The path for MTD has been far from smooth and it would appear that COVID-19 has now derailed the UK government’s ambition to transform the tax system by 2020.
All businesses whose taxable turnover exceeds £85,000 per annum have, since 1 April 2019 (or 1 October 2019 if they were a business for whom MTD compliance was deferred), been required to keep digital records and file their VAT using API-enabled software.
A soft landing period of 12 months was introduced to give businesses more time to comply with the digital links requirement of MTD. This soft landing period was due to end on 1 April 2020 or 1 October 2020 for deferred businesses.
In October 2019, HMRC updated the VAT Notice 700/22 to include an option to apply for a digital links deadline extension beyond the soft landing period. This was aimed at those businesses considered to have complex legacy IT systems which required extra time to implement the necessary changes to meet the digital links requirements. Applications to be considered for a specific direction granting an extension need to be made by contacting email@example.com or can be made via your Customer Compliance Manager (CCM).
Now, in response to COVID-19, the soft landing period has been extended to 31 March 2021 for all businesses, irrespective of when the original MTD compliance was mandated. This effectively pushes the transformation of the VAT system to 2021.
So, what does this mean?
Essentially, all businesses now have until the obligation periods commencing on or after 1 April 2021 to ensure that they comply with the digital links requirement.
|Definition of digital links: that all data transfer or exchange must be digitally linked from the source digital records|
to the point of API submission to create the digital journey.
When you have to comply depends on the whether you file monthly or quarterly, as well as your VAT stagger, as shown in the table below:
|Filing Frequency||Quarterly Stagger||First Period Mandated for Digital Links|
|Monthly||N/A||1 April – 30 April 2021|
|Quarterly||Stagger 1||1 April – 30 June 2021|
|Quarterly||Stagger 2||1 May – 31 July 2021|
|Quarterly||Stagger 3||1 June – 31 August 2021|
Do I still need to pay VAT?
The matter is further complicated, at least in the short term, by the announcement of a deferral of VAT payments between 20 March – 20 June 2020. This measure was put in place to help reduce the pressure on businesses that have been experiencing cashflow issues due to COVID-19.
It’s important to note that the deferral is for payments only. VAT Returns will still need to be made and these are being processed as normal by HMRC. Unless the Return is made, the business will be unable to reclaim any VAT for this period.
Those seeking to defer payments should alert their CCM and cancel their direct debit instruction. Any deferred VAT will be due on or before 31 March 2021.
What if I have already applied for a digital links deadline extension?
If you have been granted a specific direction and your digital links deadline extension date ends before 31 March 2021, you now have until the end of the new soft landing period to comply.
If you have been granted a specific direction and your digital links deadline extension date ends after 31 March 2021, your extension date as per the specific direction still applies.
If you will need more time beyond 31 March 2021 to modify legacy software, applications and systems, you now have until the end of the new soft landing period to apply for a digital links deadline extension.
What should I do now?
The extension to the soft-landing period is a welcome reprieve at a time when many businesses are facing unprecedented challenges, but it should not be taken as a reason to pause work that is already underway.
What it does is give you more time to ensure that you adequately assess your current systems and business requirements in order to understand what changes need to be made to deliver compliance.
So, take the time to think about how you could go beyond mere compliance, instead utilising the opportunity presented by the extension to implement new systems and compliance software that will give you more visibility and control over the end-to-end compliance process.