VAT compliance letters to be issued by HMRC

Mar 22, 2021

Starting this month, HMRC are planning to send one to many (“OTM”) compliance letters to taxpayers who they believe are not registered for VAT despite exceeding the VAT registration threshold. These letters will also invite them to apply for VAT registration.

Taxpayers will be guided to access GOV.UK/VAT registrations and to check their liability to VAT registration by undertaking checks into their business activities, annual business turnover and the amount of taxable supplies made. 

Those that are liable are instructed to register themselves for VAT via GOV.UK.  Taxpayers are also asked to check online and to contact HMRC if they are already registered for VAT or tell HMRC if registration for VAT is not applicable. Taxpayers, if required, will be supported by time to pay arrangements. HMRC have made clear that follow up compliance work will be undertaken on those who fail to act. 

The Institute has been discussing this with HMRC and has received the following additional information in answer to questions/queries raised:-

Question/query:

How certain is HMRC that these businesses do exceed the VAT registration threshold, i.e. that taxable turnover is above the threshold? If there is to be follow up compliance action, I assume that the letter will mention this, causing concern to the recipients. The letters need to be very carefully worded, so that it is clear to recipients that they may not have done anything wrong - the wording and tone will be particularly important if it is likely that significant numbers of below-the-threshold businesses are going to receive these letters because accurate targeting is impossible.

Answer:

Customers have been selected where the information we hold indicates that their turnover is over the VAT threshold.  The letter asks the customer to check whether they need to be registered and then either take action to register or let us know if they don’t feel they need to be registered. We have worked with colleagues on the tone and language used.

Question/query:

Will agents receive copies of the letters? Following on from this – is there a prominent note in the letter telling the business to refer the letter to their agent, if they have one? If the business is not above the threshold and an agent has therefore advised that they do not need to register for VAT this has the potential to cause problems between agents and clients (as has occurred with some other OTM letters) - particularly, if possible, compliance action is mentioned and the letter is suggesting that the business has done something wrong.  

Answer:

Letters do ask the customer to share with their agent if they have one. Going forward we will be working to get agent details and be sending copies direct to agents where they are identified.

Question/query:

Will the letters include an HMRC address, ‘owner’ and telephone number? As a general principle, letters from HMRC should always give some basic contact information (including a helpline ‘phone number) and an indication of the HMRC ‘owner’ - but some of the MTD compliance letters had none of these. Apparently, some recipients thought they were scams - not sure how widespread that was but it also caused other problems - see next point.

Answer:

Yes, a contact number and address will be provided for customers to contact us. 

Question/query:

It is not clear but seems to be suggested that ‘customers’ will be ‘invited’ to notify HMRC via an online process that they are already registered for VAT or that registration is not applicable. There needs to be a non-digital alternative for notifying HMRC - telephone number being the obvious one - so that digitally excluded recipients have an alternative to completion of an online process. Note that this will sometimes be relevant even if someone is already registered for VAT - an agent may be filing the returns online but the ‘customer’ receiving the letter may be digitally excluded. If the ‘customer’ can call HMRC they may well do so, but even if the letter is passed to the agent, the agent may not respond - either because it is not clear that they can complete the process on behalf of the client, or because they don’t want to incur unnecessary costs for the client.

Answer:

Customers will be able to phone to say they are already registered or that registration is not applicable.   

Question/query:

Depending on how much information is contained in the letter about how to work out whether the business is liable to register, the digitally excluded could also need to call HMRC to find out whether they need to register - if they do not have an agent and cannot access the information on GOV.UK mentioned below (guiding them to online information won’t be much help…)

Answer:

If customers call HRMC, we have guidance in place to support digitally excluded customers

Question/query:-

As noted above it appears that the letter will include an ‘invitation’ to notify HMRC if registration is not applicable – not a legal requirement (can’t see that there is any legal requirement to tell HMRC if the business is either already registered or not liable to register). What will the follow up compliance action be, if the business/agent does not respond because they know they are already compliant? NB – not suggesting there should not be any follow up action where HMRC thinks the business is liable to register for VAT and has not done so, but wondering how this will be approached, bearing in mind some of the other points noted above.

Answer:

We are asking customers to let us know if they are already registered so we can exclude them from any follow up action.”