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Impact of MTD on micro businesses

Making MTD more workable for micro businesses

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I run a small accountancy business from my home filing between 150 & 160 tax returns a year. I have one client classed as a small business, but the rest are all micros. The Making Tax Digital proposals will be a minor inconvenience for my one small client, but for the micro clients it's going to cause major problems.

I expect many will look to me to deal with it for them. Normally I would be happy to assist, but the government proposals are going to make that very difficult if not impossible.

Firstly, when the new bookkeeping requirements start I will have a full year's accounts and tax returns to deal with relating to the previous tax year. As I already operate close to capacity that will leave minimal time available to deal with current year  MTD digital bookkeeping issues as well.

Secondly, as small mainly unincorporated businesses most of my clients have 31 March or 5 April year ends. So if they all end up with the same quarterly bookkeeping stagger with just 1 month to file I am going to be left with an impossibly uneven workload.

To my mind there needs to be a more gradual transition to the new system. This could be achieved fairly easily by exempting micro business from the new system if they have turnovers under £50,000, then dropping the limit to £40,000, and £30,000 in subsequent years.

Personally, I believe the current £10,000 proposed limit is too low and should be raised significantly anyway.

Also, there needs a to be a better way of spreading the quarter ends. Even allocating quarter ends randomly or on an alphabetic basis would be better than having the vast majority working to March, June, September & December.

A longer filing window after the end of the quarter would also help, and I see no justification for limiting the review and finalisation process to 9 months. Currently we have almost ten months to the 31 January and there is no reason to think the finalisation process will be any quicker or easier after the MTD changes.

Finally, there is a problem with some taxpayers adopting the cash basis that I feel should be addressed. For a taxpayer earning taxable profits of say £12,000 a year, switching to the cash basis is disadvantageous if they have stock and capital allowances claimable of say £5,000. Having to claim these allowances in full reduces taxable profits to £7,000, effectively wasting £4,000 of allowable expenditure which would be covered by personal allowances anyway.

This issue could be resolved by allowing the unrelieved claim to be carried forward and set against the next available taxable profits. Given that the wasted expenditure can be disproportionately large in comparison to profits, the current system is far from fair on low income taxpayers.

I'm not suggesting these proposals are perfect, but they might help make the new system more workable for micro businesses - and their accountants.

Further comments on this would be welcome, also any suggestions as to how to get idea such as this implemented?

Replies (43)

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By Tim Vane
18th Aug 2016 14:05

When an asteroid hits a planet, sometimes the least adaptable species die out.

As for your suggestions, you have until 7 November to respond to the consultation. I wonder how many will take the time to respond. Probably not many, going by previous consultations.

Thanks (1)
Replying to Tim Vane:
Tornado
By Tornado
22nd Aug 2016 13:14

There is no control over an asteroid but there is complete control available for MTD. The disaster does not need to happen.

Thanks (3)
Replying to Tornado:
RLI
By lionofludesch
22nd Aug 2016 14:19

I think you'll find that Bruce Willis doesn't agree.

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By leicsred
18th Aug 2016 14:19

So now natural selection is based on the ability to use a smart phone bookkeeping app?

I bet the dinosaurs are glad they had an old fashioned asteroid.....

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RLI
By lionofludesch
18th Aug 2016 16:36

There are actually a lot of people out there in business who'd rather have a job but are self employed simply because it is their best option.

Some can't get a job, some need to be flexible in their working hours because of commitments as carer, some have health issues of their own. So long as the Government is prepared to support these folk when the asteroid hits them and maintain their relatively modest standard of living, fine, carry on.

However, as we all know, benefits for the unemployed and disabled are less of a priority that tax breaks for the greedy and wealthy.

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Jennifer Adams
By Jennifer Adams
18th Aug 2016 16:54

Tim asks who will have time to respond. Accweb will be responding on members behalf as they have done for a number of consultations before this (I know... I wrote most of them!) so please let your views known (yes.. we know most of them already) and we'll pull something together. Again as Tim says - there are a few weeks yet.
My personal concern is of the number of clients who might leave my firm and try to do it themselves. A number of mine either do or have partners who are computer savvy so will do it themselves.
I am worried that my letting clients will go as they are usually more computer savvy.
Can I ask (and this wont go in any consultation response) are you worried or are you one of those who think it will increase your business?

Thanks (0)
Replying to Jennifer Adams:
RLI
By lionofludesch
18th Aug 2016 17:02

JAADAMS wrote:

Can I ask (and this wont go in any consultation response) are you worried or are you one of those who think it will increase your business?

I don't think I will lose business. I think I'll get more business but it's work I'm reluctant to take on because my clients will, by and large, get little or no benefit from it.

At the lowest level, the client just needs to know how much is in the bank. Has he enough to pay for the groceries and the gas ? He doesn't need software. He just needs to visit the cashpoint and check his balance. And that's why this gibberish goes too far down the scale. Businesses with a £10000 turnover ? Unbelievable arrogance from HMRC.

Thanks (5)
7om
By Tom 7000
22nd Aug 2016 12:51

Its easy. You sell them an app for a licence fee of £19.99 a month. You buy the app for a one off fee of £1.99. You explain its extra because its linked into your service of quarterly reporting. They scan everything in and up load it to you. You give them a special email address to do it ie [email protected] myfirm.co.uk

All these emails go to india where the pixies living on the shores of the ganges input it to HMRCs system for you and charge you £2 a month

You sit back and make £18 a month x 150 clients for doing nothing.

Altenatively Ill buy your clients off you for £74.63 plus a tube of smarties?

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By DMGbus
22nd Aug 2016 13:12

A Commons Select Committee should be set up to thoroughly examine the MTD proposals in view of how radical the proposals are. Here are some questions that need knowledgeable and truthful answers:

1. How much extra cost will be incurred by taxpayers for software?
2. How much accountants extra fees will be incurred by taxpayers?
3. How much extra costs will accountants incur in software costs?
4. Why must individual transactions be reported rather than monthly or quarterly or yearly totals?
5. Some software / online services for photographing / scanning in receipts into a software package are currently, in practical terms, unreliable resulting in accounts records being inaccurate and requiring additional advisor time to put right the errors (factual example : ReceiptBank with Xero) - how will MTD solve this problem?
6. As there is no legal requirement to make quarterly tax payments on account, why must quarterly reporting be mandated?
7. VAT returns can currently be lawfully completed annually rather than quarterly for businesses with an annual turnover of less than £1.35 million - this measure was introduced to ease the administrative tax burdens on businesses, so why is the turnover limit for quarterly MTD reporting not set at the same fair level?
8. Where a tax payer or advisor finds that the administrative costs of MTD exceed the amounts stated in your answers to the preceding questions how can they reclaim compensation from HMRC or yourself?
9. What practical (hands on) experience of small business accounting do the promoters / advocates of MTD have?
10. How much financial benefit is estimated to accrue to the software industry as a result of MTD?
11. Which HMRC / ministers / MPs have signed contracts with software suppliers regarding MTD?

Thanks (6)
Replying to DMGbus:
Tornado
By Tornado
22nd Aug 2016 13:55

I would add a few more -

What is so wrong with the current system of Self Assessment that it needs such a savage overhaul. What justification can there be for doing away with a system that works well and provides a standard which everyone can relate to. MTD seems to have no standards at all and will just lead to confusion, particularly as the figures are likely to change at least every quarter and probably much more frequently as HMRC tinker with figures on a day to day basis.

Why are the Government so sure that people 'dread' the completion and submission of a Tax Return each year. The alternative they are offering is likely to be far more onerous to many people and will still require a fifth and final submission anyway. Promoting MTD as doing away with the Tax Return is a blatant misrepresentation of the facts.
In my experience, the completion of an annual Tax Return is a very efficient and accurate way of calculating Tax Liabilities, and most people do not 'dread' it. (Where on Earth did they get THAT idea from or is it just a delusion they have and never mind the facts?) I have had many hundreds of clients in my time and I cannot remember one of them saying that they dread completing a Tax Return. A few moans and other comments, but no 'Dread' and most people just accept it as something that they do.

Why do the Government think MTD will help people to keep a better track of their tax liabilities. Self-Assessment uses a logical process of calculating tax liabilities and there are already safeguards to allow people to reduce payments on account if they feel their income has reduced. MTD takes no account of seasonal variations in income so you could calculate a profit in one quarter and then have it wiped out in the next. Rather than making it easier for people to keep a track of their tax liabilities, MTD will lead to wild confusion

The natural order of the whole world is based on annual cycles. There is absolutely no logic in trying to account for tax on a quarterly basis when a year is the natural period to gauge the performance of anything. Are the Government going to ditch the fiscal year as well and work on quarterly accounting? I think this highly unlikely so why apply it to the rest of us? Why move away from annual accounting. What makes our Government so arrogant that they think they can change the natural order of the world?

If the Government are simply wanting to speed up the flow of tax the it would cost just a fraction of the MTD budget to adapt the current Self-Assessment system to do this.

How does NIC fit into the scheme? Would it not have been better for the Government to do the obvious first which would be to admit that NIC is largely just a tax and that it would be better to just merge the two taxes so that we have a much simpler tax system. Would it not be better to spend the MTD budget on tax simplification first and then look at other options later?

Thanks (3)
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By DMGbus
22nd Aug 2016 13:09

HMRC's data capacity is a subject that needs answering.

Given that VAT return data is not available online for a full four years of returns (presumably due to data capacity issues at HMRC), how can HMRC systems possibly have the capacity to receive data quarterly on an individual transaction basis under MTD?

Thanks (1)
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By pauljohnston
22nd Aug 2016 13:13

Just a thought. Would it not be easer for those with a PROFIT of less than the personal allowance (and no other income) to have a two line reporting requirement ie Turnover box and a tick box "My profit is less than ..."

Thanks (0)
Replying to pauljohnston:
RLI
By lionofludesch
22nd Aug 2016 13:19

If you have a seasonal business, how will you know on a quarterly basis ?

Or, indeed, if your business just grows rapidly.

Thanks (0)
Tornado
By Tornado
22nd Aug 2016 14:10

A way to keep rental or other income below the £10,000 threshold would be to share the income between several people. For some people this situation will already exist, so a married couple with rental income of up to £19,998 from jointly owned properties will remain under the threshold (assuming no other rental or qualifying income), and thus quarterly reporting will not apply.

I can see that with a little imagination, there would be a number of (perfectly legitimate) ways for people to keep their income under the £10,000 threshold, but it would be much better to the Government to raise the threshold to a more realistic level, such as no less than £50,000, rather than opening up the floodgate of ways to get around unworkable limits.

The Government have to remember that the public are like a wagonload of monkeys, basically uncontrollable. Whatever they do, there will always be monkeys trying to do something that they do not want them to do.

Anyone for a banana?

Thanks (2)
RLI
By lionofludesch
22nd Aug 2016 14:23

I like the idea that tax is too complicated for MTD so, instead of upgrading MTD, we dumb down the tax system to fit MTD.

Only a fool would think that's a good idea.

Lions and donkeys spring to mind, as we continue our commemmoration of WW1.

Although that's slightly insulting to donkeys.

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By Arm266
22nd Aug 2016 14:33

I have a great sympathy with the views of Blogger. However, his workload problems will apply to all one man accountants - as he states, they will have to complete the previous year's accounts while working on the new quarterly returns - an impossible workload as all such businesses will need to be working with a maximum client base if they are to make a reasonable profit.
Also, experience of dealing with small businesses shows that tying them to such tight deadlines will be impossible. I have been trying to persuade my clients, by various financial schemes, to spread their accounts over the tax year without success - many still leave things to the following January despite all my financial incentives.

Thanks (1)
Replying to Arm266:
Hallerud at Easter
By DJKL
22nd Aug 2016 15:33

Yes, as a single part time accountant working around my main job, it is these time critical activities that are the most difficult to juggle.

Taking a holiday in July already involves waiting until after the 5th to submit CIS returns, allowing enough time before I go in July to complete all June quarter end vat returns or come back with enough time to complete them prior to the 7th August, run all payrolls before I go and other odds and ends which are short term time critical.

Factoring in quarterly MTD submissions is just another stressful burden to load onto the back of the sole practitioner.

Now I suspect we will see some modification before A day and possibly some shifting of the target dates, so if all of you could lobby to get them to delay implementation into 2020, when my wife and I will both be 60, I would be very grateful. My wife can then take her local authority pension and I can dip into my SIPP.

Maybe, if I do still want to work, I can go and work part time for another firm of accountants where all these headaches will be their problem not mine

Gie us a job, I can do that.

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Eagle
By Financial Eagle
22nd Aug 2016 15:54

The £10,000 turnover exemption limit is ridiculous. If someone has a turnover of less than £10,000 they don't have a business, they have a hobby.

Personally I believe that the entire scheme should be scrapped as it will damage the economy and reduce the tax take. Just how many sole traders will decide to join the black economy, how many will be driven out of business by constant fines and increased accountancy costs.

What HMRC are actually doing is forcing the self employed to be online whether they want to be or not. Internet access, or smart phones, all cost money, HMRC are effectively telling people how they must spend their money. Totally wrong on every level.

If the government wants to save money it should start by firing the idiots who came up with this daft idea.

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Replying to Financial Eagle:
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By KateR
23rd Aug 2016 10:01

I agree wholly with your first sentence... and your last.

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Replying to Financial Eagle:
By Ruddles
23rd Aug 2016 12:54

Nonsense. My daughter is in business with a turnover of less than £10k for the last 2 years.

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Replying to Ruddles:
Eagle
By Financial Eagle
24th Aug 2016 17:53

With a turnover of less than £10k her profits are obviously less than £10k. As this is below the threshold for claiming a vast array of benefits we can only assume that the taxpayer is making her income of less than £10k up to a living wage.

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Replying to Financial Eagle:
By Ruddles
24th Aug 2016 15:31

More nonsense - her profits are significantly higher than £10.

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Replying to Ruddles:
Eagle
By Financial Eagle
24th Aug 2016 16:14

I've heard of creative accounting, but how anyone can make a profit greater than their turnover is seriously stretching the imagination.

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Replying to Financial Eagle:
By Ruddles
24th Aug 2016 16:23

Last time that I looked, £10,000 > £10

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Replying to Ruddles:
RLI
By lionofludesch
24th Aug 2016 16:34

Ruddles wrote:

Last time that I looked, £10,000 > £10

Pity you didn't proof-read your earlier post.

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Replying to lionofludesch:
By Ruddles
24th Aug 2016 17:19

???

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Replying to Ruddles:
RLI
By lionofludesch
24th Aug 2016 17:22

"More nonsense - her profits are significantly higher than £10. "

You said it.

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Replying to lionofludesch:
By Ruddles
24th Aug 2016 18:14

Her profits ARE significantly greater than £10 - but below £10k. So what is your point?

BTW, I see that our feathered friend has tried to save face by amending his earlier post. As you say, though, it is still possible for profits to exceed turnover. Most accountants recognise that possibility.

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Replying to Ruddles:
Eagle
By Financial Eagle
24th Aug 2016 18:59

Pedants who seek out typing errors in the full knowledge that they are deliberately misrepresenting them are invariably obsessive characters with severe personality disorders.

As for asserting that it is possible to have profits which exceed turnover, that is the most ridiculous statement I have ever heard, although a pedant could believe it to be true.

In theory a business could receive investment income due to investment in another business, BUT, investment income is, in fact, part of the turnover of the business so it is only the pedant who would record it under a separate heading and not consider it part of the business's turnover.

A pedant is defined as "a person who is excessively concerned with minor details and rules or with displaying academic learning." They make appalling accountants and give poor business advice as they are unable to see the bigger picture and obsess on 2p errors in the petty cash.

Thanks (1)
Replying to Financial Eagle:
By Ruddles
24th Aug 2016 19:26

I never sought out any typing error. I was merely responding to your post, which had nothing to indicate that there was a typo in it. Of course, I could have assumed that you did in fact mean £10k rather than £10, but you have already ably demonstrated the folly of making assumptions.

Thanks (0)
Replying to Financial Eagle:
Hallerud at Easter
By DJKL
25th Aug 2016 09:56

If say a business makes a gain on sale of fixed assets profit may, in such a scenario, be greater than turnover.

It is not impossible, merely improbable.

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Replying to DJKL:
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By DMGbus
25th Aug 2016 10:09

I saw case in 2015 of profit over £200k yet turnover was less than £50k. Profit on sale of fixed assets was the reason for this result.

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Replying to Financial Eagle:
By Ruddles
25th Aug 2016 10:41

4 September 194x

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Replying to Financial Eagle:
RLI
By lionofludesch
24th Aug 2016 16:26

Mine's not quite so stretched.

In theory, you could register for flat rate VAT and enjoy a flat rate adjustment greater than your expenses.

The adjustment isn't part of your turnover.

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Tornado
By Tornado
23rd Aug 2016 11:18

BAFFLED

One particular aspect of MTD that really baffles me is that my clients generally come to me as they do not want to, or more likely, cannot deal with their tax and accounting affairs themselves. They do not come to me because I force them to or for any other reason other than they require my assistance.

My impression of the Government approach to MTD is that Accountants and other Agents are not really required and that taxpayers are perfectly capable of dealing with their own tax and accounting affairs.

It may be true that I could service my own car to a certain extent, but I would be in a difficult position if the Government actively tried to sideline garages and expected people to service their own cars and then penalise them if they got it wrong.

It is simply ignorant arrogance that believes that everyone is capable of dealing with MTD without assistance, unless you count the 'pop-up' help that HMRC promote.

I have tried talking to Ruth on the HMRC login page ..... all you get is a generic answer to your question (if she understands it) and anything slightly complex is referred to several web pages which are equally generic and do not answer the question. All you are doing is trying to talk to a computer that really has no idea what you are talking about.

I guess there will be no personal helpline as that would be inundated by people asking questions about matters that Accountants would normally take in their stride. HMRC will not be in the business of completing MTD statements for people, so they will back a long way off from anything that looks like they are offering a MTD service of this kind.

The more this goes on, the bigger the grin on my face gets. When will the Government realise that MTD is not going to work in its current proposed format and time scale and a radical change of direction is required.

Thanks (4)
Replying to Tornado:
Hallerud at Easter
By DJKL
23rd Aug 2016 11:38

My bafflement is more, what is it intended to achieve?

The only perceived benefit I have heard is that taxpayers can budget better re their tax but I am not even sure it will really help with this.

It appears a pretty drastic change to implement to merely receive the above benefit, or does MTD have other hidden depths of benefits?

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Replying to DJKL:
RLI
By lionofludesch
23rd Aug 2016 11:50

I just assumed that quarterly payments would follow.

Some Government bloke said that's not so and I accept that with all the credibility it merits.

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Replying to Tornado:
RLI
By lionofludesch
23rd Aug 2016 11:39

Couldn't agree more.

The Government thinks computers are smart. They're not smart - but they can do as they're told quicker.

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RLI
By lionofludesch
25th Aug 2016 09:05

Why can businesses account for VAT on an annual return with a turnover limit of £1.35m whilst tiny businesses are only exempt from quarterly accounting if their turnover is less than £10000 ?

Does this signal the end of annual accounting for VAT?

Thanks (1)
Replying to lionofludesch:
Hallerud at Easter
By DJKL
25th Aug 2016 10:09

You appear to be seeking joined up thinking and logic within government thinking, a lifetime/career in accountancy ought to have made you aware that there lies madness.

Once one embraces the idea of petty, arbitrary, illogical and inconsistent rules ,accountancy and tax becomes bearable; it is fighting against such practices that prolongs one's pain and suffering, stop fighting and the pain disappears.

"Now I've got that feeling once again
I can't explain you would not understand
This is not how I am
I have become comfortably numb"

Thanks (1)
Tornado
By Tornado
26th Aug 2016 11:25

HUMAN RIGHTS

I am wondering if there is a Human Rights issue here. Forcing people to try and carry out procedures that they are unable to do, (for no valid reason) is clearly going to cause great distress to tens of thousands of people.

I suspect the issue of Human Rights related to Making Tax Digital will arise sooner or later.

After all, it would be unfair to introduce legislation that required pigs to fly around for 20 minutes each day, it just will not happen and tens of thousands of pigs would be heavily fined. Agreed that some would buy hang gliders or small planes, (those that arrogantly wonder why everyone else cannot do the same), but the vast majority of pigs would not be able to comply. That would be a very unfair situation causing a lot of distress to many pigs.

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Tornado
By Tornado
29th Aug 2016 09:59

PRIME MINISTER HEADING FOR DEPRESSION?

I note in the paper today that in an interview with Theresa May, she was asked what made her feel depressed. She answered that people getting hurt through Government bureaucracy depressed her.

She is going to have to work decisively and quickly then to stop or slow down the plans for Making Tax Digital as this is clearly going to hurt many, many people, and we really do not need our new Prime Minister to feel depressed (or worse) about anything at the moment.

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By SKCOX
29th Aug 2016 11:05

I'm informed by a reliable government source that the original plan was something much more workable: a single tax based on how many fingers and toes the taxpayer possesses (Making Digits Taxable). But someone in the press office got it wrong and now they have to run with it.

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