An update on Making Tax Digital

Following the introduction of the government’s Making Tax Digital initiative last year, the final stage is for organisations to provide digital links and record a trail of all data changes.

Making Tax Digital came into effect from 1 April 2019 (or 1 October 2019 for ‘complex’ businesses), and requires organisations to keep digital records and submit VAT returns digitally.

HMRC is now keen to ensure there is an end-to-end digital trail from source system to the submission of VAT returns.

This means that the data extracted from accounting systems for to compile VAT returns should not be manipulated, with no copying, pasting, manual rekeying, or adjustment of data without a digital trail of these changes. The end goal should be a fully linked and automated VAT return process, from accounting to the final VAT return.

UK VAT registered businesses need to comply with this requirement with their first VAT return starting after either 1 April 2020 or 1 October 2020 (depending on whether the business is ‘complex’). 

Given the potential timescales involved in making changes, HMRC is encouraging businesses to start considering the systems and processes that need to be in place, in advance of the deadline.

HMRC’s VAT Notice 700/22: Making Tax Digital for VAT sets out more details in relation to digital links as well as the wider implications of the Making Tax Digital development.