MTD for VAT: commonly asked questions

During our interactions with the companies we work with on Making Tax Digital (MTD) for VAT, we are often asked questions about software which isn’t MTD-compatible, the soft-landing period and how digital links work. Below we share the answers to these common questions – however, we encourage you to reach out if you have any specific queries.

What is MTD-compatible software?
Compatible software is a program or a set of programs, products or applications, that must be able to:

  • record and preserve digital records
  • provide HMRC information and returns from data held in those digital records by using the Application Programming Interface (API) platform
  • receive information from HMRC via the API platform.

What if my current software doesn’t meet the above criteria?
If your current accounting system is not MTD-compliant and you do not intend to change accounting software at this point in time, then an alternative solution would be to consider using a ‘bridging solution’. This effectively links your accounting system and software to HMRC’s system by extracting data into an API-enabled spreadsheet which can be submitted to HMRC.
 
For the first year of MTD for VAT, HMRC do not require digital links to be in place between all parts of the functional compatible software. i.e. between your software and the bridging API-enabled spreadsheet. This is being referred to as a ‘one-year soft landing period’ and will give businesses additional time to implement a system of digital links into their software.
 
What is a digital link?
A ‘digital link’ is one where a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications. That is without the involvement or need for manual intervention such as the copying over of information by hand or the manual transposition of data between two or more pieces of software.
 
A digital link includes linked cells in spreadsheets, for example, if you have a formula in one sheet that mirrors the source’s value in another cell, then the cells are linked.
 
HMRC will also accept digital links, such as:

  • emailing a spreadsheet containing digital records to a tax agent so that the agent can import the data into their software to carry out a calculation (for instance, a partial exemption calculation)
  • transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to an agent to import that data into their software
  • a XML, CSV import and export, and download and upload of files
  • an automated data transfer
  • an API transfer.

HMRC has now confirmed that where a digital link has not been established between software programs, they will accept the use of ‘cut and paste’ for the first year of MTD only. However, ‘cut and paste’ should be used as an interim solution, until digital links are in place.

What do I need to do next?
You can check the bridging software providers that HMRC have approved on their website.

Keith Steele, Partner from our Outsourcing team can assist with choosing and implementing bridging software, as well as undertaking a review of your current software to ensure it fits your business needs.