Making Tax Digital VAT exemption

Making Tax Digital VAT: are there exemptions?

3 min read

Heard about HMRC’s new Making Tax Digital (MTD) legislation? Wondering if it’s something you need to comply with or if your business is exempt? Keep reading this summary of what HMRC have said on the matter to make sure you’re fully in the know.

Already exempt from online VAT submission?

If your business is already free from having to file a VAT return online then it’s good news. HMRC have said “exemptions from MTD for VAT are the same as those that are already in place for online filing for VAT”. However, if you haven’t checked your exemption status for a while then you should do so now.

Exempt products and services?

There are some products and services which are exempt from VAT. If your company only trades in these areas, your business will be classed as VAT exempt. Note that if you are VAT exempt it means you won’t be able to register for VAT on purchases or sales, or reclaim any VAT on your business purchases or expenses.

Products and services where VAT is not charged include:

  • Insurance, finance and credit.
  • Education and training.
  • Fundraising events by charities.
  • Subscriptions to membership organisations.
  • Selling, leasing and letting of commercial land and buildings (although this exemption can be waived).

For more details on products and services where VAT is not charged visit the government’s online guide.

What is partial exemption?

There are various ways in which a business can be classed as partially exempt from VAT. For example, you’ll be partially exempt if your business buys or sells goods or services that the government classes as VAT exempt, but you also sell products which are subject to full or reduced VAT payments.

There are a few things you need to bear in mind if you are classed as partially exempt:

  • You can’t reclaim VAT you pay on goods and services that aren’t for business purposes. If your company buys something for both business and personal use, then you’ll need to split the VAT accordingly using your partial exemption method.
  • If your company makes both taxable and exempt supplies, it’s your responsibility to keep separate records of your transactions. This is to make sure that you pay the correct amounts of VAT on each.
  • Any exempt supplies should be recorded as such in your quarterly VAT return alongside your VAT taxable supplies.

The difference between exempt and 0% VAT

There are some products and services that have a VAT rate of 0%. If you’re a supplier of zero-rated goods, you should still register for VAT. Any costs incurred by your business can still be reclaimed for VAT. However, if your company is exempt from VAT, because it trades in products and services where VAT is not charged, then it can’t reclaim VAT on costs.

How to apply for VAT exemption

If you think you meet one of these exceptions, contact the VAT Helpline to get confirmation.

Once you’re sure you are VAT exempt use the VAT1 registration form available from the VAT forms page of the Gov.uk website.

When it comes to paying your business’s VAT, work out a system for managing payments. That way you can make sure nothing comes back to haunt you. It makes sense to do your research early to make sure you’re claiming all the allowances you possibly can. Finally, always be aware of how your decision can impact both your customers and suppliers.

Of course, effective accounting software will get you ready for MTD in April 2019 and help you keep on top of your records regardless of whether you are VAT exempt or not.

Find this article about VAT exemption useful? Did you know our QuickBooks Blog covers a wide range of business-related topics designed to help you grow and develop your business?

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