Making tax digital: HMRC allows more farms to trial system

Farm businesses who are set up as a partnership can now trial the Making Tax Digital for VAT scheme after HMRC expanded the pilot program to include them.

Sole traders and companies have already been able to participate in the scheme since October 2018.

From April 2019, all businesses with an annual turnover in excess of £85,000 will have to submit their VAT returns electronically using HMRC-approved software.

See also: Changes to submitting VAT in 2019: What you need to know

They will not be able to calculate their VAT returns using a paper-based system and submit them using the Government Gateway website.

The trial phase is in operation to allow businesses, software companies and HMRC to test their systems for readiness.

However, once a business enters the trial it will not be able to return to submitting VAT returns by the current Government Gateway system between now and April.

Many businesses are not yet ready for the transition, with business software company Advanced reporting that 57% say they will be ready, 8% will not be and 35% did not know – suggesting they haven’t yet investigated the issue.

Information available

A series of HMRC YouTube videos with more information to help business owners prepare for the changes can be viewed below.

There is also more information available on the HMRC website on how to apply to join the trial and which software suppliers have been approved to participate in the new system.

When do the Making Tax Digital rules apply to your business?

The following information comes from HMRC guidelines:

The Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019.

A ‘VAT period’ is the inclusive dates covered by your VAT return.

Example 1: Existing business with taxable turnover above the VAT registration threshold on 1 April 2019

A business submits a quarterly return covering the period 1 March to 31 May 2019.

The business taxable turnover exceeds the VAT registration threshold and therefore the business will need to comply with Making Tax Digital rules for the period starting 1 June 2019.

Example 2: Business with a taxable turnover above the Making Tax Digital threshold at the point they need to register for VAT

A business that is not registered for VAT is required to register from September 2019 because the taxable turnover over the previous 12 months has exceeded the VAT registration threshold.

The business must follow the rules in this notice for all VAT returns they are subsequently required to make as their taxable turnover was above the VAT threshold when they were required to register.

Example 3: VAT-registered business with taxable turnover below Making Tax Digital threshold until November 2019

A business is registered for VAT but its taxable turnover is below the VAT registration threshold until November 2019.

The business must follow the rules in this notice for any VAT period that starts on or after 1 December 2019 as its taxable turnover now exceeds the VAT registration threshold.

Opting out

Businesses who are not currently submitting their VAT returns online using the Government Gateway will not be obliged to do so and will not have to do anything to maintain their non-digital status.

The government body has also indicated that it will not expect all those who are using the current digital system to be able to cross over to the new system.

It said exemptions may potentially be given if it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason.

HMRC has said anyone wishing to discuss this further should contact the VAT helpline, but users have reported a frustrating experience to Farmers Weekly with no dedicated Making Tax Digital section of the telephone navigation system.

One farmer said that he had been told by HMRC staff the exemption criteria were “still up in the air” and had been asked to apply for exemption by post, a service that HMRC are warning is subject to a high volume of enquiries, with replies likely to take up to 15 days.

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Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

Find out more