How will you know whether you are obliged to start submitting your VAT returns using MTD-compatible software? The simple answer is: HMRC should tell you. HMRC is planning to write to all VAT registered businesses who are required to enter the MTD regime, probably in the Autumn of this year.
The MTD for VAT notice (700/22) tells us: “With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold you must follow the rules set out in this notice.” We know the VAT registration threshold is currently £85,000, but the VAT notice fails to specify what turnover and what for period it should be measured for MTD.
The VAT regulations are more precise: the turnover to be measured is VATable supplies, which are all sales subject to VAT including zero-rated sales. The period to measure is the rolling 12 months up to the end of the month before the current month. Taken together these are the same tests as for VAT registration, except for MTD there is no forward-looking test of supplies to be made in the next month.
This means that where a business has registered for VAT voluntarily, and its turnover is under £85,000, it will have to check its cumulative turnover every month to see if it must enter the MTD regime from the beginning of its next VAT period. However, once within the MTD regime there is no escape, unless and until the business deregisters for VAT.
The VAT notice is misleading at para 2.1 where it says “Only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital.” This is incorrect as the turnover test for MTD only comes into effect from 1 April 2019. Say a business is VAT registered because its turnover was £80,000 in 2013, when the VAT registration threshold was £79,000. If its turnover is still £80,000 and it is still VAT registered, it doesn’t have to enter the MTD regime.
Written by the Tax Advice Network