Making Tax Digital: What lies ahead for VAT-registered businesses?

From March 2021 HMRC intends to transfer around one million VAT-registered businesses from the VAT Mainframe (VMF) onto their Enterprise Tax Management Platform (ETMP). This is a process known as “bulk migration.”

There’s a lot of jargon there and you just want to know what it means for your business, right?

It’s pretty straightforward. It’s all about HMRC modernising the way it collects taxes.

Those who have already signed up to Making Tax Digital (MTD) are not affected by the latest changes and don’t need to take any action.

However, those businesses with a taxable turnover of more than £85,000 a year who have not signed up to MTD must do so now or could be hit by a penalty charge.

What’s this “bulk migration” all about?

It’s HMRC getting its systems in order. The transfer or “migration” of these remaining businesses will mean HMRC doesn’t have to continue to operate two separate systems. The old VAT mainframe is expensive to run and maintain so it’ll save money and, hopefully, be more efficient for everyone.

What do I need to do?

Just continue to file your VAT returns as you normally would through your Business Tax Account. Things may look a little different after the switch but change is OK. Keeps us on our toes. The basic principles are the same.

MTD for VAT will be extended to include businesses with taxable turnover below £85,000 from April 2022.

Selecting MTD software and signing up to MTD now will save time and effort in the future. It’s well worth getting it sorted now.

Will my Direct Debit be affected?

Good thinking! For Direct Debits to continue after the migration, HMRC will need a valid and current email address for your business.

This is for your protection and allows HMRC to comply with UK banking regulations which ensure they must inform customers of the date the Direct Debit goes out and how much is being taken.

HMRC will ask businesses for an email address via their Business Tax Account. Doing it online saves time. Without a valid email address HMRC may be unable to collect VAT payments.

What if my accounting software isn’t compatible?

That’s only a problem if you’re still using eXtensible Markup Language (XML) and, to be honest, it’s out-dated and you need an upgrade!

XML allows some software products to file VAT returns directly to HMRC – but that won’t be available after migration. There’s only a small number of businesses who still use XML anyway and from April 21 it will no longer be an option.

I have an agent who handles the VAT for me. Won’t they sort it all out?

Yes – but do have a conversation and check everything is organised.

Following the switch over, agents won’t be able to use the agent online service for VAT clients not yet signed up for MTD. Instead they must file clients’ VAT returns through what’s called an Agent Service Account. Best check with your agent to make sure everything is ready to go.

So that’s what you need to know when it comes to VAT migration. It’s not as complicated as it sounds when you strip out the jargon.

It’s all about the continuing drive to make HMRC one of the most digitally advanced tax collectors in the world and that should be a benefit to us all.

If you need further guidance, we’re always happy to help, so feel free to contact us on hello@shenward.com.