From 1 April 2021
A key part of the MTD regime is that the transfer and exchange of data between component parts of your ‘functional compatible software’ must be digital after the end of the soft landing period. This means that from 1 April 2021 all transfers or exchanges of data between software programs, products or applications must be made via ‘digital link’. This is so that each piece of software is digitally linked to other pieces of software to create the ‘digital journey’ and reduce human intervention.
The deadline for digital links in software has been extended from 1 April 2020 to 1 April 2021 due to COVID-19. All VAT registered businesses trading above the VAT registration threshold are eligible and the extension is automatic, no application is required. All businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place. For deferred businesses, digital links are required from 1 October 2021.
How do digital links affect accounting systems?
This does not mean the end of using low cost bridging software to submit returns, if that is the best solution for you. The complete set of digital records to meet MTD requirements does not have to be held all in one place or in a single format. But the bridging product must be digitally linked through to the software (either your accounting package and/or spreadsheets) you are using to compile the return, so that VAT returns are populated with numbers taken directly from your digital records. It’s this digital audit trail that will be essential in proving compliance with the digital links mandate.
This means that you cannot ‘cut and paste’ or ‘copy and paste’ to move data, either within a software program or between software programs, or move or manipulate data manually, whether the transposition is to a spreadsheet or between spreadsheet cells. Nor can you send your VAT return data in PDF format to your agent to complete returns.
For VAT groups, each VAT reporting entity or group member can keep their own digital records, but these must be digitally linked through to the group VAT return.