The starting line is only a few weeks away but do all of you need to be involved on 1 April?

MTD for VAT seems to have been in the pipeline for a long time now and most businesses will be only too aware of the basic rules.

From April 2019, most VAT-registered businesses with a taxable turnover above £85,000 must follow the rules for Making Tax Digital for VAT. This means:

  • keeping digital VAT records
  • signing up for Making Tax Digital for VAT
  • using software compatible with Making Tax Digital to submit VAT returns.

However, there are many reasons why some businesses may not be able to comply with the rules and so it is worth recapping and discussing the exemptions that are available. There is also a deferred starting date for some businesses which are deemed to be ‘more complex’. See below for more details.

Exemptions from MTD for VAT

The main exemptions are contained in VAT notice 700/22 ‘Making Tax Digital’  – original source is the VAT Regulations amendments  These affect people and businesses that are known as digitally excluded. The exemptions are:

  • your business is run entirely by practising members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers)
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason
  • you are subject to an insolvency procedure.

Points to note:

  • clearly the above criteria are rather subjective and ACCA has asked HMRC for clarification, particularly the second point
  • where a business thinks that it is exempt, HMRC expects it to contact the VAT Helpline to discuss alternative arrangements.The VAT notice also states that HMRC needs to be ‘satisfied’ that the business complies with the above to get exemption. So it appears that in the first instance the affected business will need to get past the helpline. However, it would appear that even if the HMRC helpline does not agree with the business, this does not prevent the business from applying in writing to HMRC.

Starting date deferred to 1 October 2019

Certain businesses and organisations will have a deferred MTD for VAT start date of 1 October 2019. This applies where the organisation:

  • is part of a VAT group or VAT Division
  • is based overseas
  • is a trust
  • is a not for profit organisation that is not set up as a company
  • submits annual returns
  • is a local authority
  • is a public corporation
  • uses the VAT GIANT service.

12 month extension for digital links

For the first year of mandation, businesses will not be required to have digital links between software programs. The VAT notice above confirms that the ‘soft landing’ regime for the first 12 months will also apply to the deferred period.

So organisations with a VAT period starting on or after 1 October 2019 will have until the first VAT return period starting on or after 1 October 2020 to put digital links in place.

Article from ACCA In Practice