When Making Tax Digital (MTD) first came into operation in April 2019 a ‘soft landing period’ was granted to businesses.
This gave 12 months to get systems totally digitally linked, to comply with MTD’s requirements. Due to disruption caused by coronavirus, in 2020, this soft landing period was extended to April 2021.
To be compliant with Making Tax Digital, businesses were required to move their accounting to functional compatible software.
Some businesses use more than one piece of software, for example, one for record keeping and one for submission. Or, some use spreadsheets for part or all of their accounting – a digital link is the solution that makes everything work together.
There are strict rules on what defines a digital link for MTD. According to HMRC, they have two characteristics:
Data is transferred electronically between software programs, products or applications. This could include linked cells in a spreadsheet, such as a formula.
The transfer is automated. It doesn’t need manual intervention such as copying over the data by hand or manually moving data between two or more pieces of software. But you can, of course, click a button to initiate the process.
Initially until April 2020, and now until April 2021, HMRC considers the cutting or copying and pasting of data, for example, from one application to another, to be a kind of digital link.
Normally this would not be a suitable digital link and is prohibited.
With the soft landing period now coming to a close, if businesses continue doing this beyond April 2021 they will not be MTD compliant and penalties could follow.
If you're using a digital link that doesn't meet HMRC criteria you need to ensure that you are compliant to avoid possible penalties, speak to the team here at Pinnacle on 0843 453 0103 to discuss solutions to help you meet the MTD requirements or email us.