Making Tax Digital: Digital Link Requirements


Making Tax Digital (MTD) is not old news. A ‘soft landing period’ was granted to businesses adopting MTD for VAT when it first came into operation back in April 2019. This gave companies 12 months to get systems digitally linked to comply with MTD’s requirements. This was then extended until April 2021 due to the COVID-19 pandemic. But what exactly is an MTD digital link and why is it so important to get it right? Let’s delve deeper.

The Benefits of Making Tax Digital

MTD requirements might seem like a headache but actually going digital has lots of benefits once you’ve streamlined the process. It’s quick, relatively simple and will allow you to file VAT returns using approved software. Once submitted you’ll get a confirmation through the software that HMRC have received your VAT return.

Digital Links Obligations

HMRC has recently emphasised the importance of digital links and clarified how to use them. It’s all about using ‘functional compatible software’ and ensuring different software work seamlessly together with the help of digital links. Digital links exist where an exchange of data needs to be made electronically between software programmes or applications. Essentially, you should be able to provide digital records of VAT transactions without the chain getting broken with manual documents.

According to HMRC, “you must not note down details from an invoice in a ledger, then use that handwritten information to manually update another part of the business functional compatible software system.” Now that the soft-landing period has ended you also won’t be able to ‘cut and paste’ or ‘copy and paste’ records for HMRC.

What Kind of Digital Links are Accepted?

HMRC accepts many kinds of digital links. For example, linked cells in spreadsheets. If you have a formula in one sheet that mirrors the source’s value in another cell, that’s accepted. Other types of digital links that have been given the green light include:

  • Emailing a spreadsheet containing digital records, so information can be imported into another software product
  • Transferring a set of digital records onto a portable device (for example, a memory stick or flash drive) and physically giving this to someone else, who then imports the data into their software
  • XML, CSV import and export, and download and upload of files
  • Automated data transfer
  • API transfer

Making Tax Digital – What to Expect in the Future

The whole Making Tax Digital thing won’t go away, so it’s important to get your head around it now. Indeed, from April 2022, HMRC will roll out Making Tax Digital to all VAT-registered businesses. From April 2023 it will also be applied to anyone filing self-assessment tax returns for business or property income of £10,000 or more.

This is not the complete list, so it’s worth talking to your accountant about Making Tax Digital and VAT compliance. It can all get a little complicated but with help and support, embracing the digital processes requested will become easier. Get in touch today for information and advice.