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Making Tax Digital – Digital links deadline extensions

Making Tax Digital – Digital links deadline extensions

Notice 700/22 includes details of how to request an extension to the MTD digital links soft landing period beyond the current 12 months.

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HMRC have confirmed via their Making Tax Digital (MTD) Notice, the possibility for taxpayers to request an extension to the MTD digital links soft landing period beyond the current 12 months. However, HMRC have given themselves wide discretion and securing a digital links extension may be a difficult process. The terms used are also not defined. Importantly this is not carte blanche for a wholesale deferral by businesses of digital link compliance simply because they are large and have complex or multiple inherited non-symbiotic systems or because compliance will be expensive. There is a process that must be gone through to secure an extension, and the relevant gaps must be shown with explanations of how the issue will be tackled and resolved, within the extension period granted. Any extension will be specific and HMRC say it will not generally be expected to last for longer than a year.

The details are included in updated Notice 700/22 which includes a new section 4.1.2.3 ‘Digital links deadline extensions’. The section states:

“For VAT periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) 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 legislation.

Businesses with complex or legacy IT systems may require a longer period to put digital links in place across their functional compatible software. These businesses can apply for additional time to put the required digital links in place (subject to qualifying criteria). If your business qualifies then the additional time will be granted as a specific direction.

If you acquire another business (for example, your business purchases another company) it may take additional time to digitally link different software applications or packages to meet MTD legal obligations. HMRC will consider specific direction applications outside of the soft landing period(s) where more time is needed to comply with digital link requirements following the purchase of another business.

The cost alone is not sufficient reason to issue a specific direction. Business are expected to make every effort to comply with the digital links requirements by the end of the soft landing period.

Further details regarding digital links can be found at section 4.2.1.”

The section goes on to outline the criteria, what is unachievable and not reasonable, how to apply for a direction and examples of system process maps.

This ability to apply for an extension, difficult as it may be to qualify, is nonetheless welcome and shows HMRC have listened. It may assist businesses in the middle of an enterprise resource planning (commonly referred to as ‘ERP’) cycle, who are planning wholesale software changes that will make the systems MTD compliant but who might struggle to complete the process by the end of the current soft landing period.

For further information please contact :

Peter Dylewski

Chris Downing

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