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Is it time to reach MTD ITSA compromise with HMRC?

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There have been many threads about the car-crash-in-waiting that is MTD ITSA. Many of us are of the opinion that it will be impractical/costly for small businesses to digitise their transactions and have been making our opinions know ever since MTD was first announced. The pilot is a disaster yet the MTD steam roller is still rumbling on towards the 2024 cliff edge. I feel HMRC will force MTD ITSA on us whether it is working or not, just as they did for 30-day CGT. HMRC have invested too much in MTD to back out. But it's still going to be a disaster for smaller businesses so I wonder if we should negotiate a compromise with HMRC: increase the MTD turnover threshold to £100,000. This level would remove most of the tiny businssess for whom it will be the most costly (in proprtion to their existing fees) to digitise, such as small landlords, subcontractors etc. Currently I am fighting MTD but if the turnover threshold was £100,000 I would feel it would be more achieveable so I would switch from complete objection to working towards compliance. I still think MTD is an unnecessary cost, as are many HMRC regimes such as 30/60-day CGT. But I think I would grudgingly work with it at £100,000. What are my fellow AWebbers views on this?

Replies (44)

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By ireallyshouldknowthisbut
21st Jun 2022 09:36

VAT threshold would resolve the issue to my mind, and voluntary under that point for those who value the quarterly tax estimates.

VAT clients by and large have software and the 'extra' data required by income tax would be minimal. Something can be spat out which will be good enough to 'tick the box'. We would of course need the extra 7 days, it is pointless having the VAT deadline different to the income tax one.

HMRC get their shiny new system without too much embarrassment, and tax payers avoid a huge administrative burden.

HMRC can then concentrate on genuine efficiencies. Eg resolving the mess around class 2 NI which must waste 10,000's hours of their time and ours per annum. ie making the tax return the definitive article which populates the NI computer.

On a wider point if HMRC want quarterly payments on account or to accelerate those, so what. I don't think anyone has a problem with that within the existing system. Simply paying interest like CT does would I think hugely accelerate tax receipts. I would certainly pay all mine as early as possible as would many of my clients, rather than as late as possible. My CT is paid as soon as the year is created in HMRC's system.

But enough with simple ways to solve a massive problem of their own creation. It wont enrich software suppliers so HMRC wont be interested.

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Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
21st Jun 2022 10:14

So, you are all prepared to throw non vat registered landlords with rents over 100k under the oncoming bus- I am disappointed, where is your solidarity, comrade.

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Replying to DJKL:
By ireallyshouldknowthisbut
21st Jun 2022 10:30

@DJKL, did I say turnover, I meant VAT registered (thus nearly exempting landlords)

To be fair clients we have with £100k+ rents have proper systems as they tend to have a dozen plus properties so it would not be a biggie. Its a much bigger burden on landlords with one or two.

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Replying to ireallyshouldknowthisbut:
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By DJKL
21st Jun 2022 14:15

With commercial property you can snaffle the best part of 100k via a single property with two tenants and eight receipts a year.

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Replying to DJKL:
By Charlie Carne
22nd Jun 2022 09:43

So how hard would it be to file this digitally if there are only 2 receipts per quarter?

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Replying to charliecarne:
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By DJKL
22nd Jun 2022 10:04

They are not tricky if one understands debits and credits, most clients do not.

I do know debits and credits and still have to think very carefully using software for our vat registered property beast ( Landmark - Key Prime Property software)., I have circa 5 service/rental invoices a quarter but do also have a fair few costs re these services.

It generates the tenant invoicing from the input leases but adjusting these re rent reviews etc is not for the faint hearted , rebilling services can also add complexity.

For years I did everything via Word/Excel, type up invoices, write up cashbooks, post these to ETB, all working papers linked, simple to tweak if out of the norms occur. The software now used ,whilst readily lodging for MTD vat ,actually takes more time than the excel cashbooks ever did .I doubt the profit varies by approach, the new system is not more accurate and I can near guarantee that in the hands of a non bookkeeper/accountant the system is going to produce junk.

(95k rents, 15k services)

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By bernard michael
21st Jun 2022 09:34

Sounds like Ukraine being asked to compromise by giving up territory lost to the Russians when they know they'll be back later for another bite.

The same thing will happen with HMRC

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Replying to bernard michael:
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By Yossarian
21st Jun 2022 14:39

bernard michael wrote:

Sounds like Ukraine being asked to compromise by giving up territory lost to the Russians when they know they'll be back later for another bite.

The same thing will happen with HMRC

You make MTD ITSA sound like an invasion. Its actually a 'Special Fiscal Operation'. George Osbourne told HMRC staff that the public will be out in the streets thanking them for freeing small business owners from the tyranny of the annual tax return..

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Replying to Yossarian:
Morph
By kevinringer
21st Jun 2022 14:44

Something similar happened when RTI was introduced and got rid of the employer's annual end of year return.

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Replying to kevinringer:
Stepurhan
By stepurhan
22nd Jun 2022 08:29

kevinringer wrote:

Something similar happened when RTI was introduced and got rid of the employer's annual end of year return.

Not quite analogous.

Wages literally had to be calculated on a weekly/monthly basis anyway. Tax was also already paid on a monthly basis on those calculations. A lot of the work for RTI reporting was already being done.

If anything, the dog's dinner RTI reporting was when it came in should serve as a warning. Huge problems were caused over a fairly small part of the tax system. One where, for the most part, the information being submitted was uniform and predictable. It does not bode well for a much bigger and more complex scheme.

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Replying to Yossarian:
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By bernard michael
21st Jun 2022 14:55

Yossarian wrote:

bernard michael wrote:

Sounds like Ukraine being asked to compromise by giving up territory lost to the Russians when they know they'll be back later for another bite.

The same thing will happen with HMRC

You make MTD ITSA sound like an invasion. Its actually a 'Special Fiscal Operation'. George Osbourne told HMRC staff that the public will be out in the streets thanking them for freeing small business owners from the tyranny of the annual tax return..


..........by introducing 4 extra returns ???
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By JustAnotherUser
21st Jun 2022 10:12

If something has no value and is awful, why compromise. Its awful for everyone no?
Only hope for change would be one of the large institutes, an open letter and counter signed by 10,000 accountants and 100,000 small business.... only issue is, small business still have no idea what MTD ITSA is!

heres a recent attempt https://petition.parliament.uk/petitions/589102 757 signatures...

A) they wont listen
B) no chance this is happening in its current design or timeframe, someone somewhere is to scared to annouce another delay

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Replying to JustAnotherUser:
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By bernard michael
22nd Jun 2022 09:53

JustAnotherUser wrote:

If something has no value and is awful, why compromise. Its awful for everyone no?
Only hope for change would be one of the large institutes, an open letter and counter signed by 10,000 accountants and 100,000 small business.... only issue is, small business still have no idea what MTD ITSA is!

heres a recent attempt https://petition.parliament.uk/petitions/589102 757 signatures...

A) they wont listen
B) no chance this is happening in its current design or timeframe, someone somewhere is to scared to annouce another delay

It's not awful for HMRC

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By Hugo Fair
21st Jun 2022 10:15

That sounds logical ... which is why it won't work (HMRC don't do logical).

"I wonder if we should negotiate a compromise with HMRC"
... but *how* do you negotiate with someone/body that isn't listening?

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By JD
21st Jun 2022 11:47

No quarterly reporting and make it voluntary.

If HMRC then concentrate on making their systems as good and easy as possible for the taxpayer and agents (instead of trying to run a paperless dictatorship), then it will in time naturally be adopted.

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By bluebaron
21st Jun 2022 13:01

Make it voluntary, raise the threshold to a much higher level (VAT threshold?), scrap the quarterly nonsense. I just can't see HMRC listening though, unless there is mass non-compliance (quite likely in my opinion!) when it is introduced.

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Replying to bluebaron:
By ireallyshouldknowthisbut
21st Jun 2022 14:13

Several levels of non-compliance.

(1) not doing Q reports
(2) filing rubbish Q report with any old nonsense to just get it done
(3) filing Q reports with 'real' data but not wholly digital using a patchwork of systems and workarounds
(4) fully compliant end to end digital

The only thing HMRC will be able to police is (1) and possibly (2) but you can probably wriggle out of it with a claim to year end adjustments.

At the moment with VAT, there is a surprisingly high number using the 'wrong' submission method until its turned off. I can guarantee a very large number of those using the "right" portal have barely changed their processes from the "type the totals in the box and press send" era. Yet HMRC trumpets this as a huge success.

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By SXGuy
21st Jun 2022 13:23

Good luck. I agree but don't think 100k threshold would wash considering mtd vat was 85k. One would ask why you manage to digitise records at 85k but not 86 to 99k

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By Winnie Wiggleroom
21st Jun 2022 13:57

Yes, but not 100k - 99% of businesses are already in MTD for VAT at that level surely so HMRC gain nothing.

OK, set it at the VAT reg threshold for now and see how that extra bit of ITSA goes for those that are already in MTD for VAT. To me that makes sense.

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Replying to Winnie Wiggleroom:
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By bernard michael
21st Jun 2022 14:02

Winnie Wiggleroom wrote:

Yes, but not 100k - 99% of businesses are already in MTD for VAT at that level surely so HMRC gain nothing.

OK, set it at the VAT reg threshold for now and see how that extra bit of ITSA goes for those that are already in MTD for VAT. To me that makes sense.


Sense is anathema to HMRC
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Replying to Winnie Wiggleroom:
Morph
By kevinringer
21st Jun 2022 14:40

There is a massive difference between MTD VAT and MTD ITSA. Most of my MTD VAT clients use a simple VAT template I put together. That template integrates with Absolute VAT Filer. All clients have to do is input the invoices. MTD ITSA is different. Clients will need to include non-VAT transactions. Clients will need to make judgements such as capital v revenue. Clients will need to sub-analyse invoices and payments (most of my clients are farmers and most purchases from agricultural merchants would require this, something that does not have to be done for MTD VAT). So whilst most clients can make a reasonable job of MTD VAT, I suspect few will handle MTD ITSA.

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By David Ex
21st Jun 2022 16:14

To misquote Churchill “An appeaser is one who feeds a crocodile — hoping it will eat him last”.

I prefer the principled approach which is pointing out the fact that MTD for IT is of benefit to no-one and likely to prove unworkable for represented taxpayers whose accountants will have a month to file all their clients quarterly returns.

Of course, HMRC have refused to listen to any objections so it’s all academic.

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By GHarr497688
21st Jun 2022 19:30

Recently I was in touch with HMRC Making Tax Digital Readiness Team who told be MTD for VAT was a resounding success and almost everyone was signed up. They stated that MTD ITSA was on track and would be bought in no matter what in 2024 and that I should do all I can to support them in the role out and assist clients. MTD improves record keeping , makes tax easier to work out and improves compliance , it also costs hardly anymore than the current system but delivers much more.

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Replying to GHarr497688:
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By Hugo Fair
21st Jun 2022 19:53

.... they left out - eradicates world poverty and brings peace to all. Surely those were in the first draft - so has the official line been edited down or did they just forget?

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Replying to GHarr497688:
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By David Ex
21st Jun 2022 21:01

GHarr497688 wrote:

MTD improves record keeping , makes tax easier to work out and improves compliance , it also costs hardly anymore than the current system but delivers much more.

Did they venture an view as to how that happens? It’s just utter nonsense and yet it appears to be the rationale for the whole project. If quarterly reporting does all that, presumably monthly would be even better - and why not daily??!

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Replying to David Ex:
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By bluebaron
22nd Jun 2022 08:47

What planet are HMRC on??!! Sadly, this is what we are up against.

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Replying to bluebaron:
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By Ben Alligin
22nd Jun 2022 09:50

Between Saturn and Neptune I would suggest!

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Replying to Ben Alligin:
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By Hugo Fair
22nd Jun 2022 10:00

Subtle!

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Replying to David Ex:
paddle steamer
By DJKL
22nd Jun 2022 11:01

A Real Time Ledger of All Transactions, all linked, no cash ever used, all recorded and viewable by the HMRC bots; when reading 1984 for my Scottish Higher in 1977 I never back then dreamed it would feature so resonantly within my later life.

Buy precious metals/gems etc now for the soon to come underground barter economy.

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Replying to DJKL:
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By Hugo Fair
22nd Jun 2022 11:11

A straight barter of your time/services is the best way of avoiding IT/CT et al.
Whereas your precious metals/gems avoid CGT & IHT since, like almost everybody on Antiques Roadshow, you're not quite sure how or when it entered the family's pile of possessions but it's rumoured that my mum's half-sister had a rich lover etc.

Whoops, was I talking out loud?

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Replying to Hugo Fair:
paddle steamer
By DJKL
22nd Jun 2022 11:53

Catch with barter is you need to have cross matching needs, some medium of exchange does make thinks easier- my window cleaners visited this morning at 8.00, perhaps my other half could do some baking and I could give him scones when he comes around this evening for his 9.60.

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Replying to DJKL:
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By Hugo Fair
22nd Jun 2022 12:56

Which is where it gets 'interesting'.

If you treat each transaction as needing a direct 'paired transaction' (of equal value and preferably effected almost at the same time) then you end up with your scenario - although I'd recommend agreeing the window:scone exchange rate before any cleaning starts (otherwise you'll find the rate less to your liking).

But if you're prepared to maintain credit/debit balances and therefore have agreed some sort of base unit, then you can now exchange some units (as sales or as purchases) with other 3rd parties.
This used to be quite common in small, stable communities who could rely on minimal paperwork (and trusted each other) ... the local garden allotment often being a prime example ... but of course is open to abuse or formalisation, either of which defeats the original objective!

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Replying to Hugo Fair:
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By Latinaid
23rd Jun 2022 07:32

Hugo Fair wrote:

Which is where it gets 'interesting'.

If you treat each transaction as needing a direct 'paired transaction' (of equal value and preferably effected almost at the same time) then you end up with your scenario - although I'd recommend agreeing the window:scone exchange rate before any cleaning starts (otherwise you'll find the rate less to your liking).

But if you're prepared to maintain credit/debit balances and therefore have agreed some sort of base unit, then you can now exchange some units (as sales or as purchases) with other 3rd parties.
This used to be quite common in small, stable communities who could rely on minimal paperwork (and trusted each other) ... the local garden allotment often being a prime example ... but of course is open to abuse or formalisation, either of which defeats the original objective!

This is the basis of the Local Exchange Trading System (LETS) - I'm a bit out of touch now, but there used to be many LETS groups around the country. I'm in a thriving one - our currency is Hemps.

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By Duggimon
22nd Jun 2022 09:45

I don't disagree with the content of your proposal, the sticking point for me is:

"I wonder if we should negotiate a compromise with HMRC: increase the MTD turnover threshold to £100,000."

How? HMRC are not open to negotiation, suggestion, feedback or intervention. They will do what they want. What is our negotiating tactic?

We can come to the 'table' which is hypothetical because there is no forum to discuss this, and say "we think the threshold far too low, it's unachievable at £10K, let's increase it and tie it to the VAT threshold" and HMRC will say "No, we don't want to" and we'll say... what?

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By bernard michael
22nd Jun 2022 09:58

Have HMRC not thought that the people MTD is aiming at won't understand it and probably won't comply or if they do with rubbish figures. Further if accountants refuse to accept clients with MTD requirements ( more unprofitable work plus having to continually chase clients for information) it will not work

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By Kathryn15
22nd Jun 2022 10:07

It definitely seems sensible to me for MTD for ITSA to be introduced first for those with income over the VAT threshold as they are likely to already have digital systems in place. If we don't encourage clients to join the pilot then surely HMRC will not be able to test the software adequately and they will perhaps delay again, at least for those under the VAT threshold? When I asked yesterday on the ICAEW webinar about MTD, they could not tell me any advantages for taxpayers to join the pilot, only suggesting that agents need to get one or two clients to sign up so that agents can see what it is going to look like. How can I say to clients "I want you to do this, and it is going to cost you more money and time two years before it needs to, but it is for my benefit."? Our clients are very small self-employed and landlords.

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By petestar1969
22nd Jun 2022 10:57

I may be in a minority here. Its business owners who claim their turnover is in the 10's of thousands who are most likely to be lying and scratching around doing undeclared cash jobs, probably also claiming top up benefits like UC. These are the ones MTD is supposed to catch, although the proposed method is poor.

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Replying to petestar1969:
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By bernard michael
22nd Jun 2022 11:03

petestar1969 wrote:

I may be in a minority here. Its business owners who claim their turnover is in the 10's of thousands who are most likely to be lying and scratching around doing undeclared cash jobs, probably also claiming top up benefits like UC. These are the ones MTD is supposed to catch, although the proposed method is poor.

However you still won't catch these as they will submit false figures

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Replying to petestar1969:
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By Hugo Fair
22nd Jun 2022 11:04

True ... but people "doing undeclared cash jobs" are hardly going to be at the front of the queue for suddenly deciding that MTD gives them the 'opportunity' to come clean and declare everything!

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Replying to petestar1969:
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By DJKL
22nd Jun 2022 11:07

Of course once their turnover is higher these individuals become saints!

(It can be the same person earning 40k year one, 80k year two, 150k year three etc, the same person only the turnover has increased, if he/she is a cheat he/she surely continues to be a cheat irrespective of how high or low his/her turnover becomes, the leopard surely does not change spots subject to turnover)

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By Homeworker
22nd Jun 2022 11:10

Yes, increase, but to £100k is absurd and stands no chance of being adopted. I agree the VAT threshold makes sense initially but would settle for anything over half that, as that would remove a huge number of landlords from the problem - at least for a couple of years until everyone gets used to this.

Has anyone actually thought about the practicalities of the first year of adoption - trying to cope with the new quarterly regime from April 2024 at the same time as preparing all of the 2023/2024 accounts and tax returns, thus (more than) doubling our workload? Those moving on to software for the first time are unlikely to have confirmed opening balances ready.

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By North East Accountant
22nd Jun 2022 13:46

Accepting that the ultimate destination is digital records and digital filing, then how do we get there.

HMRC - are you listening and prepared to take on board feedback from the front line?

If yes, ask 20 of the top objectors on A/web (me included) to a one day roundtable/workshop with the sole objective of coming up with an actionable plan on how to get to the destination from where HMRC and taxpayers are now.

If no, why compromise? HMRC aren't listening so let them get on with it.....we'll all cope cos that's what we do.........HMRC, and unfortunately the unrepresented taxpayer won't, but that's HMRC's problem.

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Replying to North East Accountant:
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By DJKL
22nd Jun 2022 14:00

Digital records may be their current desired destination but before they travel to it they actually want to check it will deliver what the brochure says it will regarding entertainment etc.

Surely Digital records is in reality not the aim but is instead merely their chosen route to their aim, to me step one is to examine what digital records will actually deliver in the real world, is it fit for its purpose, is there a better way to deliver what is sought etc?

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Replying to North East Accountant:
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By Winnie Wiggleroom
22nd Jun 2022 14:15

As I have said many times before, any sensible organisation would have done that before deciding to implement a new system. A steering committee of 10 or 20 small practice owners would have made this work

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