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What is a complex business under HMRC's Making Tax Digital scheme?

With HRMC’s Making Tax Digital deadline(s) approaching fast, we thought it would be a good idea to look at what HMRC means when they consider a business “complex” (in turn, complex enough to give some businesses a 6 month delayed deadline until October 2019).

When will the Making Tax Digital scheme begin to affect my business?

You might have read about HMRC's Making Tax Digital initiative and the timeline planned for it. If you're not caught up, then we'll quickly go over what it's supposed to look like for the coming year (and slightly beyond):

Deadline Criteria
1st of April 2019 Rollout for all business over the current VAT threshold (£85,000)
1st of October 2019 Rollout for "complex" businesses (6 month deferral)
1st of April 2020 Rollout for Income and Corporation tax (possibly also VAT for all businesses VAT registered). Further details yet to be given.

So what exactly is a "complex business" under Making Tax Digital?

When HMRC initially announced their plans for the Making Tax Digital scheme back in 2015, they asked for feedback from businesses and accountants so that they could create a system that was easy to follow, intuitive, and so that everyone was aware of what penalties would be in place.

HMRC has said that they consider any business with the following criteria complex enough that the deadline for them has been delayed six months until October 2019:

  • Local authorities
  • Traders based abroad (overseas)
  • Businesses that needs to make payment on an account
  • Non-profit organisations that aren't set up as a company
  • Public corporations
  • Any entities in the public sector that need to give HMRC additional information on their VAT returns
  • Trusts
  • Businesses on the VAT Annual Accounting Scheme
  • VAT divisions (a business with two or more branches, departments, or business addresses that both serve different business functions)
  • VAT groups (where two limited companies are under the same control e.g. if one is a subsidiary and the other is a parent company)

HMRC's reasoning for the delay in Making Tax Digital deadline for these particular businesses comes down to the fact that their tax affairs are more complicated than other business and therefore they'd like to allow more time to prepare them for the scheme.

How do I know if my business is considered complex by HMRC?

If you're a business that has been granted the 6 month delay before Making Tax Digital affects you, then you should have received a letter directly from HMRC outlining that MTD begins to impact you on the 1st of October rather than the 1st of April. Once you've gotten this letter, you should hold onto it and keep it in a safe place.

If your business should be deferred, but you're yet to receive a letter, then you need to contact HMRC as soon as possible via the VAT helpline set up. The same applies if you feel that your business qualifies for a deferral for MTD until the October deadline. HMRC will let you know their decision for whether you qualify or not.

Making Tax Digital and Debitoor

Debitoor has been approved as Making Tax Digital software compliant by HMRC, which means that you'll be able to report your VAT directly from the 1st of April 2019 on plans that offer the VAT reporting feature.