Making Tax Digital: an extension to the digital deadline for some businesses

December 2019

Making Tax Digital (MTD) has been up and running for some months now, and businesses with a turnover of over £85,000 (the threshold for VAT) are now required to maintain their accounts digitally rather than manually, and to file their VAT returns directly to HMRC using MTD compliant software, such as Xero, Quickbooks and Sage. However, we are still in the middle of the one year soft landing period, meaning that businesses have until their first period starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) to get their digital links set up and ready to go.
 
As this is still the first year of the new system, HMRC have been at pains to show that they are supportive of businesses who are doing their best to comply. And with that in mind, they have just announced that some businesses may qualify for an extension to this initial soft landing period.
 
On 17 October, HMRC announced that “As set out in new paragraph 4.2.1.3 in VAT Notice 700/22, businesses with complex or legacy IT systems can apply for additional time to put the required digital links in place, subject to meeting certain qualifying criteria. If a business qualifies then the additional time will be granted as a specific direction from HMRC.” Further to this, the government have also defined a digital link, which is: “an electronic or digital transfer, or exchange of data, between software programs, products or applications. The use of ‘cut and paste’ or ‘copy and paste’ does not constitute a digital link - except during the soft landing period as set out in paragraph 3 of the next ‘force of law’”.
 
Whilst this appears at first glance to be good news for businesses still struggling with the conversion to digital accounting, it is important to stress that this is not a wholesale extension of the soft landing period and that HMRC appears to be taking a fairly strict line as to who does, and doesn’t qualify.
 
The most important point to bear in mind is that the extension will be granted to businesses who can prove that they have attempted to set up the appropriate software and systems, but their business has a particular specialism which makes it difficult, or impossible to link up with HMRC compliant systems.
 
Some examples of specialist businesses with niche and/or complex IT and accounting systems may include: hotels; taxi firms; hairdressers and beauticians; auction houses; veterinary practices; pharmacies; universities and higher education institutions.
 
These business areas may well have niche accounting systems that have developed internally, and if the business has at some point expanded to acquire another firm, then it is likely that two (or more) accounting systems may have been running in parallel. If the business can show that these systems will take some time to update and comply then they may have a case for claiming an extension to the deadline. 
 
To qualify for an extension the business will need to show HMRC that they need to use specialist management systems to run their business and why it may be ‘unachievable and not reasonable’ to have digital links which are complaint with HMRC’s systems by the end of the soft landing period of 1 April 2020. The VAT notice from HMRC requires that businesses seeking an extension must send in a map of their current VAT systems, a suggested timetable to get new systems in place and an explanation of how they will manually control data in the meantime.
 
The notification from HMRC makes it clear that any extension will be decided on a case by case basis, looking at what could be ‘unachievable and not reasonable’ for the business. There is absolutely no guarantee that an application for an extension will be approved.
 
If you are struggling to update your accounting systems to comply with HMRC’s software and think that you may need an extension to your MTD deadline then this may be a good time to contact a financial adviser with specialist knowledge in this area who can review your current systems and help you to work out what is possible, and suggest a solution.
 
Scrutton Bland have just introduced a Systems Advisory Service which aims to provide expert guidance on the software and systems a business may need in order to increase efficiency and profitability. They also have a well-established accountancy service called sblive which integrates with online accounting platforms such as Xero to help integrate financial tasks, projects and document management, giving you a more accurate picture of your finances and which may even help you get paid faster.
 
Digitalising processes and introducing better software can increase efficiency and profitability, and has given many companies across our region peace of mind in knowing that they have the processes in place to meet both their compliance requirements and their business goals.
 
Contact Us
To have a conversation about MTD for VAT, or to find out more about sblive and the Systems Advisory Service, contact Ryan Pearcy by calling 0330 058 6559
Email Ryan