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) and from April 2022 will apply to all VAT registered businesses, unless exempt.

This article will help you help you assess whether your academy is caught by MTD.

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 an Academy will be able to use any of the exemptions above.

Trading subsidiaries

If your trading subsidiary turnover exceeds the VAT threshold (currently £85,000) then this will be caught in its own right.

To find out how to sign up for MTD for VAT 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 May 2022