MTD: Shades of grey

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Rebecca Cave
Tax Writer
Taxwriter Ltd
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Accountants at a seminar on Making Tax Digital (MTD) raised concerns about interpretation of tax policy, the quality of nudges, MTD pilots, and overcoming security issues.

At an ACCA event on 15 February, Lee Hawksworth, head of software development and collaboration at HMRC, spoke about the MTD programme from HMRC’s perspective, and took questions from the audience.

Tax policy

Hawksworth said the aim of MTD was to make tax easier than it is right now, so it just becomes “a thing that you do as you run your business.” This should avoid the worry at the end of the year to submit the self assessment tax return.

A second goal of MTD is to reduce errors made by the taxpayers, such as misunderstandings about what expenses can be claimed. Hawksworth said he was working with tax policy colleagues to remove shades of grey, and replace those points with black and white tax policies, which can be built into the MTD software. That software will then make it easier for taxpayers to get their tax right first time.

Hawksworth added that as soon as interpretation is brought into the tax system, people may not always interpret in the “right way”. The software will help people get it right as long there is a black and white tax policy underpinning the software.

When questioned on who sets the black and white policy for tax issues, Hawksworth said there was a disconnect within HMRC, and in the wider government, between separate tax policy and technology. Previously the policy was set and the technology teams had to make it work. Now the technology people are working closely with the tax policy team, to make it easier to bring tax policy into software.    

Nudges and prompts

A question was raised as to how the MTD software will help a taxpayer decide how to categorise a payment to say an estate agent, or whether that cost should be included as a business expense at all. Hawksworth admitted it was very difficult to do this. A range of guidance would have to be provided to the taxpayer from prompts and nudges within the tax software, webchat facilities on GOV.UK, and as online videos accessed through the personal tax account.

An audience member asked whether there would be people available within HMRC with the knowledge to answer the taxpayer’s questions on webchat. Hawksworth agreed that this would show up the success or otherwise of webchat.

Pilot testing

A beta pilot of MTD software is due to start in April 2017. Hawksworth was asked how much of the nudges and prompts would be included in that beta version of the software. He said the beta product would be concentrated around certain types of income initially, and during the 2017/18 tax year more features will be added. He confirmed that there would not be an end-to-end pilot of the MTD software for all types of unincorporated businesses.

Security

A member of the audience wanted to know whether there would be an alternative means to submit data under MTD. Her employer does not permit any access, at any time, to the internet from inside the company, for security clearance reasons. This has already caused problems with meeting tax obligations as the staff cannot do webchats and cannot connect to HMRC through GOV.UK. Hawksworth said they would have to look at that situation.

Secure email

Finally, a gentleman asked when tax agents would be able to communicate with HMRC by secure email. Hawksworth confirmed that HMRC has moved away from email applications. Instead HMRC will be working with external software developers to provide products which will include secure messaging services, so that questions and answers can be sent to and from HMRC within the third party software.

 

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Replies

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By Tornado
17th Feb 2017 11:42

Just about all the answers relate to what is expected to happen when at this stage we should have complete and functional software and support services in place ready for trial.

Although Hawksworth put an optimistic spin on his answers, there seems to be very little that is based on fact.

Thanks (1)
17th Feb 2017 11:43

So Hawksworth wants the software to do everything but has no idea how they plan on doing this? Surely this whole MTD thing is a wind up? Come 1 April are we going to see something on the HMRC home page to tell us its all been an elaborate hoax?

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By IANTO
to MissAccounting
20th Feb 2017 11:18

"So Hawksworth wants the software to do everything but has no idea how they plan on doing this?"

Come April with the implementation of the new IR35 rules, and the subsequent exodus of contractors from the PS, they'll be lucky to have any IT systems completed on time!

I guess the Accountancy profession has not yet understood the magnitude of this issue. It's already happening. PS contractors are already not renewing contracts and looking for engagements in the private sector

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17th Feb 2017 12:11

There is a lot of faith (and onus) on the software companies to make get this right and keep it all working. Software is never free - the development, build and maintenance can be significant especially in building trust long term.

The costs of MTD are not yet fully transparent.

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By Tornado
to rsergeant
17th Feb 2017 15:23

There has to be a huge question mark over the decision of the Government not to supply suitable free software for MTD, after all, they provide access to quite a lot software applications at the moment. By developing MTD software in-house, they would be able to ensure that everyone is using the same software to a universally accepted standard.

I cannot think why it is necessary to mandate the use of commercial software which will only make billions of pounds for the software developers and not particularly help anyone else.

I see trouble on the Horizon for the Government when this question is seriously raised and looked into in depth.

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to Tornado
20th Feb 2017 13:05

I'm inclined to agree with you (up to a point). I do think it is a bit rich for HMRC to effectively pass all responsibility and risk to commercial providers - however providing choice, and so working with robust providers is a good thing.

There is also no such thing as 'free software'.

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By Tornado
17th Feb 2017 13:37

The stance on HMRC communication is interesting.

Whilst I have been communicating with some of my clients by email since the year 2000 and indeed, accessing the accounting system of one client remotely since about the same time, it is still a bit of a novelty to be given an email address to correspond with someone in HMRC. Even then, there is a choice of responses ranging from an acknowledgement of the receipt of the email and an assurance that it will be dealt with within 30 days to absolutely no response at all.

I am sure many readers will recognise this as typical of the way that HMRC operate and the very thought of a quick response to anything is laughable. Most people in business or work would not even contemplate telling the sender that they will reply within 30 days but that seems to be the culture embedded within HMRC.

MTD by its very nature relies upon fast and efficient movement of accurate data and I cannot see how HMRC staff are going to deal with this.

I believe HMRC are currently not fit for purpose and there will be a further disintegration under MTD.

Good luck to the good ship HMRC and all who sail in her.

Thanks (5)
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17th Feb 2017 14:20

I can only imagine how irritating the prompts suggesting that you may have incorrectly allocated your expenses will be....

Client: £50 petrol - motor expenses....enter!
Computer: 'Are you sure, please check the guidance...'
Client: Confirm checked and ok...
Computer: 'but it is of high value are you really sure - by reading the guidance we take it that you fully understand the consequences and therefore will be subject to fraud charges if it is found the expense has been incorrectly allocated'!
Client: Its f******* petrol, yes confirm!!!
Computer: 'Ok accepted at your risk!'
Client: £5 stamps....PPSA..enter!
Computer: 'Are you sure, please check the guidance...' etc

Yes easy, and quite obviously will iron out all the wrongs in the world...

Thanks (10)
By Tornado
to justsotax
18th Feb 2017 11:21

I use PTP Opentax and for a couple of years now, discrete 'nudges' have appeared in the Self-Employed section against certain headings in the P & L Account. PTP told me that it was something they were trialling for HMRC but as far as I know I am not in any formal trial that I have consented to.

The point is that a nudge appears for many entries telling me that something appears to be wrong or 'not expected'. I am a qualified Accountant and I KNOW nothing is wrong so I just ignore these nudges.

What appears to be happening is that the system is programmed against some average standard but in practice, no one fits that average.

Good luck to HMRC with their dodgy standards, they are certainly going to be busy trying to respond to all of the 'not expected' alerts.

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17th Feb 2017 22:44

Is this Hawksworth bloke taking the p*ss?

There is no "right way" to interpret tax, it's most definitely a shades of grey thing. And if we're only going to have a right or wrong dichotomy, then that's going to be an incredibly blunt instrument with tremendous unfairness.

Also, who put the software nerds in charge of tax policy? And what are they going to do about the 150 years of tax case law: just ignore it in their rush to provide "simple" solutions?

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By kaff
to adam.arca
18th Feb 2017 00:48

adam.arca wrote:

Is this Hawksworth bloke taking the p*ss?

Also, who put the software nerds in charge of tax policy? And what are they going to do about the 150 years of tax case law: just ignore it in their rush to provide "simple" solutions?

Yes. Have you ever tried explaining tax law to a software nerd? They only understand binary.

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18th Feb 2017 05:46

Simples. I can reveal to you the secret software solution HMRC have set up. It is called a random number generator.
It is 50-50 whether it comes up 1 or 0.

1 tax allowable
0 not allowable.

Simples. Trebles all round at the bar for the HMRC MTD team!

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By RobertD
20th Feb 2017 08:34

MTD, dividend tax, FRS and new business rates.

The Tories are really doing a great job murdering businesses.

Osborne, May, Gauke, Ellison & Hammond take a bow.

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20th Feb 2017 10:09

So how is it going to be able to cope with things like someone substantially upgrading a kitchen in a let property, ie capital expenditure, but also included repainting it, ie still capital as part of the upgrade therefore cannot be separated, then them selling the property 4 years later?

I suspect these "nudges" will say "Painting - ok" in year done, as painting generally a revenue expense. Then when you come to sell, how is it going to know about the capital expenditure? Will it nudge you? Will you have even reported the expenditure quarterly within the tax year if it is capital?

I like to think i read a lot on MTD, but i haven't got the first clue how this is all going to work

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By Echo761
20th Feb 2017 10:44

MTD (and FRS, and lots of other things from HMRC) really is being made up as it goes along, its a bit like building the frame of a ship (lets call it ... the Titanic) launching the frame and trying to put the rest of the ship in place as it crosses the ocean.... hoping it doesn't sink on the way and arrives at the docks to receive fare paying passengers (as there is no way software companies will truly supply free software - they are not charities).

I do like the use of "people may not always interpret in the “right way”... basically if you do not agree with HMRC.

I also like the phrase... "there was a disconnect within HMRC, and in the wider government, between separate tax policy and technology." which roughly translates as a phrase involving "A**e" and "Elbow" and not knowing the difference between them.

I look forward to the grilling of HMRC on Wednesday over MTD.

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20th Feb 2017 11:50

On security the real test is simple. Will HMRC be sufficiently confident in the security of the MTD systems etc to get rid of the Cardiff 1 Tax district which is the district that deals with MPs, certain government employees and probably others. If you are dealt with by Cardiff 1 you cannot submit anything online and they have no access to online info and nor do you for anything to do with a Cardiff 1 client.
So will that change?

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20th Feb 2017 12:04

"A second goal of MTD is to reduce errors made by the taxpayers, such as misunderstandings about what expenses can be claimed. Hawksworth said he was working with tax policy colleagues to remove shades of grey, and replace those points with black and white tax policies, which can be built into the MTD software. That software will then make it easier for taxpayers to get their tax right first time."

So, a mere bagatelle then.

Only needs a complete re-write of:

TMA:
ICTA:
Capital Taxes Act:
Capital Allowances Act:
VATA:
et al

Nothing much then... have it done by teatime.

Clearly, all these uber-expensive Tax Lawyers and Barristers have been pulling our prime member for years.

Nice bit of software, Guv; £50 a month does it all. Even makes the tea!

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20th Feb 2017 12:55

Thus has all the makings of a monu mental disaster. I cannot for the life of me see how this is going to be of benefit to HMRC or taxpayers. HMRC have their heads in the cloud with this and have no idea of what goes on in the real world My prediction is that it will end up a total shambles.

Thanks (0)
20th Feb 2017 13:09

Fantastic line on call the midwife last night:

"It is always good to have two opinions, especially if one of them is mine!"

So apt here, in so many ways!

Thanks (1)
By Tornado
20th Feb 2017 13:26

It it is interesting to note that David Gauke is not only significantly involved with the MTD project but also the Business Rates changes that are causing so much anxiety to so many people at the moment.

Is there no limit to this man's clear intention to destroy the small business community? Perhaps he spent too much time cosying up the the likes of Amazon and giving them preferential tax deals to care about the needs of small businesses.

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20th Feb 2017 13:36

What do they say about giving someone enough rope.
It is now very clear that HMRC do not have a clue. They haven't even got a threshold figure.
I, like many others, could quote many "shades of grey" that cannot be "black and white".
Surely someone in HMRC or Government MUST realise that MTD will not work in its present form yet they still push on.

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20th Feb 2017 15:09

Someone has already mentioned the Titanic. I know of two accountants locally who have already taken early retirement and jumped ship directly due to MTD. It is very tempting to join them. There's no sign of a lighthouse, just some very dim lights in some very tall ivory towers...

Thanks (1)
20th Feb 2017 15:26

"A beta pilot of MTD software is due to start in April 2017. Hawksworth was asked how much of the nudges and prompts would be included in that beta version of the software. He said the beta product would be concentrated around certain types of income initially, and during the 2017/18 tax year more features will be added. He confirmed that there would not be an end-to-end pilot of the MTD software for all types of unincorporated businesses."

I thought I read somewhere that HMRC was relying on 3rd parties to build MTD software? Are they now building it themselves?

Thanks (0)
20th Feb 2017 15:43

This is (and always has been) about responsibility. We vote in a government. The government makes their intentions known ('intent' is an important word in politics and HMRC).

The 'intent' (and therefore, responsibility) is passed along to the people who are charged with implementing it - namely HMRC.

HMRC accept the responsibility because they have no choice - they are the puppets of government. Plus, it looks good on the Chief Exec's CV.

The HMRC management team pass the responsibility down the line till it ends up (in this case) at the tech people, who happily take it on because they don't want to lose their jobs.

At this point, we all blame the tech people because we clearly see their integrity is somewhat debatable (everything is 'simple' in binary). But we all choose to ignore the very politicians who put all this in place, and who were voted in by us.

The tax system has been broken for hundreds of years. The bandages used to stop the haemorrhaging is now so thick, no one even knows where the haemorrhage is.

It will take a brave person to step in and finally stop the rot that is the British Tax System.

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