Are you exempt from the new Making Tax Digital rules?

Making Tax Digital (MTD) is being introduced in April 2019 and we have been making a song and a dance about it to ensure all of our clients are properly prepared.

You may have read our previous article where we talked about how not being ready could cost your business thousands in penalties and interest. Yes, it is that important. Read on to find out whether you are exempt from the new rules.

Logo of Making Tax Digital

Are you automatically exempt?

Businesses with an annual turnover of under £85,000 are automatically exempt from the Making Tax Digital rules… even if they are VAT registered. The guidelines state “only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital”. This statement is slightly deceptive and more complicated than meets the eye.

First, let’s make sure that you understand the phrase ‘taxable turnover’. Taxable turnover refers to all sales subject to VAT including zero-rated sales, but not exempt sales.

Here’s an example of how it might work in practice: in 2013 the VAT registration threshold was £79,000. If your taxable turnover in that year was £80,000 then you will have been VAT registered. However, if that annual turnover remains £80,000 by the 1stApril 2019, even if that business is still VAT registered, they don’t need to enter the MTD regime because the threshold has increased to £85,000 (and will be frozen here until April 2020 at least). This case demonstrates that just because you are VAT registered does not mean you will not be exempt.

This business could continue to submit their VAT returns as they do now, either by inserting the figures directly online with HMRC or through accounting software.

The business in this example could enter the MTD regime if they wished to. All they would need to do is tell HMRC before the start of the period for which they will report under the new rules.

Keeping an eye on turnover

You see, for both the VAT registration test and the MTD entry text, the business must keep an eye on its taxable turnover for the last 12 months. However, there is no fixed 12 month period, such as the calendar year, the company’s financial year or even the tax year. Instead, all businesses should keep a rolling 12 month sales figure to determine when they hit the threshold.

For example, if you hit the threshold in mid-November 2018, you need to register for VAT from the 1st January 2019 and charge supplies from 1st January onwards. (There are no respective implications for November or December).

The rules are that you have 31 days to register from the month end when you passed the threshold.

Once you are required to register for MTD, you can’t opt out whilst you are VAT registered. Businesses can only leave MTD when they deregister for VAT.

What to do if you are not exempt?

The good news for our clients is that we have been talking to you about these changes for a long time. Hopefully you feel thoroughly prepared and you’ve not been left scratching your head after reading the above information!

HMRC are planning to write to all the VAT registered businesses who it believes will be required to enter the new MTD rules – they will likely choose who to write to by looking at the turnover reported in your VAT returns for the last year. If you are our client, we have already got in touch with you to talk about this.

However, we know that there will be many small businesses out there perplexed and confused by the new regulations. You are trying to prepare and check whether you are exempt by reading articles like this, but you’re not sure what to do.

This is where our accountancy services could really benefit your business. Take the pressure off your own back and allow our team to take care of you… and help your business grow. We are specialists and our passion is to free up business leaders and entrepreneurs so that they have time for both their business and the rest of their life. It doesn’t need to be this complicated for you.

Don’t let all the rules and complicated jargon hurt your head!

Please get in touch with us today for more information on how we can help you comply with the Making Tax Digital rules.



If you could benefit from an accountant that gives you more than just numbers,
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