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Making Tax Digital for VAT: the ‘hard landing’ for charities

What non profits need to do and when

Robert Warne, Partner, Head of VAT and Customs Duty services
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This update focuses on the important aspects and changes to Making Tax Digital for VAT (MTD) which non profits need to be compliant with for the imminent ‘hard landing’ on Thursday 1 April 2021.

  • It is particularly important to be compliant from the start of the ‘hard landing’ period as HMRC has announced penalties will be likely.
  • A single break in your ‘digital links’ will mean you’re not compliant.
  • If you aren’t sure if your systems will be compliant under the full rules then now is the time to check.
  • For many organisations it can be easier to be MTD compliant than you may think. Our team has experience in reviewing VAT system processes to identify straightforward solutions to MTD compliance.

What is changing from 1 April 2021?

Since being introduced on 1 April 2019, MTD has become a fact of life for most VAT registered organisations. However, the current rules are only the ‘soft landing’ period, where only records and VAT return submissions are required to be digital. From 1 April 2021 the much delayed ‘hard landing’ will come into effect and with it a new set of much tougher rules.

The MTD hard landing rules are deceptively simple, “From 1 April 2021 VAT registered organisations will need to have digital links between software programs”. This does mean that there will need to be a digital link from when a transaction is first recorded on a digital format all the way to the digital submission of the VAT return figures to HMRC. You will no longer be able to copy/paste values or hard code between one piece of accounting software to another.

An example of this in action would be if cash sales were first recorded on a spreadsheet. That is the first part of the ‘digital journey’ and would require a digital link to, say, the main accounting software. 

The clock is ticking

As the new rules relate to how transactions are recorded and linked within the accounting system(s), you will need to ensure that you are compliant from the very start. For many, this leaves only two months to check that your processes will be MTD compliant and to update them if they are not.

Easements to the rules for charities

There is some good news - there are a number of easements to the rules for charities, for example:

  • sales (or purchases) for a fundraising event run by volunteers can be recorded in the accounts system as a single transaction
  • Electronic Point of Sale (EPOS) information does not need to be digitally linked, for now
  • petty cash transactions totaling less than £500 can also be recorded as a single transaction
  • if the main accounting software is used to submit the VAT return figures digitally, then digital links are not required for VAT summary workings such as partial exemption workings.

Take action now

If you aren’t sure that your processes are MTD compliant then now is the time to check. Nine process out of ten being compliant will still mean that you are not compliant overall. Our team has experience of reviewing VAT return processes to identify any gaps and providing practical, cost-effective solutions to be fully compliant with the new rules.

Please get in touch with Rob Warne, or usual VAT contact to discuss your MTD compliance in greater detail.

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Webinar: Making Tax Digital

Tuesday 23 February 2021 | 10:00 - 11:00 am
Our VAT specialists will be covering all the important information to make sure you're prepared for the MTD 'hard landing' period. You'll also be able to take part in a live Q&A.

Register now

Contact us

Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services