Online sellers: copying VAT figures by hand breaks the rules

Almost every VAT-registered online seller has to keep digital records and file VAT returns from software under Making Tax Digital. The rule many sellers miss sits in the middle of the process. Once a figure is in the records you use for VAT, it cannot be retyped or copied and pasted from one place to the next. HMRC's notice on the subject says in terms that copy and paste is not a digital link.

What counts as a digital link

HMRC's VAT Notice 700/22 describes a digital link as a transfer of data between software that needs no manual intervention. It accepts:

• linked cells in a spreadsheet, where a formula in one sheet pulls the value from another;

• importing and exporting files, including CSV downloads and uploads;

• emailing a spreadsheet so the records can be imported into other software;

• automated transfers and connections through an application programming interface.

What it does not accept is a person reading a number on one screen and typing it into another, or selecting it and pasting it across.

Where online sellers break the chain

A seller on one channel with one piece of accounting software rarely has a problem. The gaps appear when there are three or four channels and a spreadsheet in the middle. The usual pattern looks like this:

• the seller downloads the Amazon, eBay and Shopify reports for the quarter;

• works out each channel's total in its own file;

• then types those totals into a VAT summary sheet, or pastes them in, before bridging software sends the return.

The first step is fine. The last one is the break. The notice's own example of a compliant online seller downloads a weekly sales report and uses a formula to link it to the VAT spreadsheet, so the figures travel without being touched.

Not everything has to be linked. Purchase invoices, for instance, can be keyed into your software by hand, because that is the point at which they enter your records. The rule bites on what happens after that.

A £990 slip, worked through

Illustration, not a real business. Ola sells phone accessories on Amazon, eBay and her own Shopify store from Bromley. In the April to June quarter her three sales reports show £48,600 of standard-rated sales including VAT, of which Amazon is £28,170.

She types the Amazon figure into her VAT sheet as £27,180. The transposed digits take £990 off her sales, and with VAT at one sixth of a VAT-inclusive price, they take £165 off the VAT she owes. Nothing looks wrong on the return.

A formula pointing at the downloaded report would have carried the right number. The £165 is the smaller problem. The bigger one is that the return can no longer be traced back to the records without someone checking every typed figure by hand.

What a compliant set-up looks like

• A connector that posts each marketplace settlement into your accounting software, with the VAT return filed from that software.

• Or downloaded reports imported as files, with formulas linking them to the sheet your bridging software reads.

• No step in between where a total is typed, pasted or rounded by hand.

Digital records are about to matter more, not less. The Budget on 28 October set out plans for VAT invoices to be issued and received in a prescribed electronic format from April 2029, under regulations still to be made.

Our VAT service files directly from Xero, QuickBooks, FreeAgent or Sage, with the channels feeding in rather than typed across. Before your next return, trace one figure from a marketplace report to the box it ends up in, and note every point where a person touches it.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, an accountancy firm for ecommerce sellers. He grew up in West London and began his career in finance at Barclays, in investment banking and wealth management, before going full-time on Zmartly in 2020.

Featured photo by RDNE Stock project on Pexels.