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MTD for income tax train crash incoming….

Completely unworkable proposals

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I spent this morning watching an IRIS webinar on MTD for income tax which is coming down the tracks in 2023.

Iris have clearly made significant preparations for this and their solution looks very slick and ahead of the curve.  However the prospect of MTD for income tax fills me with horror.

The upshot is that self-employed traders will need to file quarterly ‘updates’ to HMRC within a month of the quarter end for each trade and also if they have a rental property, separate quarterly updates for that also (which may be different quarters to the trade).  Add in end of period submissions etc and you end up with 14 submissions in this scenario.  

With each submission there appears to be a declaration to be made to the effect that the submission is correct and complete and warnings of penalties and prosecution.  This makes each submission a tax return in all but name.

This is going to be absolutely impossible. 

Let’s say a practice has 1,000 tax return clients and currently has from April to January to get them filed – which is hard enough. From 2023 they will need to submit 1,000 tax returns quarterly with only a month to do it.  Most of these will land the 3rd and 4th week of the month. It cannot physically be done.  Taxpayers are required to keep records digitally which will mean in most cases either the accountant has to write the books up or the client presents them with their digital records.  The client’s records will contain errors and requires the skill of an accountant to make sense of them – that’s what we do and how we make a living.  There is simply not the time available to do this for each client.  It will be January every month.

How on earth is this supposed to increase the accuracy of information and reduce the tax gap?  If accountants do not have time to properly review the submissions and resolve queries etc, or be forced by time constraints to leave it to the clients to do then rubbish is going to get filed. 

Why are the professional bodies not making more noise about this?
 

Replies (113)

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Tornado
By Tornado
18th Feb 2021 18:07

Remember that the Train Crash will only affect you if you get on the train.

If the train looks unsafe, therefore, then just don't get on it and look for an alternative form of transport that is safer and simpler.

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By SXGuy
19th Feb 2021 08:07

We've been saying this for months.

Think of how hard it is to get the yearlys signed off. Now we gotta do it every 3 months and more than once for each type of income?

Fees will have to go up. As a small practise like mine I'd need someone just to do the donkey work. Of course it could be streamlined abit with open banking etc but getting the clients to actively send over documents every quarter isn't going to happen.

Big fees await I feel and including ppl who's turnover is between 10k and 35k seems stupid, how will we justify fee increases for someone earning 10k a year? I just don't have the answer.

May find that the extra fees charged will just cover the clients we lose over it.

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Replying to SXGuy:
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By Paul Crowley
19th Feb 2021 08:54

The lost clients will just fail to comply

Clients that could submit? same as now, we do the final

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Replying to SXGuy:
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By 0098087
24th Feb 2021 11:05

but the problem ones don't know anything about open banking..it won't work!

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Replying to 0098087:
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By johnhemming
24th Feb 2021 15:35

0098087 wrote:

but the problem ones don't know anything about open banking..it won't work!


You are right that people who don't have an online account won't be able to use the open banking interfaces (that already exist). However, using things like open banking does have the benefit of not having to type in all the details (even if the coding needs to be sorted out some way or other).
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Replying to johnhemming:
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By 0098087
24th Feb 2021 15:51

Yes but they are stuck in the past and don't want to know. I could go on and bore everyone even more!!!

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Replying to 0098087:
RLI
By lionofludesch
24th Feb 2021 16:26

0098087 wrote:

Yes but they are stuck in the past and don't want to know. I could go on and bore everyone even more!!!

I'm no advocate of MTD but even I can see that that's not much of an excuse, really.

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Replying to lionofludesch:
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By 0098087
24th Feb 2021 16:36

I agree but they won’t listen

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Replying to 0098087:
RLI
By lionofludesch
24th Feb 2021 16:55

0098087 wrote:

I agree but they won’t listen

Well, if they're not taking your advice, you may have come to the point where there's an irretrievable breakdown in your working relationship.

Maybe a cards-on-the-table conversation along the lines of "we hope that these requirements will be watered down but, if they aren't, somebody will have to make an effort to transfer your records to software and, if it's to be us, we'll be charging our full rate for it".

You need the client to have a bit of realism. If he goes, you'll not be short of work because others will stay.

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Replying to lionofludesch:
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By 0098087
25th Feb 2021 07:56

It's pretty much going to come to that

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By Jo Nokes
19th Feb 2021 09:12

I caught up with the ICAEW webinar last night. I wish I hadn’t because I found myself awake at 5 o’clock this morning thinking about how ridiculous the whole enterprise is. It sounded like the presenter was making it up as she went along when she tried to explain how many filings one might be called upon to do. There was no indication how a joint owner would be able to file his own rental income details, and no explanation how a landlord would be able to obtain the relevant information from his agent. When she started to explain about different filing dates and the fact that income tax runs to the fifth of the month, whereas VAT runs to the month end, there was no solution. She mentioned software, and pointed out that spreadsheets would not be the long-term answer. But no indication of what form the software would take. She also explained that the current self-assessment computer system would be shut down in favour of the new system. There was no attempt to explain how other income, such as dividends and pension income might be filed from the software that was used to deal with the trading income stream., it was all very vague. We are just over 2 years away from this system going live. Is it really possible that this could be happening?
The seminar is obviously aimed at practising accountants. As you point out, capacity issues are mind-boggling, but I suspect that there are far more unrepresented traders and landlords in the country, and I doubt if they have the slightest idea of these proposals or how to deal with them. It appears to be left to the likes of Xero and QB with their television advertising.

And still no reasonable explanation as to what the point of quarterly filings is supposed to achieve

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Replying to Jo Nokes:
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By Matrix
19th Feb 2021 09:27

When MTD was first piloted about 4-5 years ago I had a bit of a stand off with ICAEW at an event since she said we should all sign our clients up and I pointed out that there was no benefit to us as no fees and the institute should instead support us in challenging the whole thing. My view hasn’t changed.

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By bernard michael
19th Feb 2021 09:36

It's going to massively increase the black economy.

Does anyone know what the penalties for non compliance will be eg late or non submitted returns
Also has HMRC done the maths ??
There are only a certain number of accountants in practice capable of helping clients submit their annual returns. If the return requirement increases 5 fold where are the accountants coming from to assist. This may mean that client portfolios are reduced . Who then does HMRC expect to help these tax payers ??

Chaos will ensue

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Replying to bernard michael:
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By memyself-eye
19th Feb 2021 09:46

Absolutely correct the black economy will boom. I might join them.

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By Duggimon
19th Feb 2021 10:08

It's far enough off that the plans still don't reflect what will happen. We've had MTD for VAT for two years now and it still only files the same nine figure return the old system did. That is completely counter to what the plans for MTD for VAT were when it was first floated and all the way up to about six months before it went live.

The key information will be what the thresholds are for it being mandatory and how close to the finished figures the sum of the quarterly returns needs to be. Until it's legislated for we won't know that and I'm refusing to worry about it.

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Replying to Duggimon:
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By memyself-eye
19th Feb 2021 10:42

The accountancy profession (ie: us) and their lordships had 'misgivings' about the current MTD system. HMRC ignored those, they will do the same this time around.
I don't care - I'm quitting in, err.... 40 days

...................six hours and twelve minutes

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Replying to memyself-eye:
Tornado
By Tornado
19th Feb 2021 11:02

Yes indeed

There does come a time when you get fed up with playing other people's stupid games.

Best wishes for the future and being able to play your own games for a change.

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Replying to memyself-eye:
paddle steamer
By DJKL
19th Feb 2021 11:16

You will just have to ensure you do not have any rental profits or start any different business once you down your calculator, "Just when I thought I was out, they pull me back in"

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Replying to memyself-eye:
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By Jo Nokes
19th Feb 2021 11:17

I'm jealous! I can't afford to retire so I will just have to cope. It has been suggested that I write to my MP. I tried that a couple of years ago, and the reply I received could have come straight from the HMRC PR dept. I think a better bet would be to engage Marin Lewis or the Daily Mail to highlight the project to the hundreds of thousands of unrepresented traders and landlords. Perhaps a groundswell of opinion might effect some change

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Replying to Jo Nokes:
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By tedbuck
22nd Feb 2021 16:55

I think Jo has the only answer, the ICAEW and CTA and the like are out of touch with small people so think it will be all OK but it will be a disaster. HMG are always whingeing about lack of productivity in the UK and this sort of rubbish is part of the cause. You don't have to look too far to see that the rest comes from HMG or the EU but Brexit doesn't seem to have changed anything.
Yes let's get the Daily Mail or the like to whip up taxpayers into a furious mob who sign a petition to HMG and give their MPs aggro for following on these stupid ideas without even exercising their brains.
Tell them about the extra time and money they will have to waste giving information to HMRC which they don't need and wouldn't even use - unless, of course, we are really headed towards a 1984 state. It seems stupid to me HMRC cannot even cope with what they do now they are so incompetent what good will giving them more information do?
As a matter of interest what is the current delay on getting a response to a letter to HMRC - 4 months - 6 months or more?

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Replying to tedbuck:
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By bernard michael
23rd Feb 2021 08:55

tedbuck wrote:

I think Jo has the only answer, the ICAEW and CTA and the like are out of touch with small people so think it will be all OK but it will be a disaster. HMG are always whingeing about lack of productivity in the UK and this sort of rubbish is part of the cause. You don't have to look too far to see that the rest comes from HMG or the EU but Brexit doesn't seem to have changed anything.
Yes let's get the Daily Mail or the like to whip up taxpayers into a furious mob who sign a petition to HMG and give their MPs aggro for following on these stupid ideas without even exercising their brains.
Tell them about the extra time and money they will have to waste giving information to HMRC which they don't need and wouldn't even use - unless, of course, we are really headed towards a 1984 state. It seems stupid to me HMRC cannot even cope with what they do now they are so incompetent what good will giving them more information do?
As a matter of interest what is the current delay on getting a response to a letter to HMRC - 4 months - 6 months or more?


A response- what's that??
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Replying to Duggimon:
By ireallyshouldknowthisbut
19th Feb 2021 11:18

Not only does the new system only do what the old one did with a different back end, there seems to be zero enforcement from HMRC.

There was a press release a while ago saying a large number of people were still filing on the old system.

Which is presumably a "meh" from HMRC as they still get the same tax either way.

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By johnhemming
19th Feb 2021 11:23

It is working for some people now so I can say it is not "completely unworkable".

However, ITSA is more complicated than VAT hence MTD ITSA requires more information to be sent in than VAT.

However, digital links are only needed for the quarterly figures not the annual ones and although it is true to say there are more "returns" they are more like a page on a website with specific sets of data than "returns".

I have implemented all of the live submissions now and will do an example video at some stage.

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Replying to johnhemming:
By ireallyshouldknowthisbut
19th Feb 2021 15:23

@john, the technical side is not the issue.

its getting that very high level of returns filed which is the issue, and increasing the "touch points" from annual to 5 times a year with the attendant massive spike in time and costs for that all new activity. The new system does not save anything. it does displace anything. its all new time and cost and fotr essentially no gain for anyone, the tax payer or HMRC getting some garbled data.

We have already seen with 30 days reporting or CGT the massive extra costs this is incurring for reporting something twice, once in 30 days, once on the return. I used to charge £100-150 to report a sale with a tax return. I am charging £300 to do a report and pay 30 day report and probably have to build in another £50 at year end, and still feel like we not not recovering out time anywhere close on those. So the clients fees have more than doubled, we are frantic and the gov gets some tax slightly earlier. F*uck business I think the Tory minister said.

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Replying to ireallyshouldknowthisbut:
RLI
By lionofludesch
19th Feb 2021 15:45

ireallyshouldknowthisbut wrote:

@john, the technical side is not the issue.

Well, it is a bit.

I could carry on for a couple of years, do the hard yards setting up clients with systems and educating them in using them - but for what ? I'd just be making my successor's work a lot easier.

I'm not a teacher. I don't want this work.

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Replying to ireallyshouldknowthisbut:
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By johnhemming
19th Feb 2021 17:15

There is a different way of looking at it.

That is if we think n years down the line where would we expect the tax system to be. Would we expect to provide more timely information. Would we expect a digital audit trail? I think the answers to this are yes. That being the case there then arises the question as to when to do this? The logic of that is the answer "why not nowish".

There is a separate question as to whether a minimalist MTD type approach is better than the more detailed approach in SAF-T.

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Replying to johnhemming:
Tornado
By Tornado
19th Feb 2021 17:34

The different way of looking at it assumes that everyone is a programmer and has a burning desire to play with applications all day, every day and at other times a well!

I fully understand that those wedded to the IT world think we are all keen to use all the whistles and bells that are offered to us, but most of us have a wide range of excellent skills that are not IT related and want to use those skills to the fullest extent and not waste time struggling with IT applicati0ns that just drain us of enthusiasm for our businesses, often because they don't work properly anyway.

The best tax system is the simplest one that allows people to develop their skills and ideas without the burden of providing useless information to the Government who will not have the resources to deal with it anyway.

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Replying to Tornado:
RLI
By lionofludesch
19th Feb 2021 17:46

Tornado wrote:
....... often because they don't work properly anyway.

Ah - one of my (many) pet hates is technology that doesn't work.

Zoom was fine up to last June. Now it isn't. I just get a black screen as soon as the meeting's opened. I haven't changed any settings. No idea why it doesn't work.

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Replying to Tornado:
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By johnhemming
19th Feb 2021 18:10

Tornado wrote:

The best tax system is the simplest one that allows people to develop their skills and ideas without the burden of providing useless information to the Government who will not have the resources to deal with it anyway.

The difficulty here is that having information as to how businesses are doing is not "useless". The government will use that information as a guide as to what to do in terms of goverment debt issuance (today running the electronic printing presses - which is not a long term solution), any schemes for supporting the self employed that sort of thing.

There is a value to everyone in the government having a better idea as to what is happening on a quarterly basis. There is also a value in reducing the amount of tax fraud.

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Replying to johnhemming:
RLI
By lionofludesch
19th Feb 2021 18:54

johnhemming wrote:
There is also a value in reducing the amount of tax fraud.

Here we disagree on whether tax fraud will be reduced.

It's more than possible that some folk won't report their profits simply because they can't work out how to.

Easy for you to say how simple the software is, John. But will you be mending your own car if some garage bloke tells you how easy it is. 90+% of small businesses will be out of their comfort zone.

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Replying to lionofludesch:
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By johnhemming
19th Feb 2021 19:25

lionofludesch wrote:

Here we disagree on whether tax fraud will be reduced.

Indeed on that point we disagree.

lionofludesch wrote:

Easy for you to say how simple the software is, John. But will you be mending your own car if some garage bloke tells you how easy it is. 90+% of small businesses will be out of their comfort zone.


Oddly enough many years ago I did much more work on my car such as changing water pumps, but now I even pay accountants to do work for me as well as paying a garage to fix my car. I have had the same accountants for around 15 years.
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Replying to johnhemming:
RLI
By lionofludesch
19th Feb 2021 20:08

johnhemming wrote:

Oddly enough many years ago I did much more work on my car such as changing water pumps, but now I even pay accountants to do work for me as well as paying a garage to fix my car. I have had the same accountants for around 15 years.

Yes, many years ago, car maintenance was simpler.

Many years ago accounting was simpler.

That's rather the point.

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Replying to johnhemming:
RLI
By lionofludesch
19th Feb 2021 17:35

johnhemming wrote:

There is a different way of looking at it.

That is if we think n years down the line where would we expect the tax system to be. Would we expect to provide more timely information. Would we expect a digital audit trail? I think the answers to this are yes.

Interesting. Because most folk on here seem to think the answers are no.

Or - at best - when the taxpayers are up to the job. Which may well be never.

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Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
19th Feb 2021 20:45

F*ck Business was not reported as just a Minister, bad as that would have been, it was reported as being a Boris quote, the cuddly buffoon who seems incapable of doing detail- one can say some pretty nasty things about Maggie, I have,but at least she could master a brief.

He even continues to struggle with the concept of non tariff barriers so he certainly does not understand business and anyway appears to have little empathy for it even if he did.

All I can say, as someone who pays his salary, is F*ck Boris.

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Replying to DJKL:
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By lionofludesch
19th Feb 2021 21:14

Quote:

All I can say, as someone who pays his salary, is F*ck Boris.

Fair comment.

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By pauld
19th Feb 2021 15:44

When I think of IRIS I think of Covid - does not discriminate, spreads rapidly amongst taxpayers, is very hard to contain but we all hope that one day it will disappear..

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By Paul D Utherone
19th Feb 2021 19:14

Sadly the proposed introduction date is a little to early for me and could leave me with 4-5 years before I retire.

To get the point across to HMRC (or try anyway) consider joining up to the HMRC Agent Forum. Many may say it's just a talking shop and nothing comes of it, but all too often it is the same 5 or 6 names bringing up issues, followed eventually by HMRC brushing it off as 'not a widespread issue' due to lack of evidence. If there were more agents signed up and confirming that this is not the case, but being suffered by us all nationwide, then the penny might drop with HMRC - not holding my breath though.

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Replying to Paul D Utherone:
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By Southwestbeancounter
22nd Feb 2021 18:10

We'd have to respond en masse though! Every time I've gone onto the agents forum I've got totally exasperated!

The same person (occasionally persons) who ask sensible questions but are totally fobbed off by HMRC who then close the thread or decide you asked a question on a non-question thread or something!

It needs totally revamping to be of any use in a serious way. I have recently found the only way to get anything done was to email Jim Harra direct; obviously he never sees it but at least it gets answered by someone, who appears to be of inspector level, within a short period of time and usually something gets done within a few days.

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By Jo Nokes
20th Feb 2021 09:06

Picking up on one specific point,Jon, if we don’t do bookkeeping, then we have to be able to accept the digital records and then process adjustments to correct errors. If clients use a variety of software products, how are we supposed to be able to accept these digitally? When records are in Excel, it’s a simple matter . Did Iris have the answer to this?

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Replying to Jo Nokes:
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By johnhemming
20th Feb 2021 11:21

Jo Nokes wrote:

When records are in Excel, it’s a simple matter . Did Iris have the answer to this?

With ITSA there is a lot more data than VAT. Hence it is possible, for example, to submit some data from one system and some data from another. If you have a taxpayer who is self employed and also rents property they could submit their self employment records in one way from one package and their rental records from another.

There are also adjustments that can be made at the end of the tax year.

There are currently 8 providers that do ITSA
https://www.gov.uk/guidance/find-software-thats-compatible-with-making-t...

Three offer a free version according to HMRC's rules (which cover lower earning taxpayers)

So you could use IRIS for example to submit the quarterly figures and then use this API:
https://developer.service.hmrc.gov.uk/api-documentation/docs/api

Through another provider to do end of year adjustments.

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Replying to johnhemming:
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By Jo Nokes
20th Feb 2021 13:04

So a taxpayer will have two or more different applications, but he will expect me to deal with the end of year adjustments and final filings. How will he make the data available to me, and how many types of software will I need to be able to process it. I am assuming that clients will be doing the quarterly filings, since I cannot conceivably have the time to deal with the number of required filings. And how much will each taxpayer have to pay for software, and how will he learn to use it?

Oh, and as someone pointed out, is hmrc going to publicise this to the £4m taxpayers?

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Replying to Jo Nokes:
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By johnhemming
20th Feb 2021 13:54

There are lots of ways of using the systems. Personally I would suggest that people take a relatively simple approach and only use MTD software from one vendor. It is, however, not clear at this stage how many vendors will provide all the facilities.

If taxpayers are using specialist software they may wish to submit directly to HMRC from that. That would enable the accounting adjustments to be done separately.

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Replying to johnhemming:
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By Jo Nokes
20th Feb 2021 14:03

I would be happy to have only one system, but if my clients can’t file directly at the moment, then they are not going to manage under the new regime. So my software will have to be capable of accepting an input sent from client’s system that I can then manipulate to the correct end result, add CA claims and such like, make accruals etc, and then file on their behalf. Is all this envisaged in the roadmap, John?

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Replying to Jo Nokes:
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By johnhemming
20th Feb 2021 14:19

Jo Nokes wrote:

Is all this envisaged in the roadmap, John?


This depends really on how different MTD vendors implement the interfaces to the APIs.

If you have a system which has cloud accounting or a cloud cashbook then it will be entirely possible for your clients to put the data in and for you to review it and make adjustments where relevant. That is possible today although I don't know how many vendors can provide all the live API subscriptions. I know at least one can.

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By bernard michael
22nd Feb 2021 09:28

Just to prove my point about the future I've just spoken to an HMRC agent about MTD for VAT and MTD being introduced on a wider basis. Her response was "I've not heard of that"

Are the lunatics taking over the asylum??

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Replying to bernard michael:
RLI
By lionofludesch
22nd Feb 2021 09:58

bernard michael wrote:

Just to prove my point about the future I've just spoken to an HMRC agent about MTD for VAT and MTD being introduced on a wider basis. Her response was "I've not heard of that"

Are the lunatics taking over the asylum??

It won't concern her, will it ? She'll just have all her work done for her by taxpayers and their agents.

Which is what it's all about, imho. Nothing to do with accelerating tax revenues, though that may be a by-product.

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By 0098087
22nd Feb 2021 09:38

They all seem to think all clients will use software. Most of them have no idea what to do.

Our government have no idea and are out of touch as the pandemic has shown so expect no help there.

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By JD
22nd Feb 2021 09:49

I would suggest that unless the professional bodies and small businesses themselves (who are remarkably quite) put their respective hands up in suitable levels of horror, then no matter how much complaining we do, we are sadly swimming against an inevitable tide.

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By Rgab1947
22nd Feb 2021 09:58

I can only agree with the comments in the article. Fortunately my retirement is before April 2023.

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David Ross
By davidross
22nd Feb 2021 09:58

When there is a challenge you can see the problems or you can respond to it as an opportunity. For instance Self Assessment ended all the appeals and visits to the Commissioners to beg for more time, introduced order to the tax calculations and enabled us to draw a red line under 31 January and have two months to recuperate and plan.

I'm 64 and 2023 offers the opportunity to properly digitise my practice. At the moment we are running a campaign to sign up all the 'little guys' to NatWest/Mettle and FreeAgent, beginning with the Year ending 31 March 2021 (for whom we will scoop up all transactions since April 2020 via the bank Feed)

Begging clients to assemble their paperwork months after the Tax Year when penalties loom will be a thing of the past and I can delegate what is now called 'categorisation'.

My advice is, stop moaning and get prepared now, using the big stick HMRC is waving to corale the clients. Even if 2023 never happens, you will have created a business that works for you and which has a resale value (something I never thought I had).

And remember, those clients who seem techno-phobic mostly have computers, smart phones, smart TVs etc. Sell the benefits, they adopt when it suits them.

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