With 24 working days until the 7 August deadline for quarterly VAT filings, new statistics and clarifications issued by HMRC have thrown more light on the exemptions process for Making Tax Digital. However, questions remain about the speed and clarity of the process.
Speaking at Sage’s London roadshow earlier this week, HMRC’s Verna Gellvear confirmed that as of 28 June the Revenue had received 2,300 applications for exemptions, with a net result showing 80% of these applications being allowed.
However, a significant number of these applications have been from businesses with turnovers under the £85,000 threshold that are already exempt.
Gellvear also ran through a number of key points and clarifications about MTD exemptions and the process. AccountingWEB has also spoken to readers and a number of accountancy bodies and has combined their insight with Gellvear’s points into an updated guide to MTD for VAT exemption criteria.
Gellvear told the Sage roadshow crowd that age is by far the most common point cited by callers asking about MTD exemptions.
According to Gellvear, age is not an exemption per se and the ICAEW reports that the Revenue has declined to specify a particular age for exemption: each case will be considered on its merits.
One AccountingWEB reader who contacted the site said: “I was fully expecting to advise one new client (in his early 70s) that we could try to get an exemption for him. However, it turns out he was one of the first software engineers in his time before he retired and became self-employed in a new industry. He was completely up for it!”
Section 3 of VAT notice 700/22 (the MTD for VAT notice) outlines that if a client cannot get internet access at their home or business premises, normally due to being in a remote location and it is “not reasonable” to get internet access at another location, then exemption on the grounds of location will apply.
However, an exemption will not apply to those who could obtain internet access but have chosen not to do so.
According to the ICAEW, HMRC accepts that it is not appropriate to use public computers (such as in a library) to comply with MTD.
Below the threshold
If a client is VAT registered but has turnover below the £85,000 threshold they are automatically exempt – there is no need to apply for an exemption.
If your client has an existing exemption from online filing for VAT, this will be carried over automatically to MTD for VAT. There’s no need to reapply.
The ICAEW’s guidance, put together with advice from HMRC, states that while an individual may often choose to rely on an agent or third party, they should not be compelled to do so, and applications should not be refused just on these grounds. This point is expanded upon in the AccountingWEB reader exemption refusals section below.
Where an individual cannot use a computer, tablet or smartphone for the amount of time it takes to keep digital records for the business, exemption on the grounds of disability will apply.
The business is subject to an insolvency procedure (more details in the VAT Notice)
If a client’s business is run entirely by practising members of a religion or order who do not use electronic communications or keep electronic records then they will be eligible for an exemption.
How to apply for a Making Tax Digital exemption
When MTD was first announced it was initially deemed that all exemption applications should be made in writing to HM Revenue and Customs - VAT Written Enquiries Team, Portcullis House, 21 India Street, Glasgow, G2 4PZ.
HMRC has since altered this after receiving feedback so taxpayers can apply by telephone via the VAT helpline (0300 200 3700).
However, as flagged by the ICAEW’s current issues for MTD page, given the fact that in May 2019 HMRC answered only 9% of calls to the VAT helpline within 10 minutes and failed to answer more than 58% of calls, writing may still be the better option.
Accountants have also reported that the VAT helpline is requiring some applications to be made in writing rather than on the phone.
What to include in your application
In a guide for AccountingWEB, the AAT’s Brian Palmer provides a handy list of what those contacting HMRC will need to provide when requesting an exemption:
- VAT Registration Number (VRN)
- Name and principal place of business
- Reason for the exemption request
- Details as to why it would not be possible to keep digital records or file an MTD-compliant return
- Details of how returns are currently file
- Any other reason preventing compliance with the rules for Making Tax Digital.
HMRC has confirmed to the ICAEW that while an application is being considered a business can continue to file their VAT returns as they do currently.
The Revenue will notify taxpayers in writing of its decision. Where the application is refused there is an appeals process, details of which will be in the refusal correspondence.
AccountingWEB reader exemption successes
Readers have been in touch with AccountingWEB to share their exemption stories, the process they went through and whether they were ultimately successful or not.
Anonymous got in touch with the site to write: “We have received an exemption from HMRC. I helped the client write it but she sent it. I advised that as she does her own VAT this was best - as using us might imply in some way that she could afford that option. So, the matters she covered in her letter:
- Poor profitability (to indicate a lack of ability to pay for extra services).
- Lack of computer skills (she only uses a computer for some orders and only bought one when VAT online filing was required)
- Age: she is 69.
- Lack of family to help: she is a sole trader but also has no direct family to help her out
“To be honest, I couldn't think of any more valid person to be exempted, so I am pleased it was agreed.”
AccountingWEB reader John Stone posted the following: “My client is 86 years old. He doesn't have a computer, tablet or a mobile device and never will. Each quarter he completes an old-style paper VAT return and sends it to me. I then type it into the HMRC portal.
“I first wrote to HMRC about this on 18 May 2018 and followed this up several times … Finally, I wrote again by Recorded Delivery on 11 February 2019 listing the dates of my previous letters (6) and telephone calls (4) … I received written confirmation of exemption on 8 March 2019. I guess that they were just sick of me.”
Kevin Ringer added: “In March I applied by phone for an exemption for an 82-year-old sole trader farmer who has never used a computer or smartphone. He phones the figures to us and we logged into gov.uk. I pointed out that phoning through figures and filing on gov.uk is practical but us digitising all his transactions would take hours so would not be reasonable. Two months later I received written agreement to the exemption.”
And finally, Sallyrichardson posted with a slightly more complex case: “I have a client who is about to go under the threshold and deregister (within next 3-4 months). They asked for exemption by letter but were told no. In the same letter, it was however pointed out to them that due to the soft landing period they wouldn't be fined if everything wasn't kept digitally in the first year. So in other words, we can't say you don't have to do it, but if you don't we won't fine you.
“Unclear about whether they would still be able to use the old portal, my client wrote another lengthy letter explaining how they currently kept their records, could they still use the old process etc. Got a reply by letter this week giving them a year's full exemption. I have asked to see the letter to double-check this is right, but think again the HMRC have just given in.”
AccountingWEB reader exemption refusals
While AccountingWEB’s readers may have had some success with exemption applications, they have also had a few failures along the way.
Homeworker reported on one case where HMRC refused their client: “We applied, on behalf of a non-computer literate pensioner with commercial lettings, on the grounds that it was not possible for him to keep digital records (he records everything by hand in a big analysis book). Of course, they have rejected the application because we can do it all for him!”
John Stone also posted about a similar case: “I claimed exemption on behalf of a client in his 70s, who has commercial lettings and is not computer literate but keeps his records in a handwritten ledger. It was refused on the grounds that we have been dealing with it up to now and can therefore continue to do so.”
Both these cases caught the interest of Caroline Miskin, technical manager at the ICAEW’s tax faculty.
“We had quite a lot of discussion with HMRC about whether an individual can and should be expected to rely on an agent or other third party (eg, friend or family member) to comply,” said Miskin.
“The outcome of those discussions was that while an individual will often choose to rely on an agent or third party, they should not be compelled to do so. HMRC should not be refusing applications solely on the grounds that a digitally excluded individual or business could or should rely on an agent or other third party.”
Finally, another anonymous reader sent details of a case with a relatively happy ending: “Client has plenty of evidence for an exemption, but software will help them control their business so moving to digital and making sure they have staff or advisers to help do this is the better answer than an exemption.
“They agreed and with a mix of their daughter and our services they have started to use a software solution.
“Personally, I think accountants have to not see this as a tick box exercise but look in a one-to-one meeting with clients, what best for each of them overall.”