HMRC has deferred rolling out the second phase of Making Tax Digital (MTD) for 12 months due to the coronavirus.
Phase one of MTD kicked in for VAT return periods starting on or after 1 April 2019, with what HMRC described as a soft-landing period.
This included the use of basic bridging software and waiving penalties for non-compliance throughout 2019/20, and ended on 5 April.
The second phase will demand more complex, robust technology solutions to ensure a VAT-registered business remains 100% compliant with MTD.
It will also introduce stringent rules around the way businesses digitally link their software and how they must upload their VAT returns.
Basic accounting software in use during 2019/20 may lose accreditation if it lacks the required features to submit the financial records on sales or purchases, while penalties for non-compliance will also take effect.
Some firms with complex systems were struggling to meet last month’s deadline, before the coronavirus lockdown even started.
A spokesperson for HMRC said:
“We understand the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges.
“Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software.
“This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”
The deferral was welcomed by the Chartered Institute of Taxation (CIOT), which recognised many businesses are working hard to simply survive.
John Cullinane, tax policy director at the CIOT, added:
“We are pleased the Government agrees this deferral of the digital links requirements can be put on ice while businesses concentrate on survival.”
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