MTD - Partial Exemption

Morory Registered Posts: 9
I work for a local charity, we offer free IT training for people in receipt of benefits, this is funded normally by ESF which is treated as exempt income. We also run a Nursery with Exempt Income. We are VAT registered and calculate partial exemption on a quarterly basis, via a spreadsheet inherited from the previous CEO (who was an accountant).
I understand MTD is to be done from April, however, I am unsure if we need to start this yet as our taxable sales is below the VAT threshold, but I do not want to get caught out. I contacted the VAT office last year and they said all eligible company's will receive letters in November 2018, we have not received a letter. They suggested to add up box 6 on VAT return for the year to get the annual turnover, however, I notice that this does include exempt tax. So I am not sure if this is correct. I do the accounts and bookkeeping as taught via the previous CEO, who retired a couple of years ago. We are now run by three managers who are not very familiar with accounts. We do have Company Auditors, who we see each year, but I fear they will charge a lot for something that may be simple.
I do feel I maybe overthinking lots of areas in this, but anxious to get it right, currently we use Sage, which does not handle partial exemption, hence the spreadsheet method. of which, we have been told is fine by our Auditors.
Any advice, Guidance or what to do would be greatly appreciated.
Many thanks


  • Aleem Islan
    Aleem Islan Registered, Moderator Posts: 5 mod
    I think you are right given:

    • VAT Notice 700/22 states, “With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold (currently £85,000) you must follow the rules set out in this notice.
    • The Value Added Tax (Amendment) Regulations 2018 refers to “the value of a taxable person’s taxable supplies”.
    • Box 6 includes “exempt supplies” (according to VAT Notice 700/12) which is not taxable so you are correct to question whether or not the advice you were given is correct.
    • To clarify “zero rated” supply is taxable as it is taxable at zero rate, but “exempt supply” is not taxable as it is outside the scope of VAT.

    Quite rightly, you are being cautious. You may want to write to HMRC and ask for written confirmation. In the event that the charity goes over the VAT threshold and given that you are using Partial Exemption and as you mention your software cannot handle this, you may want to apply for an exemption from MTD.
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