April 2020, however, due to COVID-19 it was delayed for a year and will apply for VAT periods starting on, or after, Thursday 1 April 2021.

What’s changing from 1 April 2021?

Under phase one it was just the submissions which were required to be digital.

Phase two will require businesses using different pieces of software to have ‘digital links’ between them.

A ‘digital link’, as per HMRC’s definition, is a transfer or exchange of data that can be made electronically between software programs, products or applications without the involvement or need for manual intervention.

There are strict rules on what defines a digital link for MTD.

According to HMRC, they have two characteristics:

  • As mentioned above, data is transferred electronically between software programs, products or applications. This could include linked cells in a spreadsheet, such as a formula.
  • The transfer is automated. It doesn’t need manual intervention such as copying over the data by hand or manually moving data between two or more pieces of software. But you can, of course, click a button to initiate the process.

The most effective way to ensure businesses meet their digital linking obligations is to use MTD-compatible accounting software, (such as Xero), that allows you to record and submit your MTD data from one place.

MTD future deadlines

From April 2022 the MTD for VAT regime will be expanded to include all VAT registered businesses, with Income tax due to follow in April 2023.

Take action now

If you aren’t sure whether your processes are MTD compliant and need further advice please contact us

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