Digital links requirements for Making Tax Digital for VAT postponed until April 2021

HMRC has confirmed that, in response to the COVID-19 crisis, the requirement to implement digital links for Making Tax Digital has been postponed until April 2021. A formal announcement is expected in due course, but below is an extract of an e-mail from HMRC officials to CTG.

“We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges. Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”

CTG welcomes this announcement and had been calling for this postponement to reflect the disruption facing charity finance teams and software suppliers, due to remote working and other more pressing work priorities. Most organisations would have been required to implement digital links by April 2020, unless they were deferred (which was true of many charities), in which case their original deadline was October 2020.

HMRC had previously opened the process for businesses to apply for additional time, if needed, to put digital links in place in order to comply with the requirements of MTD. This additional time will be provided for businesses with complex or legacy IT systems, who are unable to comply with MTD digital links requirements by the end of the initial soft-landing period.

The criteria for making an application and how to apply are set out in the VAT Notice 700/22, section Applications must be received by HMRC by the end of a business’ soft-landing period (now April 2021) and charities would have to actively contact HMRC to benefit from this extension. Charities should note that they must explain why it is unachievable and not reasonable to have digital links in place by the MTD VAT digital links mandation date, for example, why does commercially available software not meet the digital link requirement for your business? Lack of preparedness or simply cost concerns will not be sufficient, although in the light of the COVID-19 crisis there may be more flexibility.