Ellison challenged on MTD letter

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Richard Hattersley
Community correspondent
AccountingWEB
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The government’s understanding of the implications behind Making Tax Digital (MTD) has come under scrutiny after a letter from Jane Ellison to the Treasury Select Committee hinged on some questionable evidence.

The financial secretary to the Treasury attempted to quell the committee’s MTD concerns in a letter from 31 January addressed to Andrew Tyrie, chair of the committee, justifying how the tax system will benefit from the digital overhaul.

With claims about the eagerness of businesses to adopt accounting software and a low estimation of the MTD impact costs, Ellison’s unwavering optimism towards MTD raised eyebrows among tax commentators.

Opening the letter, Ellison put forth the apparent appetite for the regime: “Two million small businesses already use software to keep their records, produce their accounts or administer their tax. Indeed, to date nearly 9m (92%) have filed their self-assessment return digitally this year, up from just over 39,000 (0.5%) when it was first introduced in 2000.”

AccountingWEB consulting tax editor Rebecca Cave further questioned the relevance of Ellison's presentation of the facts: "HMRC provides a free to use portal to file self assessment returns online that does not require paid for software," she said. "And it is not compulsory to file an SA return online." While another tax commentator argued that adoption of online self assessment filings took 16 years to reach 9m, "not 16 months".

Source: Jane Ellison's letter
Jane Ellison

Further on in the letter, Ellison reasoned the need for the reforms because of the £8bn tax gap lost as a result of “avoidable” small business errors: “MTD will help the self-employed, businesses and landlords get their tax right first time”, she said. “[T]his will also reduce the cost, uncertainty and worry that businesses face when HM Revenue and Customs (HMRC) is forced to investigate.”

However, Cave disputed this, arguing that small businesses will be submitting dirty data under the MTD regime, as the numbers have not been checked by an accountant, and the quarterly reporting will add four times the worry.

Jane Ellison
Jane Ellison's letter

Spreadsheets and software

Moving on to a much-debated subject on AccountingWEB, Ellison repeated HMRC’s decision to allow the use of spreadsheets provided it can “produce and send the quarterly summary updates to HMRC and complete the end of year activity”.

This, a tax commentator scrawled across a letter sent to AccountingWEB, is “a significant level of functionality for any mere spreadsheet”. The tax commentator added: “we'd expect most SMEs to jump at this if it's viable, but they won't know if it works until software houses can create the packages.”

Ellison claimed that HMRC will test spreadsheet integration with software during the planned pilots. In the next paragraph, Ellison reiterated that free software will be available to the smallest businesses “with the most straightforward affairs, largely those that are unincorporated, under the VAT threshold, and without employees”.

Source: Jane Ellison's letter
Jane Ellison

While Cave questioned Ellison’s supposed confirmation of free software for small companies, another tax commentator added: “The tax affairs may look simple; the business affairs may well not be, and the family life of the owners may be inextricably intertwined with the business financial affairs and records”

Ellison signed off the letter with her assurances that “extensive testing should ensure that by the time mandation starts, from April 2018, we can be confident that a range of software products is available at different price points.”

However, the tax commentator didn’t end their penned criticism on the same cheery note, retorting: “This timeline remains incredible. Business doesn't want software for the April 2018 roll-out available from April 2018; it needs it available, tested and reviewed well ahead of that deadline so that it can make an informed and sensible business decision on which package to implement.”

Impact assessment

Days after receiving the letter, Tyrie had his own curiosity about the figures Ellison presented in regards to her assertion that the impact assessment forecasts that MTD will provide “an ongoing administrative saving to businesses year on year”.

Source: Jane Ellison's letter

Tyrie asked both Ellison and Mike Cherry, the chairman of the Federation of Small Businesses, to provide clarity over the pair’s disparate estimated costs of digital record keeping: the FSB expects MTD to costs around £2,770, while the government estimates a much lower transitional cost of £280 per businesses.

Tina Riches from Smith and Williamson in evidence to the House of Lords economic subcommittee calculated that the MTD transition will cost her clients £2,000 plus VAT every year.  

Tyrie commented: “The compliance cost estimates are so far apart that at least one of them must be wrong.”

“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.”

 

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16th Feb 2017 14:20

Business Awards Nomination for Numpty of the Year 2017:

Already seems totally in the bag that Jane Ellison wins this even with over 10 months left of 2017.

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to mr. mischief
17th Feb 2017 15:35

Glad I got rid of a landlord, who used to deliver a truckload of paper mid-January every year.

This letter from Jane Ellison is full of Sir Humphrey jargon and contains virtually no facts. An £8 billion alleged tax gap won't be closed by MTD. Accountants help clients to present accurate accounts once per year and the right amount of tax is paid. MTD will have inaccurate quarterly information corrected at year end, so the result equals the same tax figure that is collected under the present system.

As for those in the black economy, MTD won't make any difference. Cash in hand will be the same as always and never see an accountant or the tax man. That is where the real tax gap is.

As well as the Numpty award (love that word), she surely also qualifies for the Sir Humphrey government gobbledegook award.

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to raybackler
17th Feb 2017 23:05

raybackler wrote:

As for those in the black economy, MTD won't make any difference. Cash in hand will be the same as always and never see an accountant or the tax man. That is where the real tax gap is.

I would beg to differ on this point as MTD will have an impact on the black economy: it seems likely to increase this problem IMO as it will push the marginally compliant over the edge away from accounting professionals, who would be able to keep them somewhere near the straight and narrow, and into complete non declaration.

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By RobertD
16th Feb 2017 15:05

When I read Ellison's reply I had to write another letter to Andrew Tyrie covering many of the points raised above.

It should be noted that Jane Ellison's boss is David Gauke. It's a hierarchy of horses ar5es.

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17th Feb 2017 09:28

unfortunately these things are done in the name of progress. As such if you are not for it you are seen as a luddite (whether your critique of such things is right or wrong).

You only have to look at this website....Some people are worried about robots taking over the world....I am just worried about the people who are pushing that particular line....inevitably self interested and nothing more.

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By LAC47
17th Feb 2017 11:03

From Government and HMRC it is just the same thing over and over again.....they really are not in touch with the real world. In an earlier blog one accountant made the request for the HMRC team running this MTD for business project to spend some time in his offices to see how things are done in real life....what a great suggestion, but there is no chance that they will ever take him up on his offer. That may lead them to realise what it all really means, which would force them to take a truly realistic review of their proposals.

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17th Feb 2017 18:54

I feel a bit like after the Brexit result. If this is happening then let's get on with it now. Firm turnover limit announced and beta software released so we can plan and be ready for next year.

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18th Feb 2017 08:44

Why the fuss over spreadsheets?

A spreadsheet that creates a dozen or so totals, that then get typed in to a Tax program, and a Submit button pressed. Just like we already do with VAT and Self Assessment

Simples !

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to davidross
21st Feb 2017 14:24

But, and it's a big but, will the MTD software accept totals or will it want individual entries? One of HMRC's original requirements was to see every single entry.

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By SM80
18th Feb 2017 15:32

The software houses must be terrified. Theyve spent millions on this and now someone will design an app that sits at the front of an excel and all you do is link those boxes to the relevant boxes in your spreadsheet (profit say) and the app will just report those figures. And we ll all use spreadsheets as per normal. Of course what about the other functionality of the BTA? Will the BTA be standalone like the PTA so ppl can just log in or will it only be accessed via software? Anyone know?

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20th Feb 2017 11:08

One of the blizzard of documents published by HMRC on the 31st Jan was one entitled "Making Tax Digital for business" on page three under the heading "proposed revisions" there is a statement which reads:-
" for Vat, these quarterly updates will effectively replace the VAT return"
In all of the copious cover on MTD by Accounting web I have never seen this very important issue mentioned and I am wondering if somehow I have had a senior moment and have missed an earlier announcement or is this HMRC seeking to slip this bombshell into the public domain under the cover of their 31st Jan releases?
Does Accounting web have an opinion on HMRC`s current position on the "merging" of the Vat return with these new quarterly accounting requirements?

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