Making Tax Digital

Everything you need to know about Making Tax Digital

Why is MTD happening and what are the benefits?

Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply.

  • HMRC loses over £8 billion every year due to avoidable taxpayer mistakes.
  • A modern tax system, based on digital technology will make it easier for businesses to get their tax right.
  • Reducing the amount of avoidable errors will also reduce the cost, uncertainty and worry that businesses face when HMRC is forced to intervene to put things right.
  • A more efficient VAT return process will be less disruptive to businesses in the long run.
  • Millions of businesses are already banking, paying bills, and interacting online.
  • Customers will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from banks, building societies and other government departments.
  • HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.
  • By 2020 customers will be able to see a comprehensive financial picture of their liabilities and entitlements in their digital account, just like they can with online banking.
  • Customers (and their agents) will be able to interact with HMRC digitally and at a time to suit them via a digital account.
  • Digital record keeping software will be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.

MTD Digital Links - Latest update from HMRC

As we approach the first anniversary of Making Tax Digital (MTD), many businesses have adopted the new technology and are well into the swing of digital tax return. However, the soft landing period which was granted to allow businesses 12 months to get their systems 100% digitally linked, ends on 31st March 2020.

Compatible MTD software is a software application or set of applications that support the MTD obligations of keeping digital records and exchanging data digitally with HMRC via the MTD service. More than one application can be used but data that flows between those applications must also be exchanged digitally.

What is a digital link?

The exchange or transfer of data within and between software programs, applications or products that make up functional compatible software must be digital where the information continues to form part of the digital records. This is a digital link.

Once data is entered, any supplementary transfer, recapture or modification of that data must be executed using digital links. Each piece of software must be digitally linked to other software applications to create a digital footprint and there should be no manual intervention such as the copying and pasting of information by hand or manual data exchange between two or more software applications.

Digital records can be kept in various compatible digital formats. They don’t all need to be held in the same place or even on a single piece of software. For example, a spreadsheet is an acceptable component of digital record keeping providing the product that consolidates records, or summary records from the spreadsheet, can exchange data with HMRC digitally.

Until 31st March 2020, cut and paste is being accepted as an acceptable way to transfer information. From 1st April 2020 businesses must ensure that there are digital links between software products.

HMRC accepts the following as digital links*:

linked cells in spreadsheets by means of a formula in one sheet mirroring the source’s value in another cell

emailing a spreadsheet containing digital records so the information can be imported into another software product

transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to someone else who then imports that data into their software

XML, CSV import and export, and download and upload of files

automated data transfer

API transfer

*This list is not exhaustive.

MTD digital link grace period

HMRC has announced that businesses with complex or legacy IT systems may require a greater amount of time to put digital links in place.

Such businesses can apply for additional time to put the mandatory digital links in place. Specific direction applications outside of the soft landing period, where more time is needed to comply with digital link requirements following the purchase of another business, will also be considered by HMRC.

However, HMRC has stressed that cost alone will not pass as an adequate reason to issue a specific direction. All business are required to make every effort to comply with the digital links requirements by the end of the soft landing period.

To be considered for a specific direction, and granted an extension, businesses must make a formal application to HMRC.

The application should explain why it is unreasonable and not achievable for digital links to be in place by the digital links mandation date. They also need to submit details of the systems that are unable to be digitally linked, for example by providing a map of existing VAT systems, underlining the particular areas that cannot be digitally linked.

Businesses must provide a clear explanation and timetable for when and how they will become fully MTD compliant, which ordinarily will be no later than 12 months from the end of their soft landing period.

What HMRC considers to be ‘unreasonable and not achievable’ will depend on individual circumstances.

Examples given by HMRC include:

  • Where a component part of the business’  IT system is not capable of importing and exporting data from another part of the IT system and it is not possible to update or replace that non-compliant component (or supersede that part of the system) by the end of the soft landing period.
  • Where a business is in the process of updating or replacing its IT system and the planned implementation date for the new IT system is not before the end of the soft landing period.

You can find more help and support for MTD on GOV.UK, including webinars and a video.

What does Making Tax Digital mean to you as a Sage user?

Depending on which version of Sage software you are currently running, continuing on your current Sage product may mean that from April 2019 you will be unable to submit VAT returns through the HMRC gateway or software and will need to find another solution to ensure you are compliant. As of this summer, Sage solutions will be updated to be MTD compatible with support options ranging from simple help to in-depth training so that the switch isn’t too overwhelming. If you currently submit your VAT returns through Sage software then MTD compliance could simply mean installing the latest update.

To ensure businesses transition smoothly to the new Making Tax Digital (MTD) system, CPiO is committed to helping customers adapt their technology to assure its compatibility with the HMRC software. A free of charge MTD module will be made available for the latest version of all Sage ERP products. Sage 200 2018 Spring Edition: a solution will be provided for Service Pack 2 (SP2) and all future releases. Sage will deliver these solutions to a timescale whereby customers can assess the most convenient time to upgrade. However, we understand that not all customers using previous versions of Sage 200 will be in a position to upgrade before April 2019. With this in mind, the module can be applied to Sage 200 2011 and above with an associated cost. In order for the MTD tool to be functional, accurate VAT Returns must be created in Sage 200, which is a standard module within all versions of Sage 200.  The MTD module uses the Sage 200 VAT Return data for the HMRC submission. We would therefore recommend that you have this process implemented in time for your penultimate VAT Return prior to the April 2019 deadline.  This VAT Return, which could be as early as December 2018, would be used as a test submission to ensure that accurate and valid data is being used. We will support our customers every step of the way and continue to work closely with HMRC to guide you in your move to Making Tax Digital compliance.

To ensure businesses transition smoothly to the new Making Tax Digital (MTD) system, CPiO is committed to helping customers adapt their technology to assure its compatibility with the HMRC software. A free of charge MTD module will be made available for the latest version of all Sage ERP products.

  • Sage ERP 1000 v3: a solution will be provided for Service Pack 12 (SP12)
  • Sage ERP 1000 v4: a solution will be provided for Service Pack 9 (SP9)
  • Line 500 v7.1: a solution will be provided

Sage will deliver these solutions to a timescale whereby customers can assess the most convenient time to upgrade. However, we understand that not all customers using previous versions of Sage 1000/Line 500 will be in a position to upgrade before April 2019. With this in mind, the module can be applied to Sage 1000 v2, Line 500 v7, 6, 5.5 and 5 with an associated cost. We will support our customers every step of the way and continue to work closely with HMRC to guide you in your move to Making Tax Digital compliance.

CPiO respectfully reminds you that submission of accurate VAT is your responsibility and we are unable to assume any liability regarding the accuracy of your submission.

A copy of an example VAT matrix which can guide you in the correct set up of VAT in your organisation can be found via the link below.
Making-Tax-Digital-for-Sage-1000-Example-VAT-Structure

To ensure businesses transition smoothly to the new Making Tax Digital (MTD) system, CPiO is committed to helping customers adapt their technology to assure its compatibility with the HMRC software. A free of charge MTD module will be made available for the latest version of all Sage ERP products. Sage X3 product update 9 and above: a solution will be provided Sage will deliver these solutions to a timescale whereby customers can assess the most convenient time to upgrade.However, we understand that not all customers using previous versions of Sage X3 will be in a position to upgrade before April 2019. With this in mind, the module can be applied to Sage X3 pu8, v7, 6.5 and 6 with an associated cost. We will support our customers every step of the way and continue to work closely with HMRC to guide you in your move to Making Tax Digital compliance.

Important Statement on MTD from Sage

“Sage have not authorised any third party MTD solutions to connect to our software. We make no warranty, promise, guarantee, representation or other commitment and will have no liability or obligation whatsoever in relation to the submission of data, content or use of, or correspondence with, any such third parties, any transactions completed, or any contract entered into by you, with any such third party. Additional VAT related support charges may be incurred by customers choosing to use a third party MTD solution. From April 2019 a charge may be applied if a customer chooses not to use the Sage 200 MTD submission module for VAT submissions. Support required as a result of third party MTD integrations impacting product functionality is likely to incur additional charges to correct potentially damaged customer data and it may be that Sage is unable to correct the damaged Customer data. Customers who choose to use a third party MTD integration will do so solely at their own risk. HMRC guidelines are very specific that you must be able to maintain digital records and provide accurate data upon VAT submission.  Using spreadsheets alone may not comply with these guidelines and Sage will only take responsibility for data provided by Sage software. See clause 10 of our terms and conditions for more information. We anticipate further requirements from HMRC year on year regarding submitting tax digitally. A key benefit to using the Sage MTD module is it will evolve to fulfil these requirements, for those users who may not be able to upgrade.”

How can CPiO help you?

If you don’t process VAT through your Sage software, CPiO can help you to confidently reach compliance. We can help you further understand what MTD is and why it is happening, what it means to you as a Sage user and your requirements moving forward. If you are a CPiO customer wishing to discuss how Making Tax Digital will affect your business please contact your account manager.

Important update from HMRC

Once you have submitted your final VAT return using your present route, you will need to register to submit VAT Returns digitally.

For reference, here is the link to the relevant page on the HMRC website:

https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat

It is vital to read and fully understand this advice, paying close attention to the following points:

  1. You must sign up for Making Tax Digital at least one week before your VAT Return is due.
  1. Businesses that currently pay VAT by Direct Debit cannot sign up in the 7 working days leading up to, or the 5 working days after their VAT Return is due.

Please check the HMRC website regularly to stay up to date with MTD.

Making Tax Digital Video