HMRC have recently announced that businesses might be able to qualify for a Making Tax Digital VAT extension.
This would further extend the ‘soft landing’ period, however HMRC are being very strict about which businesses can qualify.
How Does A Business Qualify For An MTD Extension?
The Making Tax Digital for VAT rules state that any transfer or exchange of data must be made digitally, rather than manually, through any software programs, products or applications.
At the moment there is a 1 year ‘soft landing’ period. This means that businesses have until their first period starting on or after 1st April 2020 to become compliant.
However, businesses with complex or legacy IT systems can apply for an additional extension.
If a businesses thinks they might qualify, proof will need to be shown to HMRC and they have promised they will be strict.
Why Might These Businesses Be Allowed An MTD Extension?
The reason why businesses with complex or legacy IT systems look set to be given an extension is because getting the digital links in place by next year is a big request.
Syncing these internal ‘do-it-all’ systems to accounting and VAT return systems is a difficult job, and many businesses with these complex systems manually transfer this information (which won’t be permitted in Making Tax Digital).
Businesses involved and professional bodies claim that they have been overlooked when HMRC decided the deadline.
Veterinarians, Hotels, Hairdressers, Beauticians and Universities have been reported to be most affected in these ways.
The Key To Qualifying For An MTD Extension
The key factor for a business to qualify is being able to prove that putting the digital links in place by the end of the one year ‘soft landing’ period is ‘unachievable and not reasonable’.
HMRC have been clear that cost alone will not be enough of a reason for an extension, and businesses will have to show that they have made efforts to become MTD compliant already.
Businesses will need to prove that part of an IT system isn’t capable of importing and exporting data to another part, and it’s not possible to update it or replace it in time.
If the business is already in the process of updating the system (or replacing it) and they have proof that it won’t be completed until after the soft landing period end date, then that is likely to be solid ground for an extension.
The length of this extension will be decided on a case by case basis, but is not expected to exceed 1 year.
How To Apply For An MTD Extension
If you believe that your business might meet this criteria, then you will need to do the following:
- Make a formal application to HMRC explaining why meeting the deadline is ‘unachievable and not reasonable’.
- A map of your current VAT systems.
- The timetable and plans for putting these digital links in place.
- The details of how the manual transfers of data happen.
Applications must be submitted before the current soft landing on digital links expires.
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