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What is Taxable Turnover for Making Tax Digital?

Taxable Turnover for MTD

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I have been getting mixed messages from different sources and am hoping someone on here can give me clarity!!

I have a client with a gross turnover of £86000 so has become Vat registered. However the taxable turnover excluding VAT is £71667. Do they have to register for MTD? It is highly unlikely that gross turnover will drop below £83000 and is also not likely to rise above £90000, so actual annual taxable (for self assessment) turnover will always be less than £85000.

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By Duggimon
19th Aug 2019 11:39

Assuming your client is not going to charge his customers the VAT, i.e. up his gross prices by 20%, he will not have to be registered for MTD.

If he is happy to forego the VAT element and accept £71,667 as his turnover, he doesn't need to be registered for VAT either. The apparent discrepancy in registration thresholds is down to the treatment of VAT as a charge on the business rather than a charge on the customer.

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Replying to Duggimon:
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By Wanderer
19th Aug 2019 11:55

Duggimon wrote:

If he is happy to forego the VAT element and accept £71,667 as his turnover, he doesn't need to be registered for VAT either.

Only if he drops his prices so gross turnover is going to be below £83,000. Even then he'll have to go through the motions to get HMRC to accept this as an exception.

Op based on the facts you have presented my view is that your client will need to be registered for both VAT and MTD.

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Replying to Duggimon:
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By Wiganer Elaine
19th Aug 2019 11:55

Thanks for the clarity!

Unfortunately he can't deregister - he has a mix of Zero and Standard sales which means he will always be above the vat registration threshold but supplies excluding vat are always below £85000!

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By DouglasN
19th Aug 2019 14:33

From the details provided, it appears that where the client is VAT registered he is going to effectively absorb the VAT cost himself by not passing the 20% on to the customer (presumably where his customers are not VAT registered to recover it). Is this the intention?

Normally, if his taxable turnover is £86k before VAT registration, then after registration his taxable turnover should still be £86k, to which he adds 20% VAT.

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Replying to DouglasN:
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By Wiganer Elaine
19th Aug 2019 16:36

[quote=DouglasN]

From the details provided, it appears that where the client is VAT registered he is going to effectively absorb the VAT cost himself by not passing the 20% on to the customer (presumably where his customers are not VAT registered to recover it). Is this the intention?

It's a very small business with a mix of Zero & Standard rated sales. The customers are not vat registered, so yes, the standard sales cannot be increased by 20%

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By tonycourt
19th Aug 2019 16:13

What does the non-taxable turnover relate to?

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By fawltybasil2575
19th Aug 2019 17:02

@ Wiganer Elaine (OP).

(i) Per your initial question:-

"I have a client with a gross turnover of £86000 so has become Vat registered. However the taxable turnover excluding VAT is £71667".

(ii) (a) Per your post at 11.55:-

"Unfortunately he can't deregister - he has a mix of Zero and Standard sales".

(b) Per your post at 16.36:-

"It's a very small business with a mix of Zero & Standard rated sales".

I have difficulty in reconciling (i) with (ii), given that £71,667 plus VAT at 20% (£14,333) = £86,000.

Am I missing something ?

Basil.

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Replying to fawltybasil2575:
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By Wiganer Elaine
20th Aug 2019 10:41

Yes Basil, the total has not been split between zero and standard sales.

It was easier to just assume vat at 20% on all sales merely to try and get my point across ie the total gross sales are over the vat threshold but when you deduct the vat the taxable sales are below the threshold. Hence the question, do they still have to register for MTD!

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Replying to Wiganer Elaine:
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By tonycourt
20th Aug 2019 11:06

I can't follow your figures - if your client's taxable turnover are below the registration limit why does he have to be registered? That's why I asked what the non-taxable turnover related to.

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Replying to tonycourt:
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By Wiganer Elaine
20th Aug 2019 12:15

Tony,

Client's turnover (a mix of zero and standard sales) reaches £86000. Therefore they are vat registered. The standard sales are not increased by 20%, the customers are "people in the street". Therefore the £86000 is vat inclusive and borne by the client. When you deduct the output vat, taxable sales are below £85000. So the client has to be vat registered but do they have to register for MTD?

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Replying to Wiganer Elaine:
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By tonycourt
20th Aug 2019 12:45

I see. I was confused by the terminology you used.

EDIT -
As Duggimon says

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Replying to Wiganer Elaine:
By Duggimon
20th Aug 2019 12:37

The client doesn't have to be VAT registered at all, provided that when he deregisters he stops charging people the VAT element of his gross sales.

If he intends to immediately increase his standard rated sales by 20% on deregistration, then he needs to remain registered.

Stop looking at it like your client and recognise that his sales values are wildly fluctuating because he's considering sales and sales + VAT to be the same thing when they're not.

Once you get your head round it it's clear why the answer is that he has to be VAT registered but not registered for MTD.

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