What counts as VAT Taxable Turnover under the switch to ‘Making Tax Digital’?

At Giltinan and Kennedy, the team have been busy preparing for the switch to HMRC's 'Making Tax Digital' (MTD) – ensuring software is MTD compatible and focusing on any related client issues, such as what counts as VAT taxable turnover.

We've had countless questions from clients about how the change next April will impact them and their business, especially VAT-registered organisations because they will be the first affected.

Much has been written about the modernising of the UK's taxation system, which by 2020 will see the end of the traditional tax return. In a nutshell, it is designed to make tax administration more efficient and easier for customers to comply.

Because of some concern over the speed of the switch, MTD is now being introduced in phased stages. The first businesses will be using the new system to meet their VAT obligations from April 2019, with non-VAT registered businesses and the self-employed following suit.

Of course, many businesses already file their tax returns online, but they will need to ensure they are using MTD-compatible software for the April 2019 implementation. We can help with this by ensuring that the right Application Programme Interface (API) is used.

How will this affect you if your business is registered for VAT?

From April 2019 HMRC states that it will be mandatory for any VAT Registered business which has a taxable turnover above the VAT registration threshold (currently £85,000) to keep their records digitally and send their VAT returns using MTD compatible software. They must also follow the Making Tax Digital (MTD) rules.

This will apply to businesses which have a turnover above the VAT threshold - the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

It's important to be aware that if your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019 you are still required to continue to keep digital records and to send HMRC your tax returns using MTD-compatible software. This obligation doesn't apply if you de-register from VAT or if you are exempt from MTD for VAT.

What is included within “taxable turnover”?

Taxable turnover for MTD is the same as taxable turnover for VAT registration purposes. It is the total value of everything you sell that isn't exempt from VAT.

You must register for VAT with HMRC if it goes over the current registration threshold in a rolling 12-month period. This isn't a fixed period like the tax year or the calendar year - it could be any period, for example the start of June to the end of May.

The current threshold is £85,000. It usually goes up on 1 April each year. There are different thresholds for buying and selling from other EU countries.

We've included a brief checklist below and HMRC's VAT Notice 700/22: Making Tax Digital for VAT is explained fully here.

VAT taxable turnover checklist

To check if you've gone over the threshold in any 12-month period, add together the total value of your UK sales that aren't VAT exempt, including:

• goods you hired or loaned to customers
• business goods used for personal reasons
• goods you bartered, part-exchangedor gave as gifts
• services you received from businesses in other countries that you had to 'reverse charge'
• building work over £100,000your business did for itself

Also include any zero-rated items - only exclude VAT-exempt sales, and goods or services you supply outside of the UK.

Based near Horsham, West Sussex, Giltinan and Kennedy LLP is regulated by the Institute of Financial Accountants (IFA) and is proud of its reputation for providing excellent advice and first class service to its range of business and personal clients. It has clients in the local community and service businesses, small and large, across many sectors. 

For a chat about how the MTD changes could affect your business get in touch here