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  • Paul Clifton

Exemptions from Making Tax Digital for VAT

Updated: Oct 30, 2020

Apply for an exemption from MTD for VAT because of age, disability, remoteness of location or religion

HMRC have finally confirmed when an exemption from Making Tax Digital for VAT (MTDfV) is given automatically and when you when you will need to apply.

Automatic exemption

HMRC expect that most businesses will be able to meet their legal obligations under Making Tax Digital. However, they accept that for a small number of businesses that it may not be possible. If your taxable turnover for the previous year is less than the registration limit of £85,000 then you are automatically exempt from filing your returns online through the MTD system.

Apply for an exemption

All other businesses will have to satisfy HMRC that it is not reasonably practicable to use approved ‘functional software’ to keep their business records and submit their VAT returns. Some example reasons given are because of age, disability, remoteness of location, insolvency or your religion.

Believe it or not, some businesses are run entirely by practising members of religious societies or orders whose beliefs are incompatible with using electronic communications or keeping electronic records. HMRC will consider other reasons.

Exemptions and other factors

To claim exemption based on your age, HMRC have confirmed that there is no upper limit. However, you must show that you cannot reasonably be expected to use approved software.

With respect to disability, HMRC say that you need to consider if you cannot use a computer, tablet or smartphone for as long as it would take to keep your business records digitally.

For location, if you cannot get the Internet at home, your business or other appropriate locations then you may be eligible for an exemption.

Apparently, cost of computers and software etc is not a relevant factor. HMRC expect you to put in the required time, effort and resultant to comply with the MTD requirements. You cannot claim the exemption just because you will have to buy a new computers and MTD software.

Applying for an exemption

You can apply by post or by telephone. If HMRC reject your application then you can appeal. You may still need to put your application for exemption in writing, even if you call to make a claim.

Automatic exemptions only apply if your turnover is less than the registration limit or you are already exempt from online filing. HMRC will consider other reasons which stop you from using MTD software to maintain your accounting records and file your VAT returns through software.

Section 3 of the HMRC VAT Notice 700/22: Making Tax Digital for VAT gives more information.

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