By David Richmond, Accounting Partner, Armstrong Watson LLP

AS the soft landing period for HMRC’s Making Tax Digital (MTD) scheme has now passed, businesses are urged to ensure they are fully complying with the new regime.

The scheme is mandatory for all VAT registered businesses with a taxable turnover greater than £85,000 and forms part of HMRC’s longer-term strategy for all taxes to be submitted online. 

HMRC’s stated goal is to make tax administration efficient and simple for taxpayers, ensuring taxes are correct, payments are received on time and errors and fraud prevented.

The soft landing period, which was extended to April 2021, allowed businesses to ensure their systems and processes were compliant with the requirements. Now though, HMRC may apply penalties for non-compliance. The ICAEW advises that the general regulatory penalty HMRC can levy for not complying with the record-keeping requirements is a maximum of £1,500. This can only be charged following a warning letter and is calculated at different daily rates according to previous failures, up to £15 a day for a maximum of 100 days.

HMRC states that any data transferred between software programmes must be carried out by a digital link. This means copying and pasting information is not an acceptable method. It is seen as risky and prone to error.

If you use software such as Xero to raise your invoices to customers, deal with your bills and payments, and do not keep any financial records for income and expenses outside of the software, you do not need to take any action as you have no digital links to consider. 

If, however, you have a till system to capture your daily takings or use a spreadsheet to capture income and expenditure, then you need to consider digital links. HMRC’s guidance is clear that “the information must not be physically re-typed into another software package.” 

The list of what is considered a digital link is extensive and is defined by the data being transferred electronically between software programs, products, or applications and that transfer is automated. 

From April 2022, MTD will be extended to all VAT registered businesses with turnover below the VAT threshold, and from April 2023, it will apply to taxpayers who file self-assessment tax returns for business or property income over £10,000 annually.

For advice on digital links or a review of your business’s MTD compliance, please contact David Richmond on 01756 620025 or email david.richmond@armstrongwatson.co.uk.