On 5 March 2019, HMRC updated VAT Notice 700/22, which sets out the rules for Making Tax Digital (MTD) for VAT, to include a new section concerning exemptions.

From 1 April 2019, businesses (other than certain complex businesses and those benefiting from an exemption) with taxable turnover above the VAT registration threshold must use HMRC’s MTD service to maintain records digitally and use software to submit their VAT returns.

The updated guidance confirms that a business will only be exempt from using the MTD service if HMRC is satisfied that either:

  • it is not reasonably practicable for a business to use digital tools to keep business records or submit returns
  • the individual or their business is subject to an insolvency procedure, or
  • the business is run wholly by members of a religious society whose beliefs are incompatible with the use of electronic communications and records.

To determine whether one of the above exemptions applies, HMRC will consider factors including, the impact of a person’s age or disability, the extent to which a person uses electronic software for other purposes. HMRC will not grant an exemption solely on the basis that complying with MTD will involve reasonable effort, time and cost.

To claim an exemption, a business must call or write to HMRC and provide the information specified in the updated guidance. Until HMRC’s written decision is received, businesses should continue to file VAT returns in the usual manner. Businesses that are already exempt from making online VAT returns, or whose turnover is below the registration threshold are not required to apply for an exemption.

A copy of VAT Notice 700/22 can be viewed here.