An update on Making Tax Digital

13 March 2020

Following the introduction of the government’s Making Tax Digital initiative last year, the final stage is for organisations to provide digital links and record a trail of all data changes.

Making Tax Digital came into effect from 1 April 2019 (or 1 October 2019 for ‘complex’ businesses), and requires organisations to keep digital records and submit VAT returns digitally.

HMRC is now keen to ensure there is an end-to-end digital trail from source system to the submission of VAT returns.

This means that the data extracted from accounting systems for to compile VAT returns should not be manipulated, with no copying, pasting, manual rekeying, or adjustment of data without a digital trail of these changes. The end goal should be a fully linked and automated VAT return process, from accounting to the final VAT return.

Originally, UK VAT registered businesses needed to comply with these requirements with their first VAT return starting after either 1 April 2020 or 1 October 2020 (depending on whether the business is ‘complex’). 

HMRC has now updated VAT Notice 700/22 to provide businesses with more time to place digital links between all parts of their functional compatible software. All businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.

Despite this relaxation HMRC is still encouraging business to ensure they are keeping digital records, submitting VAT returns via an API enabled software and maintaining all digital links they currently have in place.

HMRC’s VAT Notice 700/22: Making Tax Digital for VAT sets out more details in relation to digital links as well as the wider implications of the Making Tax Digital development.