Over the last few months we have received the same queries and heard the same comments several times…
“I know MTD is coming but I don’t want to do it so assume I have to comply?”
“I’m going to wind down so will be below the £85,000 turnover threshold so don’t need to bother with MTD”
“My internet isn’t good so assume I can get out of this?”
“We’ve heard that Charities do not need to keep digital records”
And the answer is often Yes - you do have to comply! But there may be times when you don’t have to…
When does compliance start?
Making Tax Digital for VAT becomes a legal requirement from 1 April 2019 for most and 1 October 2019 for some postponed traders.
Do I get a postponement to 1 October?
The postponement “applies to customers who fall into one of the following categories:
• ‘Not for profit’ organisations that are not set up as a company
• VAT divisions
• VAT groups
• Public sector entities required to provide additional information on their VAT return (government departments, NHS trusts)
• Local authorities
• Public corporations
• Traders based overseas
• Those required to make payments on account
• Annual accounting scheme users.
For a postponement to apply the trader must be issued with a certificate of postponement from HMRC, failure to obtain one of these will mean that you must comply from 1 April.
What should be considered when calculating the £85,000 turnover threshold?
• All VATable income including Zero rated counts towards the limit
• Exempt and Outside the Scope income is disregarded
• Income from the sale of Capital items is included
• The threshold is calculated on a rolling 12 month basis so continual monitoring may be required
• Temporary breaches of the £85,000 turnover threshold will still result in mandatory compliance
What if my turnover is dropping?
Let’s take an example and say turnover to 31 March 2019 was £100,000 but the prediction is that turnover will not exceed £50,000 for the next 3 years.
Because the rolling 12 months exceeded the threshold at 1 April (and assuming a VAT quarter ends on 31 March) there is an ongoing requirement to complete returns via MTD and maintain digital records.
This continues whilst the business is VAT registered regardless of the level of future turnover.
What’s happening to Charities?
Charities with VATable income running through a Limited Company (often a Trading Subsidiary) are mandated from 1 April 2019 if the Company’s turnover from VATable supplies exceeds £85,000.
A Charity may have VATable supplies which do not run through a trading subsidiary and are part of the Charities activities in which case MTD is postponed until 1 October 2019.
For all Charities it is worth considering the Turnover threshold – remembering to ignore Exempt and Outside the Scope income
But surely there are some exemptions?
There are exemptions for businesses who can satisfy HM Revenue and Customs that:-
• Your business is run entirely by practicing 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;
- remoteness of location
- or for any other reason
• You are subject to an insolvency procedure.
If you think you may be eligible to apply for exemption please contact us so that we can advise you and, if appropriate, make a claim for exemption.
Please note that exemptions will not be available where VAT returns are submitted electronically by others on your behalf.
For an exemption to apply, the trader must be issued with a certificate of exemption from HMRC, failure to obtain one of these will mean that you are not exempt.
So what are the penalties if I chose not to comply?
There will be a new penalty system introduced specifically for MTD in due course.
In the meantime however the rules remain unchanged from the current penalty regime and HMRC has the power to issue several different types of penalties.
Penalties HMRC could issue include
• £500 for failing to comply with the record keeping requirements
• £400 per return for failing to submit via MTD when required
• £15 per day (for up to 100 days) for repeated failures to comply
Under MTD, HMRC have said that they would only seek to issue these under MTD if the trader has not, in their opinion, made a reasonable effort to comply with the new legislation.
Merely ignoring the need to change the way records are kept or VAT returns are submitted will result in penalties.
To avoid these please ensure you are ready for MTD.