From 1 April 2019, businesses with a ‘taxable turnover’ above the VAT registration threshold must follow the rules set out by the Government’s Making Tax Digital initiative. So what exactly is included in ‘taxable turnover’?
HMRC states that the taxable turnover for Making Tax Digital is the same as for VAT – and is ‘the total value of everything you sell that is not exempt from VAT’. However, the advice can seem confusing, so we’ve provided some explanation below.
What’s included in taxable turnover?
- The net value of standard-rated, reduced-rated and zero-rated supplies of services and goods (note that sales of goods from stock held in the UK is UK turnover even if the sale is a zero-rated export or zero-rated supply to a VAT-registered business in another member state).
- Reverse charge services from overseas businesses that would be standard-rated, reduced-rated or zero-rated if made in the UK (see VAT Notice 741A).
- Self-supplies of construction services (see VAT Notice 708) – where a company uses its own labour for its own use with a value of £100,000 or more.
What’s not included in taxable turnover?
- Goods or services that are made in the UK and classed as exempt supplies, and also reverse charge services from overseas businesses that would be exempt here.
- Income which is not considered a supply – eg, power generation subsidies, some types of grant income.
- Where the place of supply is outside the UK (and so are not part of UK VAT).
The general rule for business-to-business supply of services is that supply is made where the recipient belongs. So, where a UK company receives a service from an overseas supplier, that will count towards the recipient’s turnover. On the other hand, a UK company supplying services to an overseas business will not count towards their turnover. There are also different rules regarding ‘place of supply’ with business-to-business services; the HMRC’s VAT Helpline – either by phone or Webchat – is useful for queries, or contact your accountant.
Businesses supplying both UK and overseas customers
If your company provides services to businesses in the UK and overseas then any turnover generated for those services for which the place of supply is outside the UK will not be considered ‘taxable turnover’ for Making Tax Digital.
It’s worth noting that if your company’s turnover drops below the registration threshold after 1 April 2019, you will need to continue following the Making Tax Digital rules unless you deregister or meet one of the exemption criteria. And, when you join the Making Tax Digital Online Portal this will be used instead of the Government Gateway Portal currently used to submit VAT returns online.
For queries relating to Making Tax Digital, please contact us at firstname.lastname@example.org and one of the team will be in touch.