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Businesses may need to set up a new direct debit mandate for VAT


Published: 27 May 2021 Update History

HMRC is writing to more than 150,000 VAT-registered businesses where it doesn’t hold a valid email address, explaining what they need to do to continue paying their VAT by direct debit. ICAEW’s Tax Faculty explains that this relates to the transfer of VAT records to a new database.

In April 2021, HMRC started moving the VAT records of traders who are not signed-up to Making Tax Digital (MTD) for VAT from an old database (VAT mainframe or VMF) to a new database (Enterprise Tax Management Platform or ETMP).

As explained in Agent Update 83 the transfer is more complicated for traders that pay by direct debit where HMRC does not hold a valid email address, so HMRC will not start transferring the records for these traders until July 2021. HMRC needs to hold a valid email address for those paying by direct debit to satisfy banking requirements.

When a VAT record is transferred and HMRC’s system does not hold a valid email address, any direct debit mandate will be cancelled. The taxpayer will need to set up a new mandate through their business tax account or make alternative payment arrangements.

Once their record has been transferred to the new database, the trader will be prompted to set up a new direct debit mandate when they sign in to their business tax account.

Unfortunately, traders will not know exactly when their record is going to be transferred (the exercise is expected to take until November 2021) so they may need to check for the prompt in advance of more than one VAT return to ensure that their direct debit payments continue uninterrupted.

Approximately 105,000 letters (letter A) are being sent by HMRC during June.

A further 63,000 letters (letter B) are being sent to businesses in MTD for VAT where HMRC does not hold a valid email address and the business needs to act to continue paying by direct debit.

HMRC has confirmed that any direct debit mandate set up to pay deferred VAT is completely separate and therefore unaffected. HMRC’s security requirements now prohibit agents from setting up direct debits on behalf of clients.

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