New guidance on MTD exemptions

HMRC has clarified when exemption from Making Tax Digital for VAT is automatic and when you need to apply. What’s the full story?

Automatic exemption. HMRC’s latest guidance on Making Tax Digital for VAT (MTDfV) confirms that some businesses have automatic exemption. If your taxable turnover for the previous twelve months totalled less than the registration limit (£85,000) or you’re already exempt from filing your returns online, you’re exempt from MTDfV without having to apply to HMRC.

Need to apply. To be exempt for another reason you will have to satisfy HMRC that it’s not reasonably practicable to use approved “functional software” to keep your business records or submit VAT returns. Possible reasons are age, disability, remoteness of location, your business is insolvent or your religion. HMRC will consider other reasons.

Age and other factors. If you intend to claim exemption because of age, HMRC has confirmed that there’s no upper limit, but you must show that you cannot reasonably be expected to use approved software. On disability, HMRC says you have a case if you can’t use a computer, tablet or smartphone for as long as it would take to keep your business records digitally. On the location test, if you can’t get Internet at home, at your business, or other suitable location, you may qualify for an exemption. Each application will be looked at in its own right.

Cost is not a factor. HMRC expects you to accept any additional time, effort and cost it takes to comply with MTDfV. You won’t get an exemption just because you have to buy new hardware or software.

Application process. You can apply by post or by phone, and if you’re turned down, you can appeal. Even if you phone, you may still have to put your case in writing

Tip. You can get your accountant to apply for you, but HMRC indicates that you might be better off doing it yourself.