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VAT – Making Tax Digital

Q: As a Sole Proprietor, UK VAT registered, business trading above the VAT registration limit, we are now operating under MTD but have two strands to our business: Farming and Furnished Holiday Lets (FHLs). Although we keep digital records for both parts of the business and submit VAT returns via the MTD portal, the FHL records are in a different system, so this income is manually journaled in to the main Farming business records at the end of each VAT quarter and the VAT return submitted from there. Is there still a soft landing for having digital links? Can we do anything if we think it is still unreasonable?

A: No. For any VAT periods beginning on or after the 1st April 2021 the soft landing, re: penalties for not having digital links, has ended and so HMRC could issue you with a penalty for not having these digital links in place. As per paragraph 4.1.2.3 of Notice 700/22 MTD you can request an extension of this deadline by contacting HMRC on mtdspecificdirections@hmrc.gov.uk. If they believe that it is unachievable or unreasonable to have the links in place as at 1st April 2021 then they can grant an extension to give you time to get these digital links in place. Otherwise you will need to find a way of pulling the FHL data into the Xero software without manually keying it in. How best to do this will depend on the 2 types of software in use and how compatible they are with each other or even with a 3rd software like Excel; sometimes Excel can be used as a bridge to download to from one software and upload into the other for example without having to manually amend any figures, but not all accounting software can do this.