HMRC is closing its old computer system for VAT and transferring the functions to its Making Tax Digital (MTD) platform. How might this affect your business?
Two systems. Currently, HMRC has two systems handling VAT returns and payments, one for VAT-registered businesses using Making Tax Digital (MTD) and the other for all other registered businesses. HMRC has been planning the move for a while but recently there’s been a change which will affect businesses that are not signed up to MTD and a small number of those that are.
Disruption to VAT payments. The transfer began in April 2021 and HMRC hopes to wrap up the process within six months. For the most part this will not have any obvious impact on businesses. However, following discussions between HMRC and banks it’s now apparent that some businesses could have their VAT direct debit arrangements disrupted.
What’s the problem?
The banking regulations require HMRC to inform (in advance) businesses that pay their VAT by direct debit of the amount and date the debit will be taken. There often isn’t enough time to do this by post because payment is due just days after the VAT return has been submitted. HMRC must therefore send the notification electronically and so needs a valid email address for each business. Generally, if you file your VAT returns using MTD you don’t have to worry as HMRC should have your current email address, but check if you’re in doubt.
Trap. If HMRC doesn’t have a valid email address for you, it will cancel your direct debit. You’ll not only have to pay by alternative means but you’ll risk missing the payment deadline.
Tip. HMRC can’t say exactly when your business will be transferred to the new system, therefore if you’re VAT registered you should check it has a valid email address for you as soon as possible and definitely before July 2021. It must be your email address and not your accountant’s, even if your accountant completes your VAT returns for you. You can provide the email address by logging in to your HMRC Business Tax Account (if you have one) and entering it in the general information about your business, or you can ask your accountant to do this on your behalf.
If HMRC doesn’t have a valid email address for your business, you need to supply one by July. If you don’t HMRC will cancel your VAT direct debit arrangement. If you’re using MTD you’re probably OK but check if unsure.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.