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MTD Income Tax - accounting information required

MTD by spread sheet, What degree of analysis is required by HMRC

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Though I am reading much of the information avaiable here and else where I have not seen any thing which answers my query below. It will be a factor in making a decision whether take a spread sheet route or accounting software route.  I would be grateful if any one can enlighten me.

I assume that small traders (turnover under 85K) can submit the quarterly details as '3 line accounts', so the trader can easily use the spreadsheet they are using for VAT.

If the business has a higher turnover will it be required to submit information based on the SA 100 boxes?

Replies (57)

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By Paul Crowley
03rd Jan 2022 17:24

We have decided to go speadsheet and bridge using IRIS
But only for clients that currently have nothing but paper or spreadsheets

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the sea otter
By memyself-eye
03rd Jan 2022 18:10

HMRC haven't a clue what they 'want' and they wouldn't understand it if they did. Just submit the minimum spreadsheet (or spread boxes in the case of VAT)to get through the system.
It's all utter nonsense anyway.

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Replying to memyself-eye:
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By Paul Crowley
03rd Jan 2022 18:29

+1
HMRC staff have no idea what this is all about but any submision is good enough to stop penalties

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Replying to Paul Crowley:
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By Hugo Fair
03rd Jan 2022 18:50

It would be unbelievable if it wasn't HMRC in the driving seat ... but there still isn't a single definitive set of specifications/instructions that state:
- a) exactly what data is required (in different circumstances), or
- b) what submissions need to be made (in terms of corrections, confirmations, etc)!

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Replying to Hugo Fair:
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By Hugo Fair
03rd Jan 2022 19:06

Forget to 'answer' OP's actual questions:

"I assume that small traders (turnover under 85K) can submit the quarterly details as '3 line accounts', so the trader can easily use the spreadsheet they are using for VAT?
If the business has a higher turnover will it be required to submit information based on the SA 100 boxes?"

As stated I don't believe there are unequivocal details on which to base answers to your questions ... but, based on a hybrid of reading between the lines of what has been publicly stated and pure logic (a dangerous if not combustible mix):
* There is nothing to suggest that different requirements will be applied based on T/O (as opposed to type of trade for instance); and
* Something close to 3-line accounts may be all that is needed for the Quarterly submissions - but something more akin to SA100 will also still be required at Y/E.

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RLI
By lionofludesch
03rd Jan 2022 19:21

Wouldn't surprise me if HMRC up the game in five years time.

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Replying to lionofludesch:
By ireallyshouldknowthisbut
04th Jan 2022 09:12

They wont do that without a change of government. What they will do is have the system but quietly ignore it just using it to milk fines.

See iXBRL accounts which seem to be utterly ignored by HMRC. Just file something, anything that falls out of your software, job done.

HMRC collect taxes, they have no vested interest in your bookkeeping.

Once the MTD big cheeses have moved on, the actual operating of the system will be politically and career wise uninteresting. No-one wants to run things, they like to launch them, and it will be yet another bizarre anomaly in the tax system with people scratching their heads saying "why on earth did they design it like this?" until someone comes along reforming to reduce 'red tape' for business and removes it.

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By CJaneH
04th Jan 2022 11:45

Thanks for your responses.
How are we suppose to advise and guide our clients if we have no idea what is needed? I believe there are some trials, what is being submitted on these early versions?

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Replying to CJaneH:
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By Hugo Fair
04th Jan 2022 11:54

John Hemmings can tell you that (as he has done over many different threads in the last few months) ... but the 'trials' are not of the whole process (and the contents or at least format are subject to change during the 'agile' process of which HMRC are so fond), so they can't currently provide us with the greater certainty that formal specs & guidance might do.
Hence my earlier comment about it all being 'unbelievable' - (c) EMF.

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Replying to CJaneH:
VitalTax
By VitalTax
06th Jan 2022 14:48

You can also find useful information in official HMRC Income Tax (Making Tax Digital) end-to-end service guide: https://developer.service.hmrc.gov.uk/guides/income-tax-mtd-end-to-end-s...

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Replying to VitalTax:
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By Vallery Lee
23rd Jan 2022 12:57

Just tried this, just got the dreaded "page not found"

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Replying to Vallery Lee:
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By johnhemming
23rd Jan 2022 13:09
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Replying to Vallery Lee:
RLI
By lionofludesch
23rd Jan 2022 13:16

Vallery Lee wrote:

Just tried this, just got the dreaded "page not found"

Are you clicking on a link in Aweb or a partial link in an email you were sent ?

The link works for me.

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Replying to CJaneH:
VitalTax
By VitalTax
01st Feb 2022 12:52

We have just published a summary of what to expect from Making Tax Digital for Income Tax: https://vitaltax.uk/income-tax/

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Replying to VitalTax:
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By Hugo Fair
01st Feb 2022 21:53

It's not your fault (that honour belongs to HMRC) but you're not going to make new friends here by parroting govt PR-speak ... saying "MTD for ITSA replaces the need for a self-assessment tax return"!

The rest of your page demonstrates how misleading that claim is - by laying out the inordinate number of steps required to reach what is currently done via one form.

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Replying to VitalTax:
RLI
By lionofludesch
01st Feb 2022 22:26

VitalTax wrote:

We have just published a summary of what to expect from Making Tax Digital for Income Tax: https://vitaltax.uk/income-tax/

Apart from the obvious advantage of being able to sell your software, what benefits do you foresee in replacing one form with a dozen?

Feel free to be frank.

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By johnhemming
04th Jan 2022 13:46

In terms of the detailed questions it is possible to submit just abbreviated accounts. There are separate formats for this for the data to be submitted.

In the rare circumstances where someone with under 85K turnover is using subcontractors via CIS it may be necessary to sub analyse the CIS to ensure that is correct. However, I would not think that was that likely and that is just a guess on my part.

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By David Winch
05th Jan 2022 10:15

I am a sole trader, turning over less than £85k, who voluntarily registered for VAT on the day I started my business. At that time I couldn't find any Accounts software which allowed me to run my business in the way I knew it should be run, so I wrote my own Accounts package. This has served me well ever since.

I've been an unpaid tax collector for HMRC for 17 years and I see no reason to pay for any extra software that will add nothing to my business. Consequently I will be de-registering (is that the correct term?) as soon as I've made my next quarterly submission on 1st February.

David Winch
Sales & Marketing Consultant, Cambridge

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Replying to David Winch:
RLI
By lionofludesch
05th Jan 2022 11:33

David Winch wrote:

I am a sole trader, turning over less than £85k, who voluntarily registered for VAT on the day I started my business. At that time I couldn't find any Accounts software which allowed me to run my business in the way I knew it should be run, so I wrote my own Accounts package. This has served me well ever since.

I've been an unpaid tax collector for HMRC for 17 years and I see no reason to pay for any extra software that will add nothing to my business. Consequently I will be de-registering (is that the correct term?) as soon as I've made my next quarterly submission on 1st February.

David Winch
Sales & Marketing Consultant, Cambridge

The unpaid tax collector thing has been going for 75 years. At least.

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Replying to David Winch:
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By legerman
05th Jan 2022 12:44

David Winch wrote:

I am a sole trader, turning over less than £85k, who voluntarily registered for VAT on the day I started my business. At that time I couldn't find any Accounts software which allowed me to run my business in the way I knew it should be run, so I wrote my own Accounts package. This has served me well ever since.

I've been an unpaid tax collector for HMRC for 17 years and I see no reason to pay for any extra software that will add nothing to my business. Consequently I will be de-registering (is that the correct term?) as soon as I've made my next quarterly submission on 1st February.

David Winch
Sales & Marketing Consultant, Cambridge

Are you submitting by MTD at the moment? If you are then nothing is changing. The discussion is about MTD4IT, which is currently scheduled to begin April 2024. As things stand, if your turnover is above 10k then you will have no option but to file your self assessment by MTD. Bridging software should be available though.

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By adjadj
05th Jan 2022 10:55

Based on reading the technical specification on the HMRC developer hub it will be possible to send either consolidated information or detailed for a period. There is no information on the developer hub as to when each might be used; submission schedule etc. I have asked about this via an FOI request.

The consolidated information is “income_turnover" ; “income_other” and "consolidated_expenses”

The detailed income is also is “income_turnover" ; “income_other”

The detailed income breakdown comprises:
“costOfGoodsBought":
"cisPaymentsToSubcontractors":
"staffCosts":
"travelCosts":
"premisesRunningCosts":
"maintenanceCosts":
"adminCosts":
"advertisingCosts":
"businessEntertainmentCosts":
"interest":
"financialCharges":
"badDebt":
"professionalFees":
"depreciation":
"other":

This information was obtained from the HMRC developer hub

a) Click the link
https://developer.service.hmrc.gov.uk/api-documentation/docs/api/service...

b) Page down and look for “Submit an Adjustment to a Self-Employment Business Summary [POST] “
c) Click this and the detail will appear
d) Page down to find the business data

Thanks (1)
Replying to adjadj:
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By legerman
05th Jan 2022 12:39

adjadj wrote:

Based on reading the technical specification on the HMRC developer hub it will be possible to send either consolidated information or detailed for a period. There is no information on the developer hub as to when each might be used; submission schedule etc. I have asked about this via an FOI request.

The consolidated information is “income_turnover" ; “income_other” and "consolidated_expenses”

I had assumed we would be posting the profit and loss sheet, akin to the detailed expenses I've snipped. If all that is required is 3 line accounts then seriously what is the point? 4 monthly submissions tell HMRC bugg*r all. I really do hope they scrap that and raise the threshold to the VAT threshold.

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Replying to legerman:
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By Hugo Fair
05th Jan 2022 13:41

Quite.
And adjadj wrote:
"There is no information on the developer hub as to .. submission schedule etc. I have asked about this via an FOI request."

In the event of the FOI producing anything useful, it would be handy if it included how (if at all) the Quarterly and Y/E submissions are meant to be related.

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123 Sheets
By 123Sheets
05th Jan 2022 12:58

Hi CJane

We are developing an MTD solution for spreadsheet users and have a handful of users in private beta filing quarterly returns to HMRC for ITSA MTD, so have experience of the question you are asking. Some have income below, some above the £85k VAT Threshold. In essence, for a spreadsheet user, very little is changing, they should be able to carry on with the same spreadsheet and submit the same totals for tax return fields as they have been entering up until now.

This is how it works for them, on our software:

Under the VAT Threshold
Three line accounts: yes, we do that for sole traders below the VAT Threshold, for ITSA MTD. Those under the threshold on our software tick a box to say they are filing "consolidated expenses", then upload their spreadsheet, and all their expenses are submitted to HMRC as a single figure for the quarter. This is essentially picking up a total that the user has already in their spreadsheet showing the total of all the expenses. This is the same total they already use, to complete the tax return. The user doesn't need to split these expenses out into categories in Excel and can keep in their bookkeeping all expenses in a single "expense" category/column if they so wish. We just take the total of expenses from a spreadsheet for a quarter and submit that one expense figure to HMRC, along with a figure for turnover and a figure for "other business income", should they have any. usually the "other business income" is just zero in the user's spreadsheet. These are the quarterly ITSA MTD filings, its the same as what they do right now for a tax return. Instead of hand-typing into a website or tax return software as they currently are, it is just uploaded at a click of a button.

So no big deal, no fuss. Except you will need to do it quarterly and not annually.

Over the VAT Threshold
For those over the VAT threshold, figures need to be submitted for about 16 fields x 2: turnover, other business income and various expense categories (cost of goods, staff costs, depreciation etc). I put "x 2" as both allowed and disallowed figures are required for each expense category, as they currently are in a tax return, so again, no change from what they are already doing and the spreadsheet does not require any major changes. Most usually, the "disallowed" amounts are zero, except say for Depreciation and Entertainment, as you'd expect.

So again, for the spreadsheet user MTD is no big deal, no fuss. Except you will need to do it quarterly and not annually.

The other fields currently on an SATR for self-employment are not sent quarterly. Instead, the user has the option of sending any of those figures/items annually via an optional annual summary submission. Those boxes might include things such as tax losses, exemption from NI, Capital allowances etc. Those items can be hand-typed into our software. From the accountant's perspective, they would need therefore to ensure that no capital allowances have accidentally been submitted as expenses, so as not to double claim them, which I imagine they already do in any case for a tax return submission. Of course, each such entry on the annual summary is optional, as a business may not have any capital allowances to claim for example. Its the quarterly income/expense amounts that must be filed.

As with the spreadsheet for those under the VAT threshold, it is just totals for each expense category that is submitted to HMRC. We lift those totals out of the users own totals in their spreadsheet. The user would have those totals already, as they would have needed them to complete a tax return before. HMRC do not get the spreadsheets, just the total amount for each expense category, and the turnover and if any: the other business income. Most self-employed people over the VAT threshold are realistically going to be sending perhaps no more than 10 actual amounts each quarter, as most users only put allowable expenses in their bookkeeping to start with, and do not have expenses for every category, so those are just zeros. As the expense categories match those of the current tax return, the user should be able to carry on using the same spreadsheet they have always been using before, with just a summary worksheet with all the totals on that are going to be sent to HMRC. It should be simple and very much not "rocket science".

I hope that helps,

Kind regards

Peter Hamilton

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Replying to 123Sheets:
123 Sheets
By 123Sheets
05th Jan 2022 13:14

Oh, and there is no facility to submit a balance sheet on ITSA MTD, which was always optional in any case on the existing tax returns for those over the VAT threshold. So no need to have those figures available for export to bridging software, if you happen to keep a balance sheet for sole traders. The balance sheet is just a "nicety" if the tax payer fancied (or needed for their own purposes) a balance sheet, HMRC never used them to calculate tax.

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Replying to 123Sheets:
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By Hugo Fair
05th Jan 2022 13:28

"The other fields currently on an SATR for self-employment ... can be hand-typed into our software"

So, not only is there no connection between the Quarterly submissions and the Y/E one (as we suspected) ... but the concept of 'digital records' doesn't apply to the Y/E submission?

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Replying to Hugo Fair:
123 Sheets
By 123Sheets
05th Jan 2022 14:27

I would say that by ticking a box on our software, to say one is exempt from NI, is in fact the digital record itself, saved on our digital systems and passed to HMRC digitally. As with any prime entry in the bookkeeping, some sort of hand-typed entry is going to be required at some point, if not always at the beginning of the chain, somewhere else, just as that is allowed currently for VAT as per VAT Notice 700/22, so too for ITSA MTD. I would imagine that the final Capital Allowance figure is allowed to be entered manually, as there is often an element of calculation/manipulation required to result in a final Capital Allowances claim figure.

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Replying to 123Sheets:
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By Hugo Fair
05th Jan 2022 15:57

Whilst personally I concur with your (logical) interpretation of the origin of digital records in a practical world ... I have so far been unable to extract an unequivocal definition from HMRC (or indeed any other govt body).
This is not just because it's hard to extract such things at the best of times, but also because the early attempts I have seen are inconsistent and contradict each other.

So, good luck ... not everyone in HMRC agrees with your interpretation (some actually believe that everything can be pulled from bank feeds)!

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Replying to Hugo Fair:
123 Sheets
By 123Sheets
05th Jan 2022 14:16

I would add that there is "connection" between the quarterly submissions and at least some of the annual summary figures. For example, if the accountant wants to make an annual adjustment to turnover or expenses that have been filed quarterly, they are not sending in figures to overwrite the quarterly figures (as some accountants seem to think), instead, they are submitting adjustments to those figures already submitted. By their nature, of course "adjustments" often have a manual element, perhaps involving a calculation, so it makes sense those are added manually. Therefore, if an accountant thinks it is ok to send in the correct annual turnover and expenses just once a year, via the annual summary, they'd need to ensure the quarterly filings were all zero's, so the "adjustment" they are filing is in fact the actual figures for the year - but of course that is not what is supposed to happen and HMRC may start clamping down if any of that behaviour is wide-spread.

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Replying to 123Sheets:
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By Hugo Fair
05th Jan 2022 16:15

Again, congratulations if you have obtained a definitive specification on this issue?

I was under the impression that any 'adjustments' to values previously submitted Quarterly (or to be precise in-year - as 'quarterly' is not the mandatory frequency but the maximum gap allowed) ... were to be via a 'replacement' set of figures, not a set of 'delta' adjustment values.

Indeed I recall someone at HMRC telling me (admittedly a year ago) that I would "be pleased given your encouragement to get the delta-style of the EYU replaced by the 'overwrite' in-year FPS" ... which I took to be confirmation of the opposite to what you're now saying.

But another day, another (different) assurance is why we need crystal clear specs!

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Replying to Hugo Fair:
123 Sheets
By 123Sheets
05th Jan 2022 18:54

My response about the annual summary for the adjustment of quarterly filed income and expenses (deltas, as you say, just like the RTI EYUs) is not based on conversations or statements from HMRC, but rather based on the API they have developed. There is simply no facility in the API to allow annual figures to overwrite the quarterly submissions: believe me, I have checked, having heard others, like you did, speak as if there was such a facility (not HMRC, but well known accountancy training figures in my instance - perhaps they were misled I don't know) and I have had my opinion confirmed by the software development team at HMRC via e-mail, that there is no such facility to overwrite the quarterly filings via an annual submission in the ITSA MTD API. So I think I can safely say you should ignore what you have heard previously, but I am always open to be proved wrong of course.

PS. I do feel your pain: As an FCA, and CTA myself who used to run an accountancy firm for eight years with staff with a high street office in Surrey, I understand the difficulties facing accountants and business owners recently. I am particularly thinking not about MTD, but about SEISS and Furlough claim work done over the last couple of years, that I can quite imagine clients aren't interested in paying for.

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Replying to 123Sheets:
123 Sheets
By 123Sheets
05th Jan 2022 19:19

The only facility to actually overwrite income/expense figures, is by re-submitting quarterly submissions (obviously x 4 for a year, but could be done one straight after the other in the following January say, after the tax year has closed), as there is an "Amend" quarterly API for that. These would have to be MTD digital filings just like the original submissions, not total figures typed into software, like the annual submissions.

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Replying to 123Sheets:
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By Hugo Fair
05th Jan 2022 20:02

Ah, I was about to say thanks for your previous post (18:54) - which is clear, unlike the 'rumour mill' on which we often have to rely in the absence of official specs, guides, etc.
It's interesting that you too heard differently (albeit not direct from supposed official sources), but ...
... I think you've hit the nail on the head with your post (19:19) - in that it would not surprise me if HMRC bods (let alone those within PBs) are unable to identify the impact of using different APIs (over-writing the set of 'quarterly' files already submitted vs correcting the set of resultant 'year-end' figures via delta values)!

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Replying to 123Sheets:
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By adjadj
05th Jan 2022 20:10

My question is based on maintaining accounts for a one-man business and a two-property rental business for more than ten years. The typical errors I have made in the past are omitting an expense item during the regular update activity. I tend to find one or two as I prepare my annual submission.

I don’t care to which period they apply to so I would simply amend the last period in my spreadsheet to produce a revised annual total. The VAT component would be trivial so would be ignored. I then used the revised annual totals to fill in the tax form.

On the basis of your reply above I think that under MTD I would need to resubmit the last quarter to HMRC to get the correct annual figures on which tax is levied – is this correct?

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Replying to adjadj:
123 Sheets
By 123Sheets
05th Jan 2022 20:48

You could do it that way, to obtain the correct end of year figures. However, technically that is not correct, as any incorrect prior period should be individually adjusted - unless you did the annual adjustment filing. Obviously, that would be a pain if you had just a few adjustments to make, and those fell into different quarters.

What you suggest is fine for VAT, as errors on prior returns are allowed go on a later Return (normally if the resultant difference to box 5 - amount due - is below £10k), but that isn't how it works for MTD ITSA. If you wanted to do it strictly speaking correctly, but with minimal fuss, you'd just file those adjustments via the annual adjustment API, where you can just type the total of each expense category difference into MTD compliant software or bridging software. For a sole trader below the VAT Threshold, and the adjustments all being related to expenses, you'd just add up the missed items and put that single total in a box on the software and click submit. If that was for a property rental business of just a couple of properties, you may well be able to do the same thing: enter a single expense figure and submit it. This is because one good thing to come out of MTD is that property rental expenses can also be consolidated into a single expense figure below the threshold, that was never sanctioned for tax returns as far as I am aware.

Practically speaking, for below the threshold clients, you could just have an extra column in your bookkeeping spreadsheets for expenses noticed later, or have some way of highlighting and adding them. Then just note the total at the bottom of the column, and file that figure manually via the annual adjustment facility once a year.

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Replying to 123Sheets:
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By adjadj
06th Jan 2022 23:10

[quote=123Sheets]

If that was for a property rental business of just a couple of properties, you may well be able to do the same thing: enter a single expense figure and submit it. This is because one good thing to come out of MTD is that property rental expenses can also be consolidated into a single expense figure below the threshold, that was never sanctioned for tax returns as far as I am aware.

Looking at the API spec for property the minimal solution is to send data under two headings: a)"residentialFinancialCost" and b) "consolidatedExpenses". This mirrors the different tax treatment of interest from the treatment of all other property expenses.

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Replying to adjadj:
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By NewACA
07th Jan 2022 23:30

Yes, agreed, if you have a mortgage and it's a residential property, else just the single Consolidated expense figure would suffice for expenses.

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Replying to 123Sheets:
123 Sheets
By 123Sheets
05th Jan 2022 20:18

So to clarify my prior posts there are two ways to change income/expense figures already submitted via ITSA MTD:

1. Re-submit quarterly MTD submissions via the Amend API, which can be done at any time until the following January after the tax year has closed, or;

2. Submit Annual "adjustment" figures, the deltas, where you need to submit the differences for each income/expense category: the differences between the correct annual figures and the totals of what has already been submitted in the 4 x quarterly filings. This is performed by typing figures into software that is not digitally connected to the underlying data, as it is a form of manual adjustment. Equal to 1 above, this needs to be done by January following the closure of the relevant tax year, before filing a final annual confirmation that the data is complete and the tax year should now be closed off (in practice: final calculation checks, button clicks and confirmation tick boxes).

I would imagine that accountants would ask their clients to submit their own quarterly filings with the accountant performing an annual review, or if the accountant does the bookkeeping: just file the quarters on an "as is" basis without much if any alteration, unless the client wanted quarterly management accounts. If the client complained about the quality of data submitted (unlikely they would even know), the accountant would reply to the client: "we can only send HMRC what you give us within the deadlines we give you" and ensure this is adequately covered off in the bookkeeping engagement letter about the tight deadlines and what is practically reasonable to do in a short space of time, plus the fact that you will make the submissions to avoid fines on an "as is" basis.

Then the accountant either does the 1 or 2 above at some point before the following January to arrive at a final position. That way, there isn't too much of a backing up of work for accountants to do every quarter in a short space of time. If the client's don't send in the data where the accountant does the bookkeeping, the accountant just files whatever is in the bookkeeping each quarter, come what may, to avoid fines. I can quite imagine some quarterly submissions might be zeros. Hopefully over time the quarterly data will improve and become more realistic over later years as clients become better trained.

I hope that clarifies anything I have said and provides a practical solution to how MTD ITSA might work in practice for accountants and their clients.

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Replying to 123Sheets:
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By Hugo Fair
06th Jan 2022 00:14

Brilliant ... I suggest you offer an article incorporating your above posts to the Aweb editors.
What we all need is clarity on the procedures, based on a practical approach (without too much techno jargon) - and that's the closest I've read so far.

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Replying to Hugo Fair:
123 Sheets
By 123Sheets
06th Jan 2022 10:54

Thanks for your suggest Hugo, what I have written here is a bit all over the place, but I'll do just that.

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Replying to 123Sheets:
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By adjadj
06th Jan 2022 13:54

Thank you for the comprehensive answers. I now have clarity on how to approach MTD when it arrives.

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Replying to 123Sheets:
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By adjadj
05th Jan 2022 17:08

Your post above provides a useful insight into the business process. Is this information available from a public source or have your team deduced this from a variety of sources?

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Replying to adjadj:
123 Sheets
By 123Sheets
05th Jan 2022 18:55

See my new response to Hugo Fair above.

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Replying to 123Sheets:
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By NotAnAccountant2
06th Jan 2022 17:11

Are you sure? I'm not a lawyer either but the legislation seems pretty unequivocal to me:

https://www.legislation.gov.uk/uksi/2021/1076/made

PART 6
Corrections and omissions
Digital records – corrections and omissions
17.—(1) Where a relevant person discovers an error or omission in their digital records, the relevant person must correct the digital records as soon as possible.

(2) Paragraph (3) applies where—

(a)in consequence of such an error or omission a quarterly update is provided to HMRC which contains incorrect or incomplete information; and
(b)an end of period statement has not been provided for the relevant period to which the quarterly update applies.
(3) The relevant person must provide the correct or complete information to HMRC when the relevant person next provides—

(a)a quarterly update; or
(b)the end of period statement,
whichever the relevant person is first required to provide after the digital records are corrected.

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Replying to NotAnAccountant2:
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By adjadj
07th Jan 2022 15:13

Lawyers do not draft laws that produce efficient business processes!

Many will consider the 4 interim quarter updates an overkill when the tax is computed on the basis of the end of year activity

There are several steps needed to provide a corrected quarterly update; each carried the risk of error

For many people practicalities will prevail when the need for adjustments is identified. They will simply hold them over until the end of the tax year when they finalise their accounts for the year prior to submitting the End of Year data. They will send all adjustments in one operation. Far less time is needed and the risk of error is also reduced

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Replying to adjadj:
123 Sheets
By 123Sheets
07th Jan 2022 18:09

I would add that most accountants in practice only discover errors when they come to do the end of year accounts some time after the year has finished, if they are providing a compliance only service and not regular management accounts.

Therefore if the accountant only checks the clients data after 4 x quarterly filings have been completed, according to the law he is well within his rights to just make an end of year adjustment, as the legislation says "Where a relevant person discovers an error or omission...".

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Replying to NotAnAccountant2:
123 Sheets
By 123Sheets
07th Jan 2022 17:42

Yes, I can see that to be technically correct, errors should not be held over to the end of the year, unless one has finished the year already, but rather corrected at the earliest opportunity. However, although that maybe the law, HMRC have said they will take a soft-landing approach to quarterly filings not being correct, for the time being (I would imagine at least a few years in practice). The legislation of course is intended for many years into the future and so hasn't allowed for such soft-landing approaches, that in practice will be taken by HMRC in the early years of ITSA MTD, who is tasked with enforcing the law via penalties and investigations.

This may be a matter of interpretation, but when it is written that the error, if noticed, must be done at the earlier of the next quarterly update, or the end of period statement. With regards the next quarterly update, I don't think it means putting the error on the next quarterly update. Instead, I would take it to mean that at the time of the next quarterly update, the user should make (or have made) an amended quarterly update, for the period that was incorrect. Otherwise, there would never be any need for amended quarterly updates. However, it is worth noting that HMRC doesn't always correctly interpret the law, and equally that the law does not always take into account what HMRC is doing (eg: the historic discrepancy only recently fixed between HMRC requiring director's to file a tax return, when TMA 1970 says only if they have tax to pay). So it may well be that those that wrote the law were not aware of the APIs ability to file amended quarterly returns, and just thought errors should go on the next return, I don't know.

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By NotAnAccountant2
07th Jan 2022 18:27

My idea for finessing this problem was to have as separate spreadsheet for each quarters digital records. Once the quarter is submitted, the spreadsheet is archived and never opened again.

If it's never looked at again, errors cannot be spotted and corrected, at best you will know 'something must have been wrong' but if HMRC ever ask for the source of the quarters numbers then there is a nice spreadsheet for them.

However, this all supposes that the EOY figures don't have to link back to the same digital records. Which ever answer HMRC finally decide, the conclusion will have to be 'this is stark raving bonkers!'

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By adjadj
05th Jan 2022 16:59

Peter

Thank you for the very comprehensive response. It is one of the most helpful MTD posts that I have read for a long time

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By JD
05th Jan 2022 18:13

Out of interest, will your solution allow for a bank feed into excel

I ask because if you have the bank feed in and means of filing out of excel, we as accountants can then design the format of the sheet to suit ourselves/clients

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