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HMRC letters remind businesses of VAT payments change

Reminder letters are being sent out to tens of thousands of UK companies explaining changes in the Making Tax Digital (MTD) system and how it affects them.

HM Revenue & Customs (HMRC) is writing to more than 150,000 VAT-registered businesses who don’t hold a valid email address, explaining what they need to do to continue paying their VAT by direct debit.

In April this year, HMRC started moving the VAT records of traders who are not signed-up to MTD for VAT from an old database (VAT mainframe or VMF) to a new database (Enterprise Tax Management Platform or ETMP).

MTD means you are no longer able to keep and submit manual VAT records and returns. Instead, HMRC will only accept VAT returns sent using software that supports MTD for VAT.

The use of this technology is mandatory so it’s a good idea to upgrade your software, or migrate your accounts, before the end of your next VAT period.

The transfer is more complicated for traders that pay by direct debit where HMRC does not hold a valid email address, so HMRC will not start transferring the records for these traders until July 2021. HMRC needs to hold a valid email address for those paying by direct debit to satisfy banking requirements.

When a VAT record is transferred and HMRC’s system does not hold a valid email address, any direct debit mandate will be cancelled. The taxpayer will need to set up a new mandate through their business tax account or make alternative payment arrangements.

Once their record has been transferred to the new database, the trader will be prompted to set up a new direct debit mandate when they sign in to their business tax account.

Unfortunately, traders will not know exactly when their record is going to be transferred (the exercise is expected to take until November 2021) so they may need to check in advance of more than one VAT return to ensure that their direct debit payments continue uninterrupted.

Approximately 105,000 letters are being sent by HMRC during June.

A further 63,000 letters are being sent to businesses in MTD for VAT where HMRC does not hold a valid email address and the business needs to act to continue paying by direct debit.

HMRC has confirmed that any direct debit mandate set up to pay deferred VAT is completely separate and therefore unaffected. HMRC’s security requirements now prohibit agents from setting up direct debits on behalf of clients.

Making Tax Digital is a key part of the Government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

HM Revenue & Customs (HMRC) has stated its ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works. 

For more information or advice on issues related to the Making Tax Digital system, please get in touch with your Seymour Taylor representative or contact us on 01494 552100.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at time of publishing 3 June 2021.