ICAEW.com works better with JavaScript enabled.

Changes to VAT filing in 2021

09 October: While MTD for VAT will be mandatory for all VAT registered traders from 2022, changes expected in 2021 will affect VAT registered businesses not yet in MTD. ICAEW’s Tax Faculty explains the likely impact.

HMRC’s VAT records are currently held across two databases: the older VAT Mainframe (VMF) and the newer Enterprise Tax Management Platform (ETMP).

ETMP holds the records of businesses that have signed up to MTD for VAT. HMRC is planning to consolidate all VAT records onto the new ETMP platform in stages during 2021, in advance of MTD for VAT becoming mandatory for all from April 2022.

The changes will not affect businesses that have already signed up to MTD for VAT but will impact VAT registered businesses that have not yet signed up to MTD and their agents.

Impact on businesses:

The online VAT return available on gov.uk will continue to have the same nine boxes but will look different. Businesses will be able to access the return from their business tax account as they have done previously.

Online filing via XML software (the system used by commercial VAT filing software before MTD which is still used by some non-MTD software products) will cease to be available from 8 April 2021. HMRC has already notified software companies and plans to write to each affected trader before April 2021. Businesses that are affected should contact their software provider.

Businesses that pay by direct debit will be asked to ensure that HMRC holds a valid email address. This is to allow HMRC to comply with banking regulations which require it to notify businesses of the date and amount to be taken by direct debit. HMRC plans to write to each business that pays their VAT by direct debit, asking them to supply or confirm their email address by 28 February 2021.

Without a valid email address, HMRC will be unable to collect VAT payments by direct debit.

Impact on agents:

Agents will experience slightly more change than businesses. Agents who have not already done so will need to set up an agent services account by 28 February 2021 and ensure that they have linked the authorisations for all their VAT clients to the old agent portal.

Once a client’s VAT record has been moved to ETMP the online VAT return will be accessible from the agent services account rather than from the old agent portal.

During the transition period agents will find that they need to file returns for some clients through the old agent portal and the returns for clients whose records have been transferred to ETMP will need to be filed from the agent services account. 

While 30% of businesses that are not yet mandated to comply with MTD have signed up voluntarily, there remains a significant number that will be affected by the changes, alongside the 15% of businesses that are mandated to comply that have not yet signed up.

The Tax Faculty suggests that in light of the changes, agents review their plan for moving all clients to MTD for VAT.

MTD will be mandatory for all VAT registered businesses from April 2022 but signing up before HMRC starts to move all records across to ETMP will avoid agents needing to manage different filing methods during the transition.