HMRC sets out exemption process for Making Tax Digital for VAT

HMRC has issued updated guidance outlining the situations in which businesses and individuals can receive exemption from Making Tax Digital, although Low Incomes Tax Reform Group (LITRG) is warning that VAT registered individuals and businesses have little time to apply for an exemption

HMRC has outlined that VAT registered businesses and individuals will not have to file digitally come 1 April 2019 if it is not practicable to use digital software to keep records and file VAT returns due to age, disability or remoteness of location; if the business is subject to an insolvency procedure; or if the business if run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

Businesses below the VAT registration threshold of £85,000 are automatically exempt from Making Tax Digital and therefore do not need to apply for one with HMRC.

Businesses and individuals will receive exemption if it is not practical to keep records digitally because:

  • of location - for example if they cannot get internet access at their home or business premises and it is not reasonable for them to get internet access at another location; and
  • of a disability - for example if they cannot use a computer, tablet or smartphone for the frequency amount of time it takes to keep digital records for their business.

Exemption may not be granted if:

  • individuals believe they should be exempt purely because of their age - HMRC will consider how age and circumstances impact ability to follow the rules for Making Tax Digital;
  • individuals believe they should be exempt because they are unfamiliar with the relevant software - HMRC will take into account how much they use or intend to use a computer, tablet smartphone or the internet for other purposes and whether it is reasonable for them to learn how to use Making Tax Digital software; and
  • individuals consider themselves to be a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications - but they are currently filing online and use a computer or smart device for business or personal use.

The guidance states: ‘HMRC will not give you an exemption purely on the basis that reasonable effort, time and cost may be involved in making the transition to Making Tax Digital, for example choosing and buying any new hardware or software or learning to use them.

‘HMRC will however take effort, time and cost into account in its overall assessment of whether it is practical for you to follow the rules for Making Tax Digital.’

Exemption may also be granted if a tax adviser or accountant stops supporting an individual and the individual believes they will not be able to correctly file without their accountant’s or advisers support.

How to apply for exemption

To apply for an exemption, individuals will have to call or write to HMRC’s VAT: general enquiries.

They will need to have:

  • VAT Registration Number;
  • business name and principal place of business;
  • reason for exemption request;
  • details about how they currently file VAT Returns;
  • the reasons why they would not be able to file returns through software or keep digital records; and
  • any other reason why they cannot follow the rules for Making Tax Digital.

LITRG is warning that the time frame for applying for an exemption is short as Making Tax Digital for VAT becomes mandatory from 1 April 2019.

Head of LITRG team Victoria Todd said: ‘We are very disappointed that HMRC have only just been able to provide detailed information for the public as to how exemption from Making Tax Digital for VAT may be obtained.

‘Those with VAT quarters beginning on 1 April 2019 will have little over a month to decide whether they have grounds for exemption and make an appropriate claim. It is unlikely that someone who is denied an exemption will now have sufficient time to either challenge the decision or get themselves ready to go digital by 1 April 2019.’

VAT Notice 700/22: Making Tax Digital for VAT is here. 

Report by Amy Austin

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