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Making Tax Digital - HMRC view

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I don't know if anyone else saw this letter from Theresa Middleton (HMRC Director Making Tax Digital) in today's Daily Telegraph.

A really good example of not letting the facts get in the way of a good story.  You think she might have read the House of Lords reports since she is widely quoted in them

Peter Coveney (Letters 16 January) suggests that thousands of small- and medium-sized businesses are not digitally sophisticated enough to file tax returns online. This is not HMRC's experience, which has shown an increasing appetite for our digital services among small businesses.

Making Tax Digital will make a positive difference, reducing the avoidable errors that some businesses make in their tax returns. Some £9 billion is lost in this way each year. The scheme will also make it easier for businesses to manage their tax - saving time that can be devoted to maximising opportunities - and help foster good financial planning.

 

 

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By paulwakefield1
18th Jan 2019 15:54

Having received my HMRC MTD letter which read like the marketing arm of Sage. ("You are using Sage who are releasing software compatible with MTD"etc. and no mention of alternatives. And how do they know I am using Sage?), I was incensed enough to write to my MP and covered a few other MTD things as well.

But, fear not, we are all over reacting. Mel Stride, Financial Secretary to the Treasury, informs me that "businesses will have to operate MTD....only for their VAT obligations". And they've done lots of communication and testing. So that's alright then.

Mind you he's a bit upset about the House of Lords report. Shame.

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RLI
By lionofludesch
18th Jan 2019 16:25

How do they know £9 bn is lost ?

Why don't they go and collect it ?

Because they've just made it up ?

Do they have figures for tax overpaid because of "avoidable errors" ?

Will a lot of errors be created by folk trying to use unfamiliar software ?

I certainly hope so !!

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By ireallyshouldknowthisbut
18th Jan 2019 16:42

HMRC 'losses' figures apparently come from random compliance visits, and then extrapolated across the whole business population.

ie the ones they do on the most recent quarter.
Which is typically:
1. Before an accountant has checked it
2. Almost certainly before a balance sheet has been drawn up, so routine errors picked up.
3. Where you agree to £100 or so, just to see the back of them. I understand inspectors MUST generally find an error, or cant close the file.

HMRC failed to explain *how* Mtd will change error rates.

Software just creates different error types.

Its all a fiction.

I also like how this is Schrodinger's money.
Ie MTD simultaneously saves the business money, whilst raising more tax for HMRC. And there was me thinking if the tax payers payed over another £9billion, they would be £9billion worse off.

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Replying to ireallyshouldknowthisbut:
RLI
By lionofludesch
18th Jan 2019 16:55

ireallyshouldknowthisbut wrote:

I also like how this is Schrodinger's money.
Ie MTD simultaneously saves the business money, whilst raising more tax for HMRC. And there was me thinking if the tax payers payed over another £9billion, they would be £9billion worse off.

Fair point.

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By Accountant A
18th Jan 2019 17:25

I tried to post a link to the HoL's reports but I think the system has stopped me.

Anyway, the November report says:

'HMRC expects MTD for VAT to deliver just over £1 billion from implementation to 2022–23. Theresa Middleton, Director of Making Tax Digital for Business at HMRC, told us this would come from a reduction in manual steps where error could arise—“arithmetic” and “transposition” errors—and reduced risk of lost paperwork due to more timely recordkeeping.'

So on the one hand we are invited to believe there is £9 billion annually at stake but then it's £1 billion over four financial years ("from implementation to 2022–23").

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Replying to Accountant A:
RLI
By lionofludesch
18th Jan 2019 17:37

Accountant A wrote:
Theresa Middleton, Director of Making Tax Digital for Business at HMRC, told us this would come from a reduction in manual steps where error could arise—“arithmetic” and “transposition” errors—and reduced risk of lost paperwork due to more timely recordkeeping.'

Just bulwarks, isn't it ? Arithmetic and transposition errors work both ways (not that I believe that they're significant anyway).

Lost paperwork ? Far more likely to relate to expenditure than income. Good luck to HMRC in increasing revenue there.

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By daveforbes
18th Jan 2019 19:11

I think the two figures are because there are two different MTDs being discussed, mtd for vat coming in April and mtd for income tax coming at some point in the future

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By Accountant A
19th Jan 2019 12:37

daveforbes wrote:

I think the two figures are because there are two different MTDs being discussed, mtd for vat coming in April and mtd for income tax coming at some point in the future

I thought you might be right but the 2017 HoL report says:

"On the basis of this analysis, HMRC estimates that the introduction of MTD would reduce the tax gap by £10 million in 2018/19, £400 million in 2019/20, £805 million in 2020/21, and about £1 billion per year thereafter. These figures cover not only income tax effects, but also VAT and corporation tax to which MTD is planned to apply from April 2019 and 2020 respectively. "

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By lincolnartist
18th Jan 2019 20:43

The person in charge of this farce is Theresa? Oh , that explains a lot now.

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By GW
18th Jan 2019 18:07

I predict in a year or so MTD will be a sucess:

1) HMRC will say returns are now more accurate (remembering Jon Thompson's comments on prepopulation of interest on tax returns and we'll keep quiet about the amount of tax collected). They will be able to say the returns are consistant with the accounting records - not that it means the records are any good.

2) The tax gap will drop (as the calculation is guess a number and compare it with what is collected, if you guess a smaller number then the gap reduces)

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By johnhemming
18th Jan 2019 21:09

I always remember a contractor I used in one of my businesses who told me that if I paid him in cash he would drop the VAT. I told him that I was OK he could charge me the VAT as I was VAT registered and could reclaim it as long as I had a VAT invoice with a VAT number.

He then told me he was not VAT registered and didn't have a VAT number to which my question was what he was doing charging VAT.

We all know a lot of the businesses that want to be paid in cash do so because they can then minimise what they declare to the authorities. That, of course, is part of the tax gap. MTD creates a clear audit trail between VAT input and output and the records. As fewer payments occur in cash all of these changes will make it harder to fail to declare taxable income. I don't think, however, that anyone believe that overnight sending the 9 boxes via an API will result in the tax gap going to zero.

The Self Assessment MTD Api is quite a bit more complex from a computer technical perspective it is another order of complexity. However, these changes in the round are likely to make it much harder to hide taxable income. It will also make managing the public finances easier as there will be earlier knowledge as to what the tax take is likely to be.

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Tornado
By Tornado
18th Jan 2019 23:21

"However, these changes in the round are likely to make it much harder to hide taxable income."

I don't think so. If anything it will widen the gap between those that comply and those that keep out of the system. If people find it too difficult to deal with accounting software or they are unable to use it, they will just find ways around it.

It is alarmingly naive of the Government to believe that just because they make MTD mandatory, that it will just happen.

And talking about API's, the sort of information that TaxCalc is picking up from HMRC for auto entry into Returns is largely unreliable, missing, misleading, incomplete and generally of minimal use. As far as interest and dividend income is concerned, I cannot believe that this will ever appear as it will be far too complex for HMRC to deal with.

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By johnhemming
19th Jan 2019 07:22

Tornado wrote:

As far as interest and dividend income is concerned, I cannot believe that this will ever appear as it will be far too complex for HMRC to deal with.


The bigger problems may be jurisdictional, but the OECD is gradually introducing mechanism to track down beneficial ownership in multiple jurisdictions.

From an HMRC perspective finding that there is a source of income is a useful step. Getting the information as to the quantum is a second step, but the first step makes that easier.

I think there will be quite a few changes in this area which are not going to be handled via paperwork but instead by dataflows and APIs. A lot of systems use XML, but I think we will see a movement towards JSON (that is used for MTD) because of the flexibility of REST apis and that they often come with JSON although the Customs HMRC interface still uses XML even though it is provided through a REST API.

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By lionofludesch
19th Jan 2019 09:38

Tornado wrote:

It is alarmingly naive of the Government to believe that just because they make MTD mandatory, that it will just happen.

People in Government are naïve. It's because few of them have ever had jobs in the real world.

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By johnhemming
19th Jan 2019 10:05

lionofludesch wrote:

People in Government are naïve. It's because few of them have ever had jobs in the real world.


There are problems that arise from a high proportion of senior politicians having careers almost entirely in politics (eg David Cameron, Ed Miliband, Nick Clegg). However, there are always some elected officials who have experience outside politics although they often get a kicking for external interests and there is pressure particularly from Labour to stop people who have any interests other than politics from being elected officials.
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By lionofludesch
19th Jan 2019 12:07

Or - they could have jobs before they were elected and give them up when they get a new job in Westminster.

We used to have MPs here who were ex-miners. They didn't do a shift down the pit during the excessively long Parliamedntary recesses.

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By johnhemming
19th Jan 2019 16:40

lionofludesch wrote:

Or - they could have jobs before they were elected and give them up when they get a new job in Westminster.


I continued to chair the board of the business I founded in 1983 when I was elected to parliament in 2005. My constituents knew I had business interests and did not think I had to stop doing any other work. Dentists and Doctors also like to keep up with their profession.
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By Accountant A
19th Jan 2019 12:31

johnhemming wrote:

I always remember a contractor I used in one of my businesses who told me that if I paid him in cash he would drop the VAT. I told him that I was OK he could charge me the VAT as I was VAT registered and could reclaim it as long as I had a VAT invoice with a VAT number.

That's just blatant tax fraud. If someone has criminal intent, I'm not sure MTD will stop them.

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