The Government’s Making Tax Digital scheme going live has well and truly begun – on April 1 it will be mandatory for businesses with turnover above the VAT registration threshold (£85,000 a year in 2019) to maintain digital accounting records and file electronic tax returns.
But HMRC has just announced there may be exemptions for some small firms who meet specific reasons, and that satisfies HMRC.
You will not have to follow the Making Tax Digital rules where HMRC is satisfied that:
• 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; or
• Your business is run entirely by practicing members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.
The majority of customers meeting these circumstances will already be exempt from filing their VAT returns online. If an exemption from online filing for VAT already applies to you, it will continue to apply under MTD and you are under no obligation to sign up to MTD for VAT. In these circumstances you do not need to reapply for exemption.
HMRC recognises that some customers who are not already exempt from online filing for VAT may still qualify for an exemption from MTD. HMRC will consider exempting customers from MTD obligations only where it is clear that they cannot meet them.
Below are some examples of circumstances where an exemption may apply.
• Where it is not reasonably practicable for you because of location to keep your records digitally and update HMRC using digital tools. This could include residing in a location where you do not have internet access at home or at work and have no alternative options (via family/friends/a third party/public library), or to do so would cause undue hardship and be a burden (such as having to travel an excessive distance to obtain internet access).
• Where it is not reasonably practicable for you, because of disability, to keep your records digitally and update HMRC using digital tools. For example, if you have a disability that prevents you from using a computer /tablet or smartphone for the length of time and with the frequency it would take to keep digital records for your business (whereas you can more comfortably manage paper) and you do not have a local support network to support you in fulfilling your tax obligations.
Some examples of circumstances where an exemption may not apply:
• Where you believe you should be exempt purely on the grounds of age and/or unfamiliarity with relevant software. For instance where you currently file online for VAT and use a computer/tablet or other smart device (in any area of your life) or you use the internet for other purposes. In these circumstances it would not be unreasonable to expect you to learn to use an MTD software package or spreadsheet – which could be very simple - or to ask a friend or family member to help you to do so.
• You consider yourself to be a member of a religion whose beliefs prohibit the use of any electronics (i.e. a laptop/PC) but are currently filing online and use a computer or other smart device in day to day life or as part of your business.
• Exemptions will not be granted purely on the basis that effort, time and cost might be involved in making the transition to MTD for VAT (e.g. choosing and buying any new hardware or software or learning to use them).
If you think you meet the criteria and have a genuine claim for exemption you should contact the VAT Helpline on 0300 200 3700 (or for textphone: 0300 200 3719; or from outside the UK: +44 2920 501 261). Lines are open from 8am to 6pm Monday to Friday.
The helpline advisers will:
• discuss with you any additional support /assistance we can provide to help you make the digital transition ; and
• Consider your request for an exemption from the service.
HMRC will assess every case on its merits and will therefore expect you to demonstrate why you cannot comply with both elements of MTD:
i) why you are unable to use an online channel to submit your returns to HMRC and also
ii) why you are unable to meet the digital record keeping obligations for MTD. HMRC will then explore any alternative options that maybe open to you (e.g. a third party to use the service on your behalf).
If you are calling to make an application for exemption, you need to have the following information available;
• Your VAT Registration Number
• Your Business name and Principal Place of Business (PPOB)
• The reason for your exemption request
• Details about how you currently file your VAT returns
• If you currently file your returns online electronically, details about any/all changes that have occurred which would allow you to file on-line but not through software
• And/or If you currently file your returns online electronically, details about any/all changes that have occurred which would not allow you to meet your record keeping obligations.
• Any other reason why you can’t comply with your MTD obligations
Please note that an agent or friend or family helper can or may call to request exemption on behalf of a customer or client but should they do so they should be confident that they have a full understanding of a client’s circumstances in relation to the guidance and that they have obtained the necessary authority to act on their behalf as an agent /friend or family member.
In most circumstances HMRC would recommend that the customer calls themselves as they are likely to have the fullest understanding of what they are and are not able to do and how they engage with technology in other aspects of their lives.
Where HMRC are satisfied that they have all the necessary information and the above criteria are met, they will send you a written decision following your call to confirm you are exempt and will clearly set out your obligations. Where HMRC believe the conditions have not been met they will also send you a written decision stating this and setting how you can appeal should you wish to do so.
There may be some circumstances in which HMRC need to ask you to make your request in writing. In that case your letter should be sent to: HM Revenue and Customs - VAT Written Enquiries Team, Portcullis House, 21 India Street, Glasgow, G2 4PZ, United Kingdom. HMRC will aim to provide you with a written decision within 10 days from receipt of your letter.
Where requests for exemption from MTD obligations are granted, the business should not join MTD but instead continue to file their VAT returns through their existing channel, i.e. the VAT online portal.