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Making Tax Digital (‘MTD’) is an HMRC initiative attempting to transform the UK tax system, with more regular and detailed submissions of information and payments of tax to HMRC electronically.
Whilst it has been delayed several times, it aims to make tax administration more effective, efficient, and easier for taxpayers through the implementation of a fully digitalised tax system by 2020, whilst also reducing HMRC’s overheads for managing tax affairs.
The first wave is underway, with VAT registered businesses, with a turnover over £85,000 (‘the threshold’) undergoing the change. Put simply, these businesses need to be submitting their VAT returns either through compliant software, such as Xero, Quick Books, Sage or a bridging software. If the business is VAT registered but turnover is beneath the limit, they can opt-out.
However, whilst this is a change most businesses can implement, even HMRC have acknowledged this isn’t as achievable for all businesses, which is explained more below.
Who might be Exempt from MTD?
The three categories that HMRC have identified are businesses, which are:
- Subject to an insolvency procedure;
- Run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records; and/or
- It is not reasonably practicable to use digital tools to keep business records or submit the VAT returns because of age, disability, remoteness of location or for any other reason.
The first two are relatively straightforward and self-explanatory. The third category is the one which is most likely to be more difficult to agree with HMRC, so further correspondence and appeals may well be required. However, here are our thoughts at this stage:
- It is unlikely to be possible to claim exemption purely on account of age; HMRC has not set any specific age which would automatically rule someone out of MTD. Instead, it will consider how ‘your age and circumstances impact your ability to follow the rules for MTD’;
- Lack of familiarity with relevant software also won’t be enough to claim exemption. HMRC will take into account how much someone uses computers, smartphones and the internet for other purposes – and hence whether it is reasonable for them to learn how to use MTD software, or not.
- More generally an exemption is unlikely to be available solely on the basis that reasonable effort, time and cost may be involved in moving to MTD – but HMRC will take effort, time and cost into account in its overall assessment of whether it is practical for someone to follow the rules for MTD. Deciding what is reasonable in this context could be difficult and will vary from business to business according to circumstances.
- The guidance also discusses support from friends or family members, which might enable someone who would otherwise qualify for exemption, to meet the MTD requirements – but could be withdrawn. If the support stops and MTD compliance is impossible without it, an exemption application will need to be made.
How to apply for exemption
The VAT general enquires team will accept applications by telephone or in writing. Make sure you have the following information:
- VAT Registration Number;
- business name and principal place of business;
- the reason for the exemption request;
- details about how VAT Returns are currently filed;
- the reasons why it would not be possible to file returns through software or keep digital records (even if it is possible to file using VAT online services); and
- any other reason why the rules for Making Tax Digital cannot be followed.
HMRC will be issuing decisions in writing and aim to do so within ten days, subject to the number of applications and the volume of their other work. Appeals can be made if you are initially unsuccessful.
Remember to continue to file VAT returns in the meantime whilst awaiting a response from HMRC, or if appealing.
Who Doesn’t need to apply for the Exemption?
If you are already exempt from filing VAT Returns online, or beneath the threshold and have opted-out, you do not need to apply for the exemption.
HMRC’s Light Touch
HMRC have already said they will not be raising interest and penalties in a lot of instances of non-compliance in the first twelve months of MTD. That said we still recommend doing everything you can to be compliant with the new regulations, if you are unable to achieve an exemption. If in doubt, and need some help please just contact us.
How we can help with MTD
We can of course help you with any of the above, whether it’s ensuring you are compliant, or making an application for you to be exempt from MTD.
We offer software implementation and training on any of the above mentioned bookkeeping software and many others besides. We can help train you and your team to do this yourselves, be at the end of the phone to help you with any queries or we can do it all for you; depending how you want things to operate. We can also change our service offering for you as your business evolves.
If you think you need further information to make sure you don’t get caught out or find out how our specialist tax team can help you, contact Black and White Chartered Certified Accountants today, or call us on 0800 140 4644.
