The soft landing period for Making Tax Digital for VAT was due to end as of 31st March 2020, marking the end of HMRC’s “light touch” towards non-compliance with the new rules. However, with Coronavirus having a significant impact on businesses throughout the UK, the soft landing period will now extend and end for VAT periods starting on or after 1st April 2021.
This delay gives businesses more time to get their digital links and record-keeping systems in place, which will be welcome news for many. While the extension means a relief of at least one pressure on UK VAT registered businesses, we thought it would be helpful to revisit what Making Tax Digital is all about.
Making Tax Digital for VAT – closing the gap
HMRC introduced MTD for VAT from 1st April 2019 for most UK VAT registered businesses, with around 3% of more complex businesses joining from 1st October 2019. The Making Tax Digital initiative is aiming to make the UK tax system one of the most digitally advanced in the world, and for VAT it plans to reduce the £9bn lost to avoidable errors each year.
Digital record-keeping
A crucial part of MTD for VAT is the mandation of digital record keeping. This process means that businesses should be recording their information such as name, address, VAT number, plus details of each supply, digitally. The digital records can be held in a spreadsheet, and then digitally linked to the VAT return.
Digital links
When the VAT return is due, information from the VAT digital record must be transferred to the return without manually typing the details or copy/cut and pasting. The digital link is designed to avoid errors. At present, the soft landing period means that businesses should do their best to comply with these rules, but there is time permitted to establish digital links.
Submitting the return
Using software to provide the VAT return to HMRC is essential even during the soft landing period. MTDfVAT is designed to transfer the data to HMRC in MTD format. It includes a pre-designed VAT return template to make it easy to comply with Making Tax Digital rules.
The soft landing period
It is essential for businesses to understand that the soft landing period does not permit them to submit old-style VAT returns if they fall into MTD for VAT mandation. They must use Making Tax Digital software like MTDfVAT to send their VAT return to HMRC. However, they can still use manual methods to compile their VAT return.
MTDfVAT
Find out more about MTDfVAT and sign up here.