A million businesses need to have digital links in place to submit VAT returns and comply with phase two of Making Tax Digital (MTD) for VAT.
All VAT-registered firms have until their first VAT return period, starting on or after 1 April 2021, to put digital links in place.
A digital link is an electronic or digital transfer, or exchange of data, between software programs, products or applications.
The links are required to provide an external audit trail between VAT-registered firms’ transactions and the nine VAT boxes.
Audit trails can break down between different programs, but any gaps can be filled by bridging software which uphold the integrity of the numbers.
For most VAT-registered firms, this means using accounting software or similar systems to maintain all their VAT records.
These must be capable of receiving information from HMRC digitally via its application programming interface (API) platform.
HMRC said spreadsheets can still be used, but that cutting and pasting or adjustments no longer constitute a digital link.
Penalties also took effect from 1 April 2021 for the late-filing of digital returns, although the Revenue plans to overhaul this regime next year.
The second phase of MTD for VAT was due to take effect from 1 April 2020 only to be delayed for a year during the first COVID-19 lockdown.
Talk to us about MTD for VAT.