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Making Tax Digital Legislation

Implications for Owners

Overview

Owners whose racing interests are VAT registered and whose vatable turnover (principally prize money and sponsorship income) is greater than the VAT registration threshold (currently £85,000) will be required to comply with the new MTD legislation from April 2019 in relation to their VAT returns.

Once turnover in any 12-month period exceeds the VAT threshold then the requirement to comply with the legislation will be triggered and not fall away if turnover subsequently reduces. The calculation of the vatable turnover threshold is the same as that for VAT registration: i.e. if vatable turnover goes over the current registration threshold (£85,000) in a rolling 12-month period. This is not a fixed period like the tax year or the calendar year - it could be any period, for example the start of June to the end of May.

There are no exemptions or delays to the April 2019 deadline for those registered under the racehorse owners VAT scheme.

In simple terms this means that owners will either be required to use a VAT service such as that provided by Weatherbys (who will comply with the legislation on their behalf), or use a third party software provider to store data and communicate with HMRC electronically. There are many examples of these on the market, a link to a full list of compatible software providers is provided at the end of this paper.

Costs of meeting the legislation

The cost of the different service solutions varies, with the following being directional indications of cost rather than personal quotes:

Example service to collate information and file returns on an owner’s behalf:

· A ‘full service’ solution from Weatherbys for a sole owner:

  • £436 (1 horse) - £816 (6 horses) per annum
  • £90 p.a. for a racing account plus transaction charges

Example software packages for use by owners to store VAT information and file returns to HMRC digitally:

· FreeAgent – an online accounting solution:

  • Sole trader £190 p.a., Partnership/LLP £240 p.a., Ltd Company £290 p.a.

· Quickbooks – online accounting solution from £216 p.a.

· Xero – online accounting solution from £120 p.a.

· Quickfile – online accounting solution

  • Free for up to 1,000 ledger entries
  • £45 p.a. above 1,000 ledger entries

Source: Company websites as at February 2019

Extract from HMRC website:

VAT-registered businesses with a taxable turnover above the VAT threshold are required to use the Making Tax Digital service to keep records digitally and use software to submit their VAT returns from 1 April 2019.

The exception to this is a small minority of VAT-registered businesses with more complex requirements. As part of planning for the VAT pilot, HMRC continued to engage with stakeholders and listen to their concerns about business readiness for Making Tax Digital. We have made the decision to delay mandation for these customers until 1 October 2019 to ensure there is sufficient time to test the service with them in the pilot before they are mandated to join - see the timeline below.

Making Tax Digital for VAT timeline

Date

Activity

October 2018

Open to sole traders and companies (except those which are part of a VAT group or VAT Division) provided they are up to date with their VAT. Those who trade with the EU, are based overseas, submit annually, make payments on account, use the VAT Flat Rate Scheme, and those newly registered for VAT that have not previously submitted a VAT return, are unable to join at this point. Those customers with a default surcharge within the last 24 months will be able to join the pilot by the end of October 2018.

Late 2018

Private testing begins with partnerships and those customers that trade with the EU.

Late 2018/early 2019

Open to other sole traders and companies who are not up to date with their VAT, users of the Flat Rate Scheme and businesses newly registered for VAT that have not previously submitted a VAT return.

Early 2019

Open to partnerships and those customers that trade with the EU.

Spring 2019

Pilot open for Making Tax Digital customers that have been deferred.

April 2019

Making Tax Digital mandated for all customers (except those that have been deferred).

October 2019

Making Tax Digital mandated for customers that have been deferred. The 6-month deferral applies to customers who fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

HMRC listing of software for VAT available now

HMRC have a list of all current software packages that meet their MTD requirements here.

This list includes bridging software, a digital tool that:

  • connects software to HMRC systems
  • allows you to digitally report VAT information to HMRC
  • allows HMRC to send information to you digitally 

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