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United Kingdom: Making Tax Digital transition period coming to an end

From April 2020 digital linking will be compulsory for UK businesses obliged to submit VAT returns. All businesses must be able to provide a digital audit trail of the movement of data from all software used before being passed to HMRC.

We take a look at some of the key aspects of Making Tax Digital (MTD), the penalties, and what they mean for UK businesses.

Digital record-keeping.

Digital record-keeping under MTD is the requirement to maintain financial information digitally so that summary figures can be reported to HMRC quarterly.

If digital records are up to date, the software will be able to collate and prepare VAT returns automatically, meaning the business will only need to review the return and declare it is correct, before submission to HMRC.

The digital journey.

Data transfer or exchange within and between software programs, applications or products that make up functional compatible software must now be digital where the information continues to form part of the digital records. Once data has been entered into software used to keep and maintain digital records, any further transfer, recapture or modification of that data must be done using digital links. Each piece of software must be digitally linked to other pieces of software to create the digital journey.

A ‘digital link’ is one where a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications.

From April 2020 HMRC will no longer accept the use of ‘cut and paste’ or ‘copy and paste’ as being digital links.

Making Tax Digital penalties.

The “soft-landing” period regarding penalties also ends in April 2020. Penalties will apply on a cumulative basis, based on the number of offences in the past 12 months. This can reach 15% of the VAT due, plus fines of up to 100% of undeclared VAT as a result of careless or deliberate inaccuracies.

  • Penalties will be introduced on a points system:
  • One penalty point for a missed VAT return,
  • A fine after four accumulated points for a missed quarterly VAT return,
  • A fine after four accumulated points for a missed monthly VAT return.


Accumulated points expire two years after they are imposed.

Free Webinar 

Despite the transition phase, many businesses are still not ready for Making Tax Digital. If you are uncertain about any aspect of MTD, register for our joint webinar with our trusted partner, SAP Concur on 19 March 2020. Our VAT experts will open the forum on the most commonly asked questions around MTD including:

  • The negative consequences if you do not adopt a digital approach,
  • The digital journey, digital linking and bridging software,
  • Ensure you have the necessary systems to deal with the digital aspects of VAT compliance.


Register today.

If you are unable to attend on March 19, register and we will send you the recording following the live webinar.

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