MTD for VAT: Applications for more time for digital links

HMRC has introduced a process to allow businesses to apply for additional time to put in place digital links to comply with the requirements of Making Tax Digital (MTD) for VAT. The criteria, set out in section of the revised MTD for VAT notice 700/22, are restrictive and HMRC is likely to grant a direction in only a small number of cases, to businesses with complex or legacy IT systems. The fact that HMRC has introduced this process should be seen as a statement of intent that it will be enforcing the requirement for digital links once the soft landing period has expired.

The requirement for digital links between software products and spreadsheets which make up the ‘functional compatible MTD software’ is explained on the ICAEW MTD hub and in an article in the August 2019 edition of TAXline. A one year soft landing period applies from the mandation date (VAT period starting on or after 1 April 2019 or 1 October 2019 for deferred businesses).

Businesses that need to make an application for a direction should request a form from their Customer Compliance Manager (CCM) or, if they don’t have a CCM, by email to Applications should be submitted as soon as possible and before the end of the soft landing period. The lengthy form asks the business to:

  • explain why it is unachievable and not reasonable for the business to have digital links in place by the MTD VAT digital links mandation date (in April 2020 or October 2020, for businesses mandated to join MTD in 2019); for example, why does commercially available software not meet the digital link requirement for the business?
  • submit details of the systems that are unable to be digitally linked (including a systems map of the existing VAT systems, highlighting the exact areas that cannot be digitally linked) 
  • provide a clear explanation and timetable for when and how the business will become fully MTD compliant (ordinarily no later than one year from the end of their soft landing period)
  • state the controls that will put in place to ensure any manually transferred data is moved accurately and without error

The notice states that cost alone is not sufficient reason to issue a specific direction in relation to digital links which is only intended to be issued ‘in exceptional circumstances’.

HMRC has confirmed that agents can submit an application on behalf of a client.

HMRC will consider specific direction applications outside of the soft landing period where more time is needed to comply with the digital links requirement following the purchase of another business.

Applications will be considered on a case by case basis and may involve discussions with the CCM and requests for further information. If the application is refused HMRC will provide reasons but it is not clear where this leaves the business given that it will have highlighted the fact that it is not meeting the digital links requirement to HMRC.

  • Interesting that HMRC think that business can switch to commercially available software so easily. Many larger businesses will have tailored their general ledger package to meet their business requirements; the package will have direct links into many other systems which would all need to be redesigned. For many, the project timeline to do so would be longer than the whole MTD timeline. The s is something pointed out to HMRC during the “consultation” phase, when they simply notified their intentions, but ignored.