Accountants reveal cost of Making Tax Digital

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Robert Lovell
Journalist
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More than 80% of accountants surveyed by Thomson Reuters estimate the cost of Making Tax Digital (MTD) to individual small business clients will be more than £200.

The survey of 500 accountants revealed nearly half (46%) put the figure at somewhere between £200 and £500. 27% thought it would be between £500 and £1,000, while 9% estimated the cost at more than £1,000.

The cost of MTD has been estimated by various accounting and small business bodies, ranging from HMRC’s own figure of £280 up to nearly £3,000 per business.

In giving evidence to the Treasury Select Committee in October about the potential costs and savings expected to be generated by MTD Mike Cherry, policy director of the Federation of Small Businesses, suggested that MTD would cost businesses £2,770.

Andrew Tyrie MP, chairman of the select committee, has since called on the Treasury and FSB for clarity on the costs of MTD.

He said: “The compliance cost estimates are so far apart that at least one of them must be wrong. I have written to both the Treasury and the Federation of Small Businesses to ask for detailed supporting methodology for their estimates.

“If the FSB are right, the effects of Making Tax Digital would be crippling for many small businesses. If the government are right, businesses have something to gain in the longer term and one would expect them to be queuing up to join the pilot,” Tyrie added.

Seeking the truth

AccountingWEB tax contributor Wendy Bradley has also been seeking out the truth behind the figures quoted by HMRC around MTD costs and savings, including a Freedom of Information request for details of the computation and underlying data.

Tax campaigner and City University professor Richard Murphy has also focused on the questionable cost and benefit MTD calculations at a recent Lords committee.

According to Murphy’s analysis, when software costs are stripped out of HMRC’s £170m estimate of the extra cost to business of MTD, £103m is left to cover the cost of quarterly updates from 5.9m businesses - equivalent to £4.36 per update.

Using the national minimum wage as a benchmark, Murphy suggested HMRC was allowing 35 minutes to complete each update. “That is not plausible,” he told the committee. Based on his estimate that the tasks involved in filing each update would take around half a day, he estimated the cost to business of MTD would be £1.8bn.

In his evidence report Murphy also estimated that MTD compliance will cost at least £300 a year for unincorporated business and £600 for companies.

When it comes to the huge variation of cost estimates, one explanation is the lack of information and detail available on exactly what MTD entails.

Asked about the most pressing information being held back by HMRC, two-thirds (65%) of accountants surveyed by Thomson Reuters wanted to find out which of their clients will be exempt from MTD.

Mark Purdue, tax product manager at Thomson Reuters, said: “Our findings show that accountants are looking to HMRC to confirm the turnover exemption so that it is clear as to which businesses will be exempt from MTD, or deferred until 2019. In turn, this will allow accountants to plan for how they can advise their clients under the new MTD rules.”

The MTD exemption threshold is expected to be revealed at or after the Spring Budget next month.

Other pressing information accountants wanted detail on included 23% wanting to know taxable profit workings, and 10% about the availability of free software. 87% of accountants said they feel they needed more information on MTD.

The survey also threw up some other startling stats such as 51% of accountants still haven't spoken to clients about MTD, while three-quarters (73%) have called for a delay to the programme with just 11% of accountants feeling able to handle MTD themselves.

 

What do you think the cost of MTD will be to your individual clients?

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27th Feb 2017 15:31

Given that MTD and quarterly reporting was introduced in Denmark over 10 years ago would it not be possible to identify the current annual costs, both in time and software , of the Danish taxpayers experience of compliance. The facts are we, ie accountants of all persuasions, don't have the first idea to what the cost to our clients will be never mind how we are going to restructure our practices in response to these monumental changes. As for HMRC`s cost estimates I find it hard to believe that in all of their researches into how other countries have coped with moving into MTD they did not consider the costs issue. I am sadly left to conclude either they failed to even consider costs as a factor, in which case I would call this gross incompetence on their behalf. On the other hand if they did look at costs to individual taxpayers of complying with these new measures and have chosen not to publish the results then this would be perfidious in the extreme. I wonder if HMRC could through any more light on how they have reached their conclusions on costs as at the moment they appear to be reluctant to be drawn into specifics on the issue!
Come on HMRC publish your data and its sources, if its robust what have HMRC to fear?

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By RobertD
01st Mar 2017 10:17

Yes, let's see a photocopy of the cig packet!

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to RobertD
01st Mar 2017 10:58

That's just facetious.
It was the back of an envelope.

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27th Feb 2017 21:05

Where do HMRC get the figure of £280 from? I know - this must be the monthly cost of the smartphone they expect everyone to use!
Then there is the cost of the software - average £300 per annum?
I give up - its time for HMRC to do the same ref MTD!

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28th Feb 2017 08:24

robertlovell wrote:

The survey of 500 accountants revealed nearly half (46%) put the figure at somewhere between £200 and £500. 27% thought it would be between £500 and £1,000, while 9% estimated the cost at more than £1,000.

My old pal Yorkshire Pete used to rub his hands together every time his clients needed work doing - all the more brass for him.

So our clients are soon going to need four sets of accounts a year instead of one. Why aren't we rubbing our hands together? Isn't this something of a prospective windfall for the profession?

And £200 to £500 a year for such quarterly involvement? That's surely a touch pessimistic.

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to I'msorryIhaven'taclue
28th Feb 2017 14:05

From a purely commercial point of view its "jobs for the boys" if we charge just £50 a return, so £200 a year on say 150 clients = £30,000 in fees. I reckon I can do the job with a low wage part time clerk as quality is irrelevant, its just stuffing numbers into boxes of some sort with no implication if its wrong, so long as its filed.

Its very good business indeed for accountants, even for a basic "stuff it in" service.

For a proper "quarterly accounts" service our fees would of course be a lot more, but i cant think many of my clients will want that.

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By 7555775
to ireallyshouldknowthisbut
01st Mar 2017 12:33

HMRC is making it a condition that the clients do it themselves, ie trying to exclude us agents from the whole process.

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By DMGbus
to 7555775
01st Mar 2017 13:37

Project 2sv (2 step verification) is currently being implemented to enable the current HMRC dictatorship to enforce this exclusion of agents / distance agents from their clients...

" You'll need to do this soon

It will soon be mandatory to set up extra security on this account, so why not do it now?

It just takes a couple of minutes. You can then set up anyone else using this ID and password to get their own access codes. "

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to 7555775
02nd Mar 2017 12:58

As an agent, I am very confused as to whether I will still be "allowed" to do my work or not. I have seen so many different versions of what MTD means. I can see the whole thing turning into a fiasco! No change for HMRC then!

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28th Feb 2017 08:51

Presumably, the additional costs assume that each taxpayer, who fills the criteria for complying with MTD, takes a software licence, presumably on an annual basis and files their own reports?
I'd suggest that, in the majority of cases, taxpayers will be seeking assistance from accountants, tax agents etc. The question, will then be, what will a realistic charge for the acting agent to charge, for the additional involvement?
Further, have any of the software houses put out any estimates, or models, as to how they see the pricing of MTD software?

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to Chris Mann
28th Feb 2017 09:06

Chris Mann wrote:

Presumably, the additional costs assume that each taxpayer, who fills the criteria for complying with MTD, takes a software licence, presumably on an annual basis and files their own reports?

Either that or £280 represents the additional cost of operating a Manx company.

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By mabzden
28th Feb 2017 09:29

I would have thought someone asking their accountant to do their quarterly submission would pay around £150 plus VAT per submission? So £720 pa.

Other people may choose to do it themselves and would spend, say, four hours entering data into software every quarter. A tradesman taking half a day off would probably miss out on income of, say, £75-100. So £300-400 pa.

So costs are going to vary, but I reckon you could use a benchmark of £500 per year without being accused of exaggerating.

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28th Feb 2017 11:56

As things are now, we have 10 months to file annual tax returns.

As I understand it under MTD we have to file quarterly returns within 30 days.

I cannot see how we can possibly achieve this.

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28th Feb 2017 17:39

I don't find it difficult to understand why all the figures are so different. No two businesses are alike or starting from the same place.

So for example, I act for a very simple one woman business set up in 2016 with an annual turnover of £50,000 but voluntarily registered for VAT . There is no stock, the accounting system is xero (machine learning and bank feeds) and relatively few journal adjustments are required to produce accounts. An hour's extra work per quarterly return at say £90 an hour and we're looking at extra costs of £360 plus VAT. No new equipment or training required because the business accounting system was set up from the start with MTD in mind.

At the other end of the scale, I act for a long established £0.5m t/o business that types up all its invoices from hand written delivery notes. To date, they have spent £1200 on computers and printers, £800 on my time to help them decide what they want and can cope with, £240 on my time (other) and they expect to spend a further £4,000 on scanners, sundry bar code hardware and software . In house, management and clerical time on this is about £2,500 to date and we're probably no more than halfway through. So, I reckon our total first year cost will be north of £11K . However, it could easily be much higher - there are three areas where we might have overruns.

So under £400 or over £11,000 ? It all depends on the client.

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01st Mar 2017 10:37

250+vat for software = 300 cos little businessess not vat registered

400+vat for the accountant = 480

Total £780
on top of £360 already

So small business fees will treble

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01st Mar 2017 11:15

I do not think it 'startling' that a majority of accountants have not talked to their clients about MTD as what is actually going to happen is very unclear. I was waiting until the matter was clearer, perhaps at the budget time. Do we need to worry clients about something we do not know enough about yet?

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to Arbitrary
01st Mar 2017 12:22

Totally agree with Arbitary. We would be crazy to tell people before we are absolutely certain that the they are keeping the £10K threshold.

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to Arbitrary
01st Mar 2017 12:28

Arbitrary wrote:

I do not think it 'startling' that a majority of accountants have not talked to their clients about MTD as what is actually going to happen is very unclear. I was waiting until the matter was clearer, perhaps at the budget time. Do we need to worry clients about something we do not know enough about yet?

This is what is boiling my piss[***]:

1. It's starting April 2018.
2. We don't know what is starting, or who it will affect exactly.
3. It will be onerous and oppressive, but we don't know how onerous nor oppressive.
4. It will probably double your accy. fee, but we cannot say if it will or not.
5. It will be badly-conceived and turn into a complete and utter cluster. But it might not. Well, it will...

Thanks Arbitrary - you've just inspired me to compose my first client letter concerning Making Tax Disasterous.

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to Nick Graves
01st Mar 2017 15:57

This is the first time I have posted, but agreeing with Nick and Arbitrary comments, I feel I had to contribute.

I must admit it’s nice to see, that I am not the only one that has no idea of how MTD is going to actually work for accounts/agents, we are looking at a years time for it to be implemented yet the flow of information other than speculation is to say at least, scary, clients rely on us to guide them and tax plan, but if we are not able to address the basics, i.e. getting access to information, we will struggle to carry out our job effectively.

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to Arbitrary
02nd Mar 2017 13:04

I am one who has not discussed the implications with my clients, how can I when I don't understand it myself! HELP!!!

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to Pingsquitch
02nd Mar 2017 14:11

Let me try and help Pingsquitch.
Client has software in order to see all their bits at HMRC and to submit 1/4 meaningless figures. Agent has different software in order to collate said 1/4 figures and produce 5th figure, which is the all important one cos it forms the basis of clients' tax liability due normal times.
Oh yes, the normal penalties for non compliance.
At the moment said figures will be submitted for business with turnover over £10k but OTS has suggested £20k. Figures to be submitted by client not agent.
There might be exceptions on religious grounds or where clients are not internet based or perhaps in those areas that haven't got internet.
All this to start from 6th April 2018.

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01st Mar 2017 11:18

Have HMRC factored in Accountants time chasing clients to make sure 1/4 figures are filed on time.
I think 98% of business and agents agree that a 1/4 figure update for those business under the VAT threshold is impossible. So why aren't our bodies telling this to Government. Do they really think that we are going to make fortunes out of MTD? They all must live in cloud cuckoo land. Perhaps they should look at why a lot of people only want a phone that makes phone calls (Nokia?)

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to johnjenkins
02nd Mar 2017 18:55

ICAEW have advocated for the exemption to be at VAT registration threshold (as have the other bodies) and has made lots of very sensible comments but only two have been taken up

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01st Mar 2017 11:21

Having been a business owner for many years I started using Sage about eleven years ago then switched to Xero/Receipt Bank about six years ago. The cost to companies to comply is not too great if you are already automated in some shape or form but as a recent survey showed many SME's aren't, in my current role I look to acquire SME's, aggregate and grow them and I am constantly amazed at the lack of automation and accounting transparency in even some large firms. It's obviously particularly prevalent where there is cash involved. For most businesses who don't assume paying taxes is an option extra, it will give far more benefits in terms of understanding than the downside of being transparent in reporting. I also think it will highlight the incredible costs SME have to shoulder in running a business, I know that once vat, paye, rates, utilities, rent and wages are taken into accounted and reported correctly there is little left to compensate for the long hours and stress of running a business.

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01st Mar 2017 11:22

The survey of 500 accountants revealed nearly half (46%) put the figure at somewhere between £200 and £500. 27% thought it would be between £500 and £1,000, while 9% estimated the cost at more than £1,000.

I think it will be the high end once all costs have been identified, how are we going to explain this one to clients , unless we all agree on set fee in advance.

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01st Mar 2017 11:23

Long term this is good news as the saving of not needing an accountant will more than outweigh the cost. The robots are coming

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By RobertD
to richards1
01st Mar 2017 11:48

richards1 wrote:

Long term this is good news as the saving of not needing an accountant will more than outweigh the cost. The robots are coming

Taxpayers have had the facility to prepare their own figures and file for a number of years. It's called self-assessment. I would suggest that if you don't need an accountant post MTD you wouldn't have needed one pre MTD.
The robots are coming and so are claims for washing machines and chiropractors.

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By Echo761
to richards1
01st Mar 2017 13:03

The Robots are already here... they are called... "HMRC"

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01st Mar 2017 11:28

What seems to be missing from this discussion is where on earth is the accountancy profession going to get the additional resources needed to do the extra work?

Even if we accept the lower estimate that's probably 35% more work on a typical fee of £650 ish for sole trader accounts. Presumably, also the HMRC is ignorant of the basic law supply and demand; that in times of shortage prices go up.

So if accountants cant support this additional work I would guess they'll have to fire the bottom 30-40% of their clients, what then becomes of the disenfranchised clients.

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01st Mar 2017 12:01

I don't think it would be wise to consider "sacking" clients at this stage . . . . . . there's a high likelihood that a barrow load of them will walk when the higher fees have to be charged (though heaven knows where they will go and how they might reduce costs - other than doing it themselves of course or by simply jacking the whole concept of self-employment). As to informing client . . . . . what EXACTLY are we supposed to tell them at this stage? For goodness sake . . . . . I'm not even sure what methods we will adopt (especially what software we will use) so how can I go about advising clients in anything other than very general terms?
Chris.

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to lh3f9764bg1g
01st Mar 2017 12:16

OK so sacking clients is a bit extreme, it was really a device to highlight the underlying problem of capacity.

At some time in the not too distant future accountants are going to have to make hard choices either to invest in capacity to meet the additional demand or simply say I can't or won't and cut their clients accordingly.

After all, if the additional resources aren't available your choices are very limited

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01st Mar 2017 12:15

Have HMRC even considered internet speed deprived area's that will take 2-3 times longer to actually input data?

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By RobertD
to craigbisby1
01st Mar 2017 13:06

craigbisby1 wrote:

Have HMRC even considered internet speed deprived area's that will take 2-3 times longer to actually input data?

Considered. They come under not digitally enabled with religious objectors (the Force etc.), clinically insane (that's why MP's are exempt) and aged (over 106 years old).

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to craigbisby1
01st Mar 2017 13:07

HMRC haven't considered anything other than they hope MTD will bring them in "loads a money". How does that saying go. "There is none so blind as those that will not see and none so deaf that will not listen".
Tories beware, I foresee another Lib/Dem coalition.

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to johnjenkins
03rd Mar 2017 17:21

well they will lose lots of landlords, pensioners and self-employed with this behaviour and massive increased costs and red tape. if a party woke up to this they can get themselves into power

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By LAC47
01st Mar 2017 13:10

our only hope is an exemption level at the VAT registration figure....and the chances of that are ......!!!
Perhaps Philip Hammond will surprise us next week, although the chances are a that a decision on this will be delayed again and again.

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01st Mar 2017 13:14

Based on the slow speed of having to input each transaction individually (compare inputting invoices into Sage as opposed to a spreadsheet) I expect time to prepare accounts will double. If the client attempts their own accounts then the time required to support the client and fix errors will mean the overall time will more than double, especially for smaller jobs where the number of transactions are lower and the client is having to contact every quarter because they've forgotten what they did last time. These small jobs will be at least 3x the time required at the moment.
The smaller the business, the greater the cost of MTD. As evidence, the biggest businesses are more likely to have a bookkeeper using commercial software so will be complying with all the MTD requirements.
As a rough rule of thumb, I estimate fees will have to double for smaller businesses.

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01st Mar 2017 13:15

My main concern that doesn't seem to get mentioned is HMRC insistence that submissions need to be made using clients own it system which makes it very difficult for the agent to make multiple submissions on behalf of less able clients

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By DMGbus
to raymond rook
01st Mar 2017 18:24

As part the process of separating accountants from their clients HMRC have already started to implement project 2sv.

Project 2sv is short for "2 step verification" which is claimed to be necessary for security reasons, but as a by product makes life difficult for accountants logging in on a client's behalf (eg. to view PAYE account)...so "objective achieved" for those within HMRC who want accountants to be distanced from their clients.

In case anyone is unaware of how project 2sv works it is this: Every time logging into a client's GG ID it is obligatory to receive a password by text to a mobile phone to proceed.

I can see this a major obstacle to helping clients with MTD (unless there's going to be a way to appoint client's accountant as a delegate with rights to see MTD data submitted).

Looks like going back to the pre-digital age of having to visit clients regularly and log on at clients premises on clients computer with client standing alongside with mobile phone to receive logging in 2sv code.

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to DMGbus
01st Mar 2017 14:36

DMGbus wrote:

As part the process of separating accountants from their clients HMRC have already started to implement project 2sv.

Project 2sv is short for "2 step verification" which is claimed to be necessary for security reasons, but as a by product makes life difficult for accountants logging in on a client's behalf (eg. to view PAYE account)...so "objective achieved" for those within HMRC who want accountants to be distanced from thor clients.

In case anyone is unaware of how project 2sv works it is this: Every time logging into a client's GG ID it is obligatory to receive a password by text to a mobile phone to proceed.

I can see this a major obstacle to helping clients with MTD (unless there's going to be a way to appoint client's accountant as a delegate with rights to see MTD data submitted).

Looks like going back to the pre-digital age of having to visit clients regularly and log on at clients premises on clients computer with client standing alongside with mobile phone to receive logging in 2sv code.

They wouldn't be that stupid...would they?

It would solve the problem - hardly any tax returns will get transmitted and the system will collapse.

Yay!

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By mabzden
to Nick Graves
01st Mar 2017 14:46

To be fair to HMRC, I agree this isn't their objective. They realise accountants field a lot of daft questions from clients, and educate them on how the tax system works, and HMRC values us for that reason.

The two-step verification change is to clamp down on fraud. This is a big problem now and is only going to get worse if no action is taken

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to mabzden
01st Mar 2017 15:31

What fraud??????????
Oh you mean when HMRC lose all its info or their computers get hacked.
Fraud was the reason HMRC gave for not paying ltd cos CIS refunds when they had all the info and wouldn't give it to us.
No, HMRC blame fraud for their own incompetence. This I know from personal experience (as no doubt many others do).

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By mabzden
to johnjenkins
01st Mar 2017 16:36

Oh OK, I stand corrected. There is no fraud.

Phew, what a relief.

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to mabzden
01st Mar 2017 17:05

OK, I was a bit harsh. In my experience the level of fraud centered at HMRC (apart from tax evasion) is limited and is mainly down to operative error. Excluding agents will not minimise fraud. It is time agents were allowed to take over the admin of HMRC completely.

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By DMGbus
to mabzden
01st Mar 2017 18:21

There already exists additional measures to enhance security (reduce fraud) in some parts of HMRC's online filing servivces, ie. "Shared Secrets" - the problem for HMRC is that the client could share these "Shared Secrets" with their accountant, so as it is HMRC's policy to make life difficult for accountants to help their clients they've had to introduce 2sv instead of expanding the use of "Shared Secrets".

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to mabzden
01st Mar 2017 15:34

So what is wrong with the 2 step verification being done with Agent (once appointed)?

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By DMGbus
to johnjenkins
01st Mar 2017 18:30

I am not sure that 2sv encompasses agents - HMRC record a mobile phone number, and who knows - they may only allow ONE mobile phone number to receive the 2sv code for a particular client.
HMRC systems may identify an agent's mobile phone number receiving 2sv codes for more than one client and consequently prevent this happening "on security grounds".

What I am hoping is that a client can add an agent as a delegate or similar status to enable the agent to have full and complete access to a client's tax data (incuding MTD filings).

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to DMGbus
02nd Mar 2017 09:04

Recently we set up a client for VAT. Client wanted to do it himself (which we encourage). He registered but wanted to run the first return past me just to make sure he was doing it correctly. He brought his workings and ID, password etc. over to us. After verifying everything was correct I put in his ID and password. The verification went to his mobile which I put in my computer and "hey presto" VAT return done. The point I am making is that HMRC don't seem to be worried about what computer the return is done from, although that might change with the new software.

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01st Mar 2017 13:18

The Majority of my clients are all sole trader, sub contractors, who will still withdraw cash to pay accounts, it takes me all my time to get my carrier bags full of screwed up receipts from them on a yearly basis, They have no interest of doing anything digitally, would not know one end of accounting software from another, even a spreadsheet, and I make it affordable for them, so to increase the yearly cost is not something I am looking forwards, to especially on the back of AE for those who do have employees and having to pass a cost on for that. Its going to be horrendous, and as for people not having to submit quarterly if they turnover 10k or less, whoopi do they would not pay tax anyway,

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01st Mar 2017 14:48

All the figures quoted appear to be for year one costs. What will be the costs in year two onwards for yearly updates to soft wear programmes etc.

Also, has anybody took into account the cost of purchasing a printer to keep a hard copy for their accountants.

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