When HMRC’s Making Tax Digital initiative is achieved over the coming few years, it will have been a major change in the UK tax system and reporting requirements for taxpayers. The changes will apply to a broad range of taxpayers, which will include all categories of self-employed people as well as most businesses and landlords. However, there are several categories of businesses who will be exempt from complying with MTD.
Businesses with turnover below the threshold for VAT
Businesses who are already exempt from filing VAT returns online will keep their exemption under the new regulations of MTD.
Businesses would need to look retrospectively at their taxable turnover, which may include a mix of standard-rated, zero-rated and VAT exempt taxable supplies, over a twelve-month period and check what would fall within the MTD regulations. Taxable supplies for VAT purposes means selling taxable goods or delivering taxable services; VAT would be imposed on those goods and services.
If the business has a taxable turnover under £85,000, it will not need to apply to HMRC for an exemption, as this will be done automatically.
Businesses run by digitally-excluded people.
Although the vast majority of adults use the internet and computers or other similar devices on a daily basis, HMRC has recognised that a significant minority have genuine difficulty in using digital tools.
Recent research in 2018 found that there were still 5.3 million adults in the UK, or 10.0% of the adult UK population, in this situation, who would not be able to engage with accounting software. The different factors involved include:
- Age. HMRC has not specified which age group would be exempt and have said they will judge this on a case-by-case basis.
- Disability. Again, this would be looked at by HMRC on an individual basis for individuals with a disability preventing them from using a computer or similar device.
- Religious beliefs forbidding the use of electronic communication.
- Insolvency. If a business has instituted bankruptcy or winding-up proceedings, or if an administrator has been appointed.
- Poor broadband signal, or no internet access due to remoteness of location.
All of these circumstances could mean you would be exempt from having to be MTD compliant. However, they are all subjective and would need to be agreed with HMRC before any exemption was granted.
If you think one of these applies to you, you can apply to HMRC for exemption status. You can telephone or write to HMRC or use the VAT webchat service which is available Monday to Friday between 8 am and 6 pm (closed weekends and bank holidays. You will need your business name and address, VAT registration number and details of how you currently file your VAT return.