I'm raising this as it has already raised concerns with discussions with my clients over moving into MTD.
From an accountant who focuses on small businesses and sole traders, this exemption could prove more troublesome to us than for the clients.
In a recent meeting with a client, I addressed the changes proposed by HMRC, I'm pro MTD and knowing this clients history (some 15 years) I expected some resistance to the change. What I didn't expect was his proposal to me...
The client asked if there was any way we could lose a few hundred quid to keep his earnings below the £10,000!!!!
Appart from the obvious concerns, refusing this request made me feel very uncomfortable about my future relationship with this client. We have always been honest and candid about our relationship and it got me thinking that this exemption may actually create an underground type market for sole traders and businesses willing to break the rules to avoid these new requirements!
I have read articles saying the exemption should be raised to the VAT threshold but personally I feel this should be an all or nothing affair. Any form of exemption regardless of how big or small will only create a situation where people will lie to avoid the extra requirements.
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I think MTD is yet another complicated expensive and unnecessary meddle with the affairs of small business. Just when you think the government can't possibly make life more complicated for us all they introduce yet another spectacularly bonkers idea.
What on earth is wrong with the current arrangement for sole traders; an annual tax return, payments on account twice a year .. a piece of cake.
Now we are going to have to do 5 returns a year, payments to HMRC wont be any quicker, accountancy fees for small businesses will soar with no discernible benefits for business, accountants or HMRC.
The thing I am dreading the most is trying to get information from clients, on time, 5 times more often in a year and the appalling peaks in workload that will inevitably occur.
Who needs this?
It is these kind of idiotic decisions by government (the dreaded so called elites) that led to Brexit and Trump.
My view is if have to go ahead with this stupid idea at least set the exemption at the VAT level.
The proposed exemption relates to the gross turnover/rents received and not the profit level. Unless clients are providing just a service with few overheads then I would have thought that most small businesses/landlords will be caught, although just like VAT, there will be people who deliberately keep their turnovers under the registration limit to avoid the hassle and reduced income that registration would bring.
Having said that, I do not believe the exemption limit will eventually be set at £10,000 turnover but I do fully expect HMRC to quote this level right up to the last minute when they will finally cave in and agree that this limit is unworkable.
Do you think that businesses (particularly cash businesses) very close to the VAT threshold don’t lose some turnover to avoid registration?
You are pro MTD, but you say that most of your clients are small businesses. The majority, if not all of your clients will be anti MTD. If I were you, I’d be keeping quiet to clients about being pro MTD.
I've got to say, the OP is the first pro-MTD accountant I have come across.
I would be in favour of moving towards compulsory filing of all tax returns electronically (we are not far away from that now) but am very much against MTD. It just seems like needless bureaucracy to me. It will inevitably result in the many of the quarterly returns containing estimated figures, which begs the question of what the purpose is.
I suspect the ulterior motive will be quarterly payment of tax ... and possibly in the long term monthly returns and monthly payment of tax.
Apparently (according to HMRC) businesses are crying out to know what their tax is on a real-time basis. But I have never found any who would be prepared to pay to have 5 returns filed with HMRC to know this.
I suspect that the only positive outcome of the consultation will be the lifting of the MTD turnover threshold, hopefully up to the VAT registration threshold.
I would be in favour of moving towards compulsory filing of all tax returns electronically (we are not far away from that now) but am very much against MTD.
Of course, that would require changes in internal process at HMRC. Bankruptcy, MPs, Judges etc. are all actively prevented from filing electronically by HMRC.
That's because the SA system isn't secure.
Fine for us plebs, obviously. Who cares if a voter gets hacked ?
I think making the VAT threshold the start of MTD requirements would be too high. Rushing into MTD practically overnight is crazy, too. I would prefer a gradual approach:
Online bookkeeping with nine months to file for the first year
Filing every six months with three months to file the second year
Filing every three months with one month to file the next year and onwards
This would give a gentle transition
The £10k threshold is pointless as only really exempts a few landlords with single properties.
I think a starting point of between £30k to £50k more reasonable so the likes of taxi drivers and window cleaners are excluded.
I also feel it should be like AE were larger companies do it first then it filters down to the smallest. That way the problems encountered would be met by the people who are best able to deal with as they will already have decent systems in place, and it would give sole traders 3/4 years to prepare.
As someone pro MTD perhaps you could explain what you perceive its benefits will be:
1. For clients- what insight will it give them that they could not, if wanted, get by other means?
2. For HMRC? What real benefits accrue?
I have struggled to discern the real tangible benefits and in the absence of a cost/benefit analysis see little need to do anything with the system ; however flawed,misguided or badly costed such analysis turns out to be it ought to have been provided.
The lack of provision by anyone (HMG/ HMRC/ Treasury) of such an analysis to me says a great deal about the thought process of MTD's proposers.
Tosh
The quarterly self employed returns will possibly have little bearing on the final assessed figures for each year.
If a taxpayer is so desperate to know liability they can guess/estimate based on previous year or, like quite a few of my clients, save a percentage of income each month in a tax account to avoid issues. The clients who never had a clue re their financial position will still not have a clue.
To look at things bluntly, taxable profits could be £100,000 up until 30th March when that new bit of qualifying kit costing £90,000 gets purchased, profits now £10,000.(I do a fair few reviews with clients in the last few weeks of their accounts year, not uncommon)
If the clients want more information mid year they can get it, they do not need legislation to ram it down their throats, nothing stops them using cloud solutions if that is what they desire.
Have you thought that maybe some clients will embrace a DIY approach re MTD which, given the example of questions asked on here, suggests their accounts may be junk, their interpretation of same may be worse than junk, and the whole exercise is self delusion .
A pale pretence at dressing up some spurious benefit to ram the idea down the taxpayer's throat, Linda Lovelace would be so proud of HMRC.
I've given some benefits in a previous reply, but to highlight your question.
For Clients:
The identity of their tax position BEFORE the tax is due, which your probably already aware of as its been highlighted as one of the key benefits of digital cloud accounting. The automation of data collection can (and has) help accountants identify problems within businesses giving accountants the tools to offer solutions to clients and to make their businesses more efficient and profitable.
Much of these benefits are keyed to cloud accounting which for smaller businesses is just as much a dirty word as HMRC or Tax :)Many seem to separate MTD and Cloud accounting but the two go hand in hand, yes its more (and possibly needless) work for those already using cloud accounting software. But if you're working with clients still using paper ledgers or god forbid, shoeboxes, then successfully moving them to cloud and MTD can only be good for their business.
OK - I've got a subcontractor client who can fit all his tax certificates and bills into a C5 envelope, let alone - God forbid - a shoebox. Turns over around £25,ooo, with a profit of maybe £23,000. Why is MTD good for him ? Why does he need to upload his books (well, sheet of paper) into the cloud ?
Sure - some businesses want to develop and grow. They need to keep track of debtors and creditors. Some don't have that need. Why should this guy be dragged into the effort and expense of this? What's in it for him? What problems am I going to be able to identify from his cloud-based records that I couldn't before? Am I going to be able to say "Tommy - you've forgotten to enter your van insurance" ? As though I wouldn't have noticed that otherwise ?
You're looking at the advantages for micro-businesses but there are nano and pico businesses out there too.
I would argue that accuracy and protection are the two key benefits for your 1 sheet subby, I'd dread an HMRC enquiry for those types of clients.
Accuracy and protection ?
In what way ?
I'd dread an HMRC enquiry too - but only because it would be a pointless and outrageous cost for the guy.
lets go back to when self assessment was first introduced, accountants hated self assessment! hop forward to online filing, many said that businesses wont cope with the new online tax returns.
Self Assessment went exactly as accountants predicted. We had to do a lot of overtime to get our tardy clients up to date. Filling the forms in wasn't much extra effort. Sure, they were different and took some getting used to but you weren't obliged to work the tax out. Still the case, sfaIaa.
Here, incidentally, is another case of HMRC pigheadedness. The Irish tax authorities recommended that the switch to current year wasn't made in the same year as self assessment. Recipe for disaster, they said. Did HMRC take any notice ? No.
Businesses cope with online RTI by getting their friendly accountant to do it whereas before, they did it themselves. Great for accountants and payroll bureaux but another financial kick in the teeth for the small trader.
As an accountant in general practice, I will probably make money out of MTD.
But as a taxpayer and a business person, I think it is morally wrong to impose burdens on small businesses for something that they neither asked for or benefit from. Many micro-businesses that previously had no need for an accountant will be forced to find one. Pretty much all will find their accountancy fees rise for no benefit to them.
Over the past 5 years, we have been going through a revolution within the accountancy profession with cloud accounting. That is a good thing and it will continue. But what I object to is that pretty much ALL businesses will be mandated to maintain records in a way that is not necessarily of any benefit to them.
I don't buy your argument in another comment that it will free up lots of money for the taxpayer. Firstly, HMRC are very clear that MTD will not change when tax is paid. But if they do eventually change this (as I think they eventually will) then why not just make the existing payments on account monthly instead of 6 monthly. That would be easy, with no additional burdens required.
I'm in the "I'll wait and see what happens" camp, as there is very little real detail so far. Perhaps in a month of two's time, things will be clearer.
As an accountant in general practice, I will probably make money out of MTD.
But as a taxpayer and a business person, I think it is morally wrong to impose burdens on small businesses for something that they neither asked for or benefit from. Many micro-businesses that previously had no need for an accountant will be forced to find one. Pretty much all will find their accountancy fees rise for no benefit to them.
It's interesting that I have two relatively substantial businesses, each employing 10-15 folk, for whom I have offered to prepare quarterly accounts after completing the VAT return.
Neither has shown the slightest interest. They've got a wedge at the bank. They know they're doing OK. They don't need anything more formal. They don't need extra fee notes from me.
Locutus wrote:
As an accountant in general practice, I will probably make money out of MTD.
But as a taxpayer and a business person, I think it is morally wrong to impose burdens on small businesses for something that they neither asked for or benefit from. Many micro-businesses that previously had no need for an accountant will be forced to find one. Pretty much all will find their accountancy fees rise for no benefit to them.
It's interesting that I have two relatively substantial businesses, each employing 10-15 folk, for whom I have offered to prepare quarterly accounts after completing the VAT return.
Neither has shown the slightest interest. They've got a wedge at the bank. They know they're doing OK. They don't need anything more formal. They don't need extra fee notes from me.
Would not disagree, for years I was a slave to management accounts until I eventually realised that none of those receiving them really wanted them and most of them barely understood them anyway; appreciate we are not typical (no stock/significant purchase cycle)
These days we really just watch cashflow/debtors and compare that on an ad hoc basis, it frees up so much of my time I can waste it posting on here and when not so posting the saved management time lets me say investigate cost savings re our overheads; in effect doing rather than being a mere voyeur of the past, which frankly is what most people actually running a business want to do, accounts only take one so far..
I've mentioned this before but I've a client who's retired, has a couple of rental properties which would take her over a £10000 limit, hardly any expenses so she just pays the rents into her ordinary day-to-day account.
Are we saying that she has to report every transaction on that account to HMRC ? It sounds like it to me.
Alternatively, she can open a rental business account. Which would be a great inconvenience to her as a housebound, elderly lady who can't cope with internet banking. Though, even if she wasn't - why should she have to do this ?
Clearly this is nonsense. It's set far too low. And the pace of change is far too quick.
I'd ask HMRC - when they get a new software system, do they give their staff any training or do they just see if the staff can work it out for themselves ?
At the other end of the scale I have some clients (mainly but not exclusively) Companies who have developed their own accounting systems that work very well, and provide accurate figures but they will not be the approved software that HMRC insist on.
The time and expense involved to convert these businesses to approved software will probably run into the tens of thousands of pounds plus the lost income resulting from the disruption.
This can be planned better and the cost much less if there is a sensible time scale involved and I think these companies would eventually benefit from the change, but mandation and the unrealistic time scale for introduction of MTD will be more likely to significantly harm these businesses and perhaps force many to simply cease trading.
All this for what? The whims of some ignorant juveniles in HMRC who think they are playing computer games.
I'm totally anti MTD and, in my considered opinion, the threshold should be around the twenty trillion £ mark.
Like alot of the people here, it seems, I am totally anti MTD.
What a waste of time and effort for no genuine discernible benefit to anyone as far as I can see.
It's hard enough trying to keep up with all the unnecessary tweaks and fiddles to the tax system without then having to cope with tweaks and fiddles to administering the whole process too.
I have tried very hard to introduce 2 or 3 of the fashionable cloud bookkeeping systems into my practice (no names needed) and to get clients to join in and take on board these systems.
It seemed the logical first step towards MTD
But I have just found that inspite of investing lots of money, time and positive energy into training staff and clients that most clients would rather give us their papers and let us got on with the job and staff much prefer the simplicity and ease of use of something like VT than what I still feel are the clunky, slow and easy to mess up cloud based systems.
For me the government should be trying to simplify things and helping business instead of continually making things more complicated and miserable for us all
I'm amazed that the OP thinks that accuracy and certainty are two advantages. As has already been highlighted, the likelihood of the final assessed liability resembling the in year estimates is remote, which removes that certainty.
As for accuracy, my own digital tax account is wrong. RTI is frequently wrong. Class 2 NI 2015/16 has been the source of ongoing problems, entirely owing to HMRC records being wrong.
Even when someone in HMRC actually takes the time to look at something, double counting of benefits in kind, a failure to understand basic accounting principals, and in many cases, complete ignorance of tax legislation cause incorrect assessments, determinations and tax return amendments.
I fear that accuracy will be something conspicuously absent from MTD.
Purchases/sales recorded into systems will no doubt be accurate copies, the key questions will still remain:
1. Ought they to be so recorded-was the cost for the business etc?
2. Is coding/treatment appropriate?
3. Have they all been recorded-what control over completeness?
What is proposed appears to be a charter to snap everything and whisk it in to the system with a reliance that the system "must be right", we all know, from painful experience, that this is fallacy.
Tax for the generation who appear to want to snap everything with a phone; never mind the quality, feel the width.
Well that was taken slightly out of context;
I was refering to accuracy of recording records digitally from mobile phone scans or emails instead of hand entering. Accuracy in reference to the removal of human data entry errors.
That bit of paper has about as much value as a used toilet roll as far has HMRC are concerned.
Not sure where certainty came from, I mentioned protection and stick by it. digital backups secure your records in a way that is cheap and safer than creating manual backups and storing them (often offsite).
I'm sure that piece of paper has no back up and if it should ever be lost or destroyed how do you expect to rebuild that years earnings accurately?
Yes, you're right. I could spend all my time with the client, making sure that all his transactions are recorded and that no invoices are lost, producing up to the minute accurate accounts.
But, of course, I'd charge him for that and he might feel that losing tax relief on a couple of petty cash bills stuck at the back of the glove box might be a cheaper option.
That's where your argument becomes questionable - if not entirely untenable.
Your OP mentioned a client wanting to "lose a few quid" to drop below £10000. Of course, he can do that, though he puts a glass ceiling on his earnings by sticking at a £10000 turnover. But your astonishment at his proposal suggests you are out of touch with those of your clientele who operate at the very lowest level.
Costs aside, it certainly needs to happen more often as we move into MTD. Especially as it looks like HMRC will start policing us instead of the clients!
I suspect that fewer and fewer small clients will keep their own books and that the shoe box - rather than disappearing - will make a come-back.
I certainly expect that several (if not many) of my clients will continue to keep books in the traditional, paper way and expect me to load the stuff up onto software for them. Which I may or may not be prepared to do - depending on the size of the job and the price they're prepared to pay.
I don't expect any clients to change from traditional paper books to software. If they can't do it now, they won't be able to do it with HMRC arm twisting.
And that's where the huge cost of MTD comes in......
If HMRC, and therefore our Government, are so concerned with timely and accurate accounts, perhaps they could start by demanding that the EU supply fully audited and professionally certified accounts for the EU for the last 20 years.
It's odd how we are willing to pour £millions into an organisation that, by all accepted standards, is "trading" illegally, yet we feel the need to impose constant extra burdens on small traders scraping a living that barely reaches the poverty line.
What is the point in imposing MTD on someone with a turnover of £10k, when they don't have to pay any tax until they make a profit of £11k. ?
A notebook and pen cost peanuts. The estimated cost of MTD for small business is in the region of £2,500 per annum. For a business with T/O of £11,000, that's a significant sum.
Ahh, so your figures, and we'll assume an already represented taxpayer:
Telephone £300
Basic software £72
Additional accountancy (say) £2,000 (based on current fee for once a year of £500, with four additional submissions required)
Per TaxAdvisor, MTD is likely to take 40% more time, so personal productivity (and it is a cost, since whilst doing this the taxpayer is not earning). Wholly dependent upon the person, but I reckon we can get £400 out of it.
Oh, look, there's your £2,700.
Yeah - I have to agree that all these optimistic estimates that it's only going to cost ten bob for tax payers to deal with MTD are based on taxpayers being able to deal with it themselves.
Not true at all. And unfair that it values their time at nothing.
I have had a quote for a paid package costing at little as £36 a year.
Your prices are worthless until we learn the parameters.
Your £36 package may not do the job. We don't know.
I too am interested to find out how one of the largest providers of cloud accounting software on the planet can provide an accounting package for £36.00 per annum.
As we all know, the payment made for a software licence is mainly to cover the cost of support so how much support can this company provide for that amount?
It seems too good to be true and therefore it cannot be true.
I think we need more details about this package as there must be more to this than meets the eye.
Thank you chariot4info for your pm.
The software you quote is offered at £2.99 per month for the first 6 months and then would appear to rise to a standard rate of £6.00 per month. It is also just a phone app which will be OK for some people but not others and is limited in it capabilities, but it does qualify as a cheap potential solution to MTD for some people.
For those clients with less than 10k turnover its more than adequate dont you think.
If you've a turnover of less than £10000, you don't need an app.
Paper - plenty good enough.
However - I'd again make the point that any app is only as good as the user.
Can you share so we can all judge how useful it could be.Thank you chariot4info for your pm.
The software you quote is offered at £2.99 per month for the first 6 months and then would appear to rise to a standard rate of £6.00 per month. It is also just a phone app which will be OK for some people but not others and is limited in it capabilities, but it does qualify as a cheap potential solution to MTD for some people.
The arrogance of views submitted by some contributors to this thread is unacceptable.
As an example, I have long standing clients who simply CANNOT deal with electronic accounting, despite my attempts to persuade them to do so. We compromise in that they do what they can, give us some documents that we have told them are essential and then we fairly quickly and efficiently prepare Accounts that are as accurate as they would be by any other means.
I am sure that many people reading this thread will recognise this scenario and agree that generally this works well for those that cannot deal with accounting software or do not want to for various reasons.
Indeed, you cannot just sit down the millions of people who are going to be forced to use specified software in front of a computer or phone (an absurd idea itself) and say 'get on with it'. This simply will not work. Some will be OK but for others the task is simply impossible and you cannot expect the impossible to work.
The selfish arrogance of some contributors to this thread simply mirrors the ignorant and unacceptable arrogance of HMRC in the MTD project proposals. The view that "If I can do it, then everyone else can" is the main reason why this whole project will fail. What is worse, is that these arrogant people probably have never actually used accounting software and in fact they cannot do it.
The more I hear about MTD the more I am convinced that unless the changes are staged over a 5 or 10 year period, what we are going to have is not the biggest change in tax administration ever, but more like the biggest tax disaster ever.
The signs are there for all to see.
HMRC are going to receive meaningless data.
They have nowhere near enough resources to do anything with the data.
It is more red tape for small business.
There can only be two reasons behind MTD:-
1. Accelerating tax payments.
2. Revenue from increased penalties
Yet another random threshold set by government and HMRC! 10,000 .. why??
The number of different thresholds for different taxes insurances different rates for administrative reasons etc etc
The whole system is becoming completely barking mad.
Is it truly beyond the wit and wisdom of every official involved in government and HMRC to bring some cohesion and simplicity to the tax system?
It really has gone way beyond a joke now.
You just could not design a system like this if you tried.
It is a complete embarrassment created frankly by complete bloody idiots.
The whole system should be torn up and started again.
I wish I had the time and money to have a crack at it. We're not looking at rocket science.
I'd start with a single 20% tax rate for everything income tax, CGT, IHT, NI (2 x 10%); an annual personal tax allowance to cover all income, gains, inheritances, NI etc and see where that takes us in terms of generating revenue for the government. Oh the joy of having the time to play around with simple numbers!!
Everyone is proposing accountants start right away preparing for MTD but for someone like me, it is impossible to get started until I know what is to happen to those below the threshold. Some 85% of my clients are below the current threshold and would not thank me for entering into discussions over something that is currently unknown! Virtually none of them are currently keeping electronic accounts so the jump into that can only be considered when we know what is required of them. Help please !!!