MTD for VAT: end of the soft-landing era

Systems must be compliant for MTD from 8 April

The soft-landing period for Making Tax Digital for VAT is coming to an end for VAT periods starting on or after 1 April 2021.

From this date your systems must use digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software, as stipulated in Schedule 11 paragraph 6 and 6A of VAT Act 1994.

From 8 April 2021, online filing via XML software will not be available. XML is the functionality available in some software products that allows users to file VAT returns directly to HMRC from their software. It is not the same as MTD enabled software. It will be worth checking and ensuring that your software provider has the facility to migrate to MTD for VAT before this date. Any VAT businesses with taxable turnover above £85,000 who have not signed up to MTD must do so now or they may be charged a penalty.

HMRC has confirmed within VAT notice 700/22 that they may consider granting the additional time through a specific direction to put these digital links in place for:

  • any qualifying complex or legacy IT systems; or
  • any new business acquisitions by existing entities; or
  • any other reasonable grounds

The cost to put these measures in place is not considered a sufficient reason. If you want to get a specific direction, you will need to:

  • make a formal application before the end of your soft landing period;
  • explain the reasons for not having digital links in place;
  • submit details of the systems that are unable to be digitally linked;
  • provide a timetable when the business will be MTD compliant; and
  • state the controls on transferring manual data to digital links.

Businesses should ensure they progress their plans to become digitally linked while waiting for a formal response from HMRC.

Other key changes for non-MTD VAT clients
Transformation of HMRC’s VAT services 

From March 2021 HMRC will start migrating all of their remaining VAT customers from the VAT Mainframe (VMF) on to their Enterprise Tax Management Platform (ETMP). Businesses that have already signed up to MTD are not affected by this change and do not need to take any action, as their records are already stored on ETMP. During the transition period agents will find that they need to file returns for some clients through the old agent portal and the returns for clients whose records have been transferred to ETMP will need to be filed from the agent services account (ASA). Once the transition period ends, agents will be able to see all their clients on the new ETM platform.

This means that from March 2021 agents will need to file their clients’ VAT returns who are not yet signed up to MTD for VAT in one of two ways, depending on whether they have been migrated to ETMP or not. Agents will need to check using method (a) whether they are able to file or not, and if not, use method (b):

  1. a) through agent online services for clients who haven’t yet been migrated, or
  2. b) through an ASA for clients that have been migrated

As MTD for VAT will be mandatory for all businesses (including turnover below £85,000) from April 2022, agents should start preparing early to be ready for these changes by following simple steps as listed below:

  • analyse your VAT client base – identify how many clients submit non-MTD VAT returns currently
  • check their source records and talk through the suitable software with your client
  • prepare and send communication to them
  • register clients into MTD.

Useful resources

ACCA Making Tax Digital for VAT- FAQ