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Academies and Making Tax Digital (MTD)

Making Tax Digital first applies to all VAT registered businesses or organisations that have taxable turnover in excess of the VAT registration threshold (currently £85,000).

This article will help you help you assess whether:

Your academy is caught by MTD, and
If you are caught whether you qualify for the 6 month deferral.

Taxable Turnover

For the purposes of Making Tax Digital for VAT, Taxable or ‘VATable’ turnover is the total of:

  • Standard rated (20%); and
  • Zero rated (0%); and
  • Reduced rated (5%) income

Please note that zero rated is not the same as exempt or outside of the scope. Both exempt income and outside of the scope income are excluded from the calculation of taxable turnover for MTD for VAT.

Please see the attached for a list of VATable income streams. The grants from the ESFA are outside the scope of VAT due to a dispensation (S33B).

Remember you cannot use the S126 return if your VATable income exceeds the VAT threshold (£85,000).

The government have announced a list of businesses which are exempt:

  • Your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers)
  • It is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason
  • You are subject to an insolvency procedure

It is unlikely that any academy will be able to use any of these exemptions above.

The government has also announced a list of reasons that businesses can defer MTD

Those that do qualify will have to comply for VAT returns commencing on or after 1 October 2019 instead of the on or after 1 April 2019.

The reasons are as follows:

  • Trusts

Although academies use the term ‘trust’ or multi academy ‘trust’ HMRC do NOT classify them as trusts. Instead academies are Limited Companies (Limited by Guarantee) and have charitable status with the ESFA (Education & Skills Funding Agency) acting as the regulator.

  • Not for profit organisation that are not companies (this includes some charities)

Academies are Companies Limited by Guarantee so this is not applicable.

  • VAT divisions

Very unlikely to be applicable to academies

  • VAT groups (the deferral applies to the entities included within a VAT group rather than just because there is a group)

Some academies have trading subsidiaries which are part of a VAT group. These would qualify for the deferral.

  • Public sector entities that are required to provide additional information alongside their VAT return (such as Government departments and NHS Trusts)

Not applicable to academies

  • Local authorities and public corporations

Not applicable to academies

  • Traders based overseas

Not applicable to academies

Those required to make payments on account

Very unlikely for academies as they are usually in a repayment situation.

  • Annual accounting scheme users

Not applicable for academies

Trading subsidiaries

If your trading subsidiary turnover exceeds the VAT threshold (currently £85,000) then this will be caught in its own right, unless it forms part of a VAT group and qualifies for the deferral above.

In most cases HMRC have written to those businesses which it believes should be deferred. If you believe you should be deferred or are still not sure then we recommend you contact the HMRC VAT helpline to confirm.

To find out how to sign up for MTD click here:
HMRC- how to sign up for MTD

To find out what software is available click here:
MTD compatible software and bridging

Page updated 7 February 2019

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