HMRC has notified Chartered Accountants Ireland that it is now taking a tougher approach to non-compliance by businesses who should have signed up to and should be using MTD for VAT. Some agents with non-MTD clients have also been receiving an incorrect message in the Agent Online Self-Service (“AOSS”) account (see below for the action these agents need to take).

Compliance approach

We are advised that the tougher compliance approach to non-compliance with MTD for VAT is being taken in respect of a small sample of the approximately 100,000 businesses who are mandated to use MTD for VAT but who are not currently doing so.

According to HMRC approximately 90 percent of businesses mandated to use MTD for VAT are signed up and using MTD for VAT. MTD legislation enables HMRC to charge a penalty of up to £400 for not filing a VAT return via MTD functional compatible software.

The compliance activity is directed at those business who are not currently compliant and includes a trial to close the access these businesses have to filing VAT returns online outside of MTD for VAT.

Businesses who should be using MTD for VAT have already received more than one letter from HMRC reminding them of their MTD for VAT obligations.

Before charging penalties, HMRC is ramping up activity to encourage the non-compliant to get compliant by first, on a trial basis, closing off access to filing online VAT returns outside MTD for VAT. This would mean the only option available to these businesses will be to use MTD functional compatible software.

HMRC is therefore writing to approximately 800 businesses to advise them that VAT returns due by 7 July 2021 will still be able to be filed outside of MTD for VAT. However, subsequent returns will be blocked from filing in this manner for returns from June 2021 onwards. This means those businesses must sign up to MTD for VAT in sufficient time to file that return by its due date of 7 October 2021.

As this is a trial only, HMRC will be monitoring the impact of and responses to this before widening this out further.

Error message for some agents

As advised by us previously, HMRC recently started moving VAT taxpayer records from the legacy VAT mainframe to the newly integrated Enterprise Tax Management Platform (“ETMP”).

This activity has led to an issue for some agents with non-Making Tax Digital (“MTD”) clients, who have been receiving an incorrect message in the Agent Online Self-Service (“AOSS”) account.

This happens when an agent logs into their AOSS, selects VAT, sees the VAT client list, and selects a client whose record has been unknowingly moved on to ETMP. Agents are receiving an incorrect message informing them that the client has signed up to MTD, even when the client has not yet done so.

This message will direct agents to log into the Government Gateway using their Agent Services Account (“ASA”) credentials. Any agent whose client has not joined MTD that sees this message should continue through the screens to sign into their ASA (or create an ASA) to file their client’s non MTD VAT return.

This issue affects around 190,000 businesses whose account has been migrated or will be migrated in the coming months.

HMRC apologises for any confusion this may cause and is currently working on a solution to prevent this incorrect message.