Who Does 'Making Tax Digital' Apply to?

What is Making Tax Digital (MTD)?

Making Tax Digital requires VAT registered businesses with a taxable turnover above the VAT registration threshold (currently £85,000) to keep their records in digital form and to file their VAT returns using software.

Example 1: Business Required to Comply

A business that would be caught by the legislation would be, for example, a take away that makes sales of £86000 per annum. All sales it makes are taxable at either the standard or zero rate and make up the taxable turnover of the business. In these circumstances given that the business is trading above the registration threshold, it is required to maintain its records digitally and file VAT returns using compatible software.

Example 2: Business Not (yet) Required to Comply

An instance of a business that would not be caught by the legislation would be, for example, a farm making £80,000 worth of stock sales that also receives rental income on some houses of £5,000 and agricultural subsidies of £20,000. Total income to the business, therefore, is £105,000 but only £80,000 counts as “taxable” turnover.

In these two examples the farm business is not required to keep its records digitally and file VAT returns using digital software but the take away business is.

Businesses can still choose to follow the making tax digital rules if they are trading below the threshold. In fact, if a business is very close to the threshold – with potential to cross it in subsequent years – it would make sense for it to, “join the club”, despite not being compelled to. However, once a Vat registered business starts to follow the rules, it cannot then opt to ‘unfollow’ the rules even if the taxable turnover falls below the registration threshold.

MTD Exemptions

There are some very limited circumstances where exceptions may apply. Those that fall into the following categories will not have to submit their VAT returns digitally:

  • Businesses run by practising members of a religious society whose beliefs are incompatible with using computers.
  • Where it is not reasonably practicable for reasons of age, disability, remoteness of location
  • Where a business is subject to an insolvency procedure.
When will this Happen?

The Making Tax Digital rules come into force with effect from 1st April 2019. In practical terms, this means that a business’s first return starting on or after the 1st April 2019 will have to be completed and submitted using digital records and compatible software.

What are the Requirements?

All VAT registered businesses must keep and preserve certain records and accounts digitally within functional compatible software. These required records are as follows

  • Designatory Data - such as business name and address, VAT registration details.
  • Supplies made - including the time of supply, value of supply and the rate of VAT charged.
  • Supplies received - including the time of supply, value of supply and the amount of input tax that will be claimed.
  • Summary Data for supplies made - including the amount of VAT due and reclaimable as well as any adjustments.

Full details of the requirements can be found in VAT notice 700/22 available on the HMRC website.

If you want more information on Making Tax Digital and want to find out if your business is exempt, email Stephen Ferrie or call 01228 690200.

Contact Stephen

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