Charities are not exempt from Making Tax Digital for VAT, says Charity Tax Group

Despite HMRC announcing that charities will be exempt from its Making Tax Digital (MTD) scheme, they have clarified to the Charity Tax Group that this does not actually apply to VAT.

Earlier this year HMRC said that charities would be exempt from MTD although their trading subsidiaries would not, but according to the Charity Tax Group, HMRC said in a recent meeting that this exemption only applies to corporation tax, not VAT returns.

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MTD is the government’s digital taxation project that aims to make tax administration more effective, efficient and easier for taxpayers by moving their tax accounting online and replacing the traditional annual tax return with quarterly reports.

By April 2019 all charities and their subsidiaries with a turnover above the VAT threshold (£85,000) will have to keep digital records for VAT purposes. There are reportedly more than 40,000 charities in the UK who will have to comply with the scheme. Charities will need to purchase digital software which is compatible with MTD but HMRC has not given any indication of how much it could cost.

This means that tens of thousands of charities across the UK will have to file digital tax returns from 2019, at cost of many million pounds. Previous estimates of costs for filing returns with HMRC have found that charities would have to pay at least £100 a year, and larger charities much more. The cost is therefore likely to be several million pounds.*

More information can be found on the Charity Tax Group website, although there has been no official announcement from HMRC on the topic.

Even though more detail is still awaited, it seems likely that MTD will require charities and their subsidiaries to make major changes to the way they deal with their finances. Now is the time for charities to start planning for the transition by reviewing current accounting processes and considering the digital solutions available that are compatible with MTD. An increasing number of our clients are asking us about which MTD compliant cloud-based accounting software to choose and we can provide this information alongside training, business advice and follow up support.

MTD for corporation tax has been deferred to an undetermined future date.

If you have any questions or concerns about Making Tax Digital, please contact our charities team.

*Civilsociety.co.uk

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business