HMRC reboots compliance activity on MTD for VAT

15 June: HMRC is restarting communications to businesses that it thinks should have signed up to Making Tax Digital (MTD) for VAT but have not done so.

In 2019 HMRC sent ‘nudge letters’ to VAT-registered businesses that it thinks should have signed up to MTD for VAT. It is now contacting those businesses again ahead of ramping up its compliance activity in the Autumn.

HMRC estimates that 84% of mandated businesses have signed up to Making Tax Digital (MTD) for VAT, but that leaves a sizeable number of businesses that still need to sign up.

Last year HMRC sent two letters – one was sent where HMRC was confident that the business should have signed up and an alternative version was sent where HMRC was less sure.

Before its plans were changed by the COVID-19 pandemic, HMRC was about to write stiffer letters which would have mentioned the possibility of penalties. It is now sending these further nudge letters which will start to arrive this week.

ICAEW’s Tax Faculty understands that HMRC is writing only to businesses which it is confident should have signed up and will not write to businesses that have contacted HMRC to inform them that the business is not in the mandated population.

It is possible that a small number of businesses which are not mandated will receive a letter. The Tax Faculty advises that such businesses should not, as suggested, disregard the letter but instead contact HMRC to explain their circumstances to avoid further contact when the compliance activity starts.

The Tax Faculty has reminded HMRC that some letters may be sent to closed business premises and asked it to consider email and text communications where appropriate details are held. The Tax Faculty has also suggested that HMRC writes to agents although many of the businesses that have not yet signed up may be unrepresented.