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MTD ITSA

MTD ITSA impact on accountancy practices

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Taking an accountancy practice doing (say) 300 VAT returns each month, and having about 1,000 self-employed clients' tax returns to complete each year, between April and the following January, I wonder if HMRC have considered what impact MTD ITSA filing will have on practices post 6th April 2023?

The practice will still have 300 VAT clients, and yet have to file 1,000 tax returns within one month every quarter, plus one after the year end. Where VAT phasing is not aligned with the ITSA filing quarters, these accounts will need bringing up to date too, before filing the SA's .

The need for accounting personnel will 'spike' quarterly, as the practice tries to file 1,000 tax returns each quarter, which it previously filed once a year, over a 10 month period. 

I would be interested to know what thought others have had on this, and what HMRC's views on how this can be achieved?

Replies (89)

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Replying to Hugo Fair:
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By GeoffBC
22nd Sep 2021 22:13

You have totally missed the point of my post. Yes, everything is digitally connected. Accounting and tax merged harmoniously merged in software that communicates and links up.

Someone still has to check it, and press the button. For 1,000 clients, this is a lot of work.

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Replying to GeoffBC:
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By AdamMurphy
22nd Sep 2021 22:21

And even more work if you check it three times.....:-)

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Replying to GeoffBC:
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By Hugo Fair
23rd Sep 2021 00:21

Well, if I've totally missed the point of your post ... then I guess it's only fair that you should do the same in return!

The quarterly submissions are not of accounts let alone tax returns ... they are merely extracts from the book-keeping that HMRC demands is maintained as digital records. Who is doing this book-keeping is a matter for the taxpayer to decide (her/himself or a contracted other), but it is not currently pre-supposed by HMRC that these records are part of the year-end accounts. And as Peter keeps pointing out the act of submission is miniscule in terms of effort IF the book data already exists at that point in time.

My point is that many (most?) accountants don't wish to be responsible for the quality of book-keeping other than as a once p.a. prelude to accounts preparation.
So the taxpayer is left with the choice of doing it her/himself (which usually needs extra effort by the accountant eventually) OR paying some professional to do it for them (which obviously costs extra).

The accountant is thus left EITHER in the same position as now (with an annual set of accounts & tax calcs to prepare/file) but with more effort due to trying to reconcile the raw quarterly submissions along with the usual adjustments ... OR has to offer an integrated book-keeping service (in order to minimise in-year and year-end re-workings), which is where all the perceived extra work arises.
Not just the book-keeping itself, but trying to do it at the same level of precision with which they approach accounts prep ... otherwise why bother.

It's at this point that the volume of work rapidly accelerates - not because of the frequency of submissions, but because of the continuous need for data acquisition & verification/checking.
And it's not just a matter of who's going to pay (willingly) for all of this - it's who has the resources to deliver it all (to the same professional standards by which most Agents currently live).

If people settle for the bare minimum (vacuum up the bank records and push a button once per qtr) then you won't get the peaks and troughs - but the whole process will be pointless. Whereas if you believe in moving towards quarterly accounts (as HMRC admit to doing at least in their dreams), then it's hard to see how to avoid the very 'spikes' to which you (OP) refer.

Anyway, I shall return to my slumbers ... maybe as in all the worst TV dramas this thread will turn out to have just been a bad dream!

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Replying to Hugo Fair:
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By johnhemming
23rd Sep 2021 07:02

I would disagree that the bare minimum is pointless. I think it is already accepted that the bare minimum could be cash based and accruals posted as a business income summary adjustment.

What it would do on an aggregate basis is provide indication of trends which is useful for government particularly with the volatile sort of economy that we have at the moment.

In the end one way is to do these things with the minimum of effort and having coded up bank statements as the periodic submissions with the checked tax return being done at the end of the tax year is a solution that would work.

The real returns we have done have been checked each period, but that is not essential.

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By Calculatorboy
22nd Sep 2021 21:09

People are overthinking this ...for most small clients it'll probably be a simple 3 liner sourced from daybooks (educate your clients now with simple templates to email you and frighten them with the thought of penalties and huge fees if they don't comply) . You'll be in and out filing with the speed of a ninja before hmrc notice. More time will be spent raising the fee note ...

And year end will be the same as now ignoring the garbage that has been filed quarterly.

Just Look forward to the increase in fees ..money for old rope

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Replying to Calculatorboy:
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By cbp99
23rd Sep 2021 11:46

My understanding is it will not be simple 3 liner, because expenses must be categorised.

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By Jo Nokes
23rd Sep 2021 00:49

Thank you, Hugo, for setting out the reality of the process. If you can get a client to use QBO or equivalent, they can press the button each quarter, and we can easily add year end journals to produce the EYO return. If they just file from an online bank, I don't follow how we are supposed to create and file the year end accounts. That is still not clear to me. Can you elucidate?

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Replying to Jo Nokes:
By petersaxton
23rd Sep 2021 07:59

Dont you have to include year end journals as well?
As an example, you work out depreciation and wages maybe every month and tax at the year end. Why is it not clear?

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Replying to petersaxton:
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By johnhemming
23rd Sep 2021 08:10

You are right that there is no reason to post year end journals each period. I will do a video to explain how this works, but have just ordered some new computer equipment as the fan on my laptop makes an annoying background noise on videos that has discouraged me from doing any more at the moment.

On another note HMRC seem to be announcing something about MTD later today. How sigificant that will be remains to be seen.

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Replying to petersaxton:
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By Jo Nokes
23rd Sep 2021 09:14

When I say unclear, Peter, I mean what software do I use to post journals etc, when the client has simply filed from his bank feed, using some new online bank such as Anna. It’s the interaction between the client’s process and mine that I don’t get

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Replying to Jo Nokes:
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By johnhemming
23rd Sep 2021 09:40

With a bit of luck most of the MTD software will enable this. What I have found is that some providers intend to only do self-employment and other providers intend to do only property.

However, a full endpoint provider will do both of these and end of year adjustments.

When I get my new computer I will do a video demonstrating how the endpoints work, but at the moment my fan is too loud (partially a windows problem). As I use Xsplit to stream videos I cannot use Linux and to be honest although Linux is better than Windows from a fan point of view it does not completely cut out the fan particularly for videos. With a bit of luck I will do some of this by Mid October.

You can, for example, get details of what your client has submitted and then submit changes to that. I tend to always use the long form submission as whilst people are coding up they might as well do all the coding rather than just income and expenditure.

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Replying to johnhemming:
By petersaxton
23rd Sep 2021 09:53

"but at the moment my fan is too loud (partially a windows problem)"

Maybe Windows 11 will solve your fan problem?

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Replying to Jo Nokes:
By petersaxton
23rd Sep 2021 09:43

Doesnt the bank feed go to accounting software? You'd then post journals in that.
Are you talking about bridging software? I'd never use that because corrections would be a nightmare.

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Replying to petersaxton:
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By NotAnAccountant2
23rd Sep 2021 09:57

petersaxton wrote:

Doesnt the bank feed go to accounting software? You'd then post journals in that.
Are you talking about bridging software? I'd never use that because corrections would be a nightmare.

How does that help you?

Your client has imported the bank feed into their MTD software in order to do their quarterly submissions.

You now need to somehow work with their records - or are you suggesting they're going to be using whatever software you use to do the full accounts?

Presumably they're going to have to pay for that - why would they do that when they can download free software to do their bit?

Or are you going to ditch their records and start again? Which makes a mockery of "digital link"

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Replying to NotAnAccountant2:
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By Jo Nokes
23rd Sep 2021 10:16

Thank you, notanaccountant2, for understanding my query. The client will have used some unspecified (free?) software to submit the bank feed. Do we have to get hold of the bank feeds from the client and import that into eg VT in order to work on the year end accounts. That's fine, perfectly doable, but as you say, that's not a digital link. John says 'with a bit of luck', hardly reassuring, and he fails to get my point, or answer the question either. Can I assume that I will be able to view the data that the client uploaded in his 'account'. That will only be totals anyway, so of limited value. With 18 months to go, I would have thought all this should be crystal clear.

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Replying to Jo Nokes:
By petersaxton
23rd Sep 2021 10:30

I think all sensible accountants and taxpayers would use the same software.

Why are people deliberately wanting to make the work harder?

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Replying to Jo Nokes:
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By johnhemming
23rd Sep 2021 11:16

Jo Nokes wrote:

John says 'with a bit of luck', hardly reassuring, and he fails to get my point, or answer the question either. Can I assume that I will be able to view the data that the client uploaded in his 'account'. That will only be totals anyway, so of limited value. With 18 months to go, I would have thought all this should be crystal clear.

I say "with a bit of luck" because MTD providers will not necessarily provide all the functions.

In order to work out the adjustments you will need to have the totals to apply the adjustments to.

It is as far as I can see crystal clear, but it is also clear that as with VAT not all providers will provide all endpoints. It happens that I have written all the available endpoints hence I know how they work in some detail. However, not all of my competitors will do the same.

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Replying to johnhemming:
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By Jo Nokes
23rd Sep 2021 11:31

I'm trying to keep up, John, but I have no idea what you mean by an endpoint. And Ok, I will have the totals, but can I use my own software (VT) to make adjustments to whatever the client has posted using some bridging software. Crystal clear it ain't.

Unlike Peter, I'm not convinced that I wish to impose my software on my clients, and I don't feel inclined to sack them either. That would be tough after dealing with them for many years.

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Replying to Jo Nokes:
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By johnhemming
23rd Sep 2021 11:37

An endpoint is a technical term for a function on HMRC's API.

It is a defined amount of work for an MTD supplier to write software which makes an endpoint work. If you don't write that then you cannot do the thing that the endpoint does.

Hence, for example, if you wish to use MTD software to challenge HMRC's records on CIS you need to have software with the CIS endpoints written and also the relevant API subscription.

You can, of course, ask the supplier "Does it do CIS variations". However, given that the terminology used by HMRC is a constant and different suppliers may describe it in different ways I use HMRC's terminology.

The point about Income Tax is it has lots of different types of income. I don't know how many MTD suppliers will offer all facilities. However, I have decided to do that. It is slightly easier for me because I write the software myself.

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Replying to NotAnAccountant2:
By petersaxton
23rd Sep 2021 10:28

"You now need to somehow work with their records - or are you suggesting they're going to be using whatever software you use to do the full accounts?"

I am going to recommend that clients use the software I use. If they want to use what they want then they can do it all. I'm not going to learn countless different software.

"Presumably they're going to have to pay for that - why would they do that when they can download free software to do their bit?"

Why do people pay to use a bus when they can walk for free?

"Or are you going to ditch their records and start again? Which makes a mockery of "digital link" "

Crazy comment

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Replying to petersaxton:
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By NotAnAccountant2
23rd Sep 2021 10:59

petersaxton wrote:

I am going to recommend that clients use the software I use. If they want to use what they want then they can do it all. I'm not going to learn countless different software.


So you have a client who has a jointly owned property - the other owner uses a different accountant. Which accountant's chosen software "wins" this battle?

Or perhaps I've misunderstood - absolutely everybody is going to be using one particular piece of software for MTD? I'd actually support that - and HMRC should provide it (subcontracting the work to write it to other companies perhaps).

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Replying to NotAnAccountant2:
By petersaxton
23rd Sep 2021 11:14

"So you have a client who has a jointly owned property - the other owner uses a different accountant. Which accountant's chosen software "wins" this battle?"

The record holder's software.

"Or perhaps I've misunderstood - absolutely everybody is going to be using one particular piece of software for MTD?"

No.

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By K81
23rd Sep 2021 08:35

I have approx. 300 rental only clients - maybe 175 of these are pensioners with one or two properties they rent out.
most do not use letting agents or computers. they collect rent in cash & have rent books they give us each year with receipts for work done on property in year.
A good handful of these want nothing to do with computers & we still file paper tax returns for them as that is what they want.
I am currently in denial & need a long holiday.

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Replying to K81:
By petersaxton
23rd Sep 2021 09:47

If they want nothing to do with computers then they will have to gear up for seeing you more regularly. I would suggest at least monthly.

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Replying to petersaxton:
By K81
23rd Sep 2021 10:25

that's a thought, but a lot of my clients are pensioners, they come in get a hot drink provided by the receptionist & then don't want to leave! sometimes they even sit around in reception after our meeting chatting, we even have one client who pops in when passing for a cup of tea!

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Replying to K81:
By petersaxton
23rd Sep 2021 10:39

I was terrified when you said 300 but if you have a receptionist presumably you have a few accountants/bookkeepers available to do the work.

Maybe you need a client relationship manager who would be useful in enabling the accountants/bookkeepers to keep working.

I dont have much problem in getting rid of clients after doing working matters are finished but then I only have 4 clients in their 70s.

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Replying to petersaxton:
By K81
23rd Sep 2021 11:32

Ha! yes my lovely receptionist deals with, maybe that's the problem & she is too friendly & makes the clients feel comfortable.

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By codling
23rd Sep 2021 11:36

One point that seems to have not been covered in this thread is what MTD is supposed to do. To quote HMRC, it is supposed to transform tax administration so that it is "more effective, more efficient, and easier for taxpayers to get their tax affairs right". It is supposed to help taxpayers to eliminate avoidable mistakes and to help reduce the tax gap.
Rebecca Cave's article on MTD4VAT shows that it is not happening and the comments show that errors are still as widespread as ever and even greater in some instances.
If it is not happening for VAT then how on earth is that going to change for IT? The simple answer is it will not. No matter what arguments are put forward as to how accountants can change their practices to accommodate MTD and the counter arguments showing the problems that accountants face, there will still be the same old problems due to rubbish in equals rubbish out. Accountants sort the rubbish when preparing accounts and produce a meaningful end result but what about the huge amount of unrepresented taxpayers who will be forced to use software? Disaster looms methinks.
I feel it needs a total rethink and should be delayed indefinately as it is already proven that MTD of any sort will not do what HMRC hope for.

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Replying to codling:
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By Jo Nokes
23rd Sep 2021 11:50

I think the topic has been exhaustively covered in other threads, specially the jumbo over 400 view one

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Replying to Jo Nokes:
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By codling
23rd Sep 2021 12:19

Jo, I agree 100%. The only thing that has changed is that what we all suspected about MTD has been proven with MTD4VAT so the powers that be should really take notice of this and defer anything further until they can find how to make it work much better and easier.

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Replying to codling:
By petersaxton
23rd Sep 2021 11:53

HMRC are incompetent. Anybody who believes what they say will not understand what is going on.

If the taxpayer and accountant use cloud software then the accountant can either do the bookkeeping themselves or, if more efficient or cheaper, correct the taxpayers errors.

Most taxpayers with relevant turnover over £10k who remain unrepresented are asking for trouble.

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By David Ex
23rd Sep 2021 12:46

petersaxton wrote:

Most taxpayers with relevant turnover over £10k who remain unrepresented are asking for trouble.

I thought you were a supporter of MTD? You’re saying taxpayers will be pushed towards paying for professional support that they have so far managed without!

I’m with the House of Lords on this one!

Can’t find the link to MTD IT specifically, but this is one of the HoL reports:

https://publications.parliament.uk/pa/ld201719/ldselect/ldeconaf/229/229...

“136.The Committee’s 2017 report identified widespread scepticism of the tax gap assertions. Most witnesses other than HMRC were unconvinced that MTD would reduce errors and so increase tax yield, and we concluded that the case for this was “not yet proven”. We also concluded that costs for taxpayers were understated and benefits overstated.”

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Replying to David Ex:
By petersaxton
23rd Sep 2021 12:56

"I thought you were a supporter of MTD? You’re saying taxpayers will be pushed towards paying for professional support that they have so far managed without!"

I am a supporter. They have managed without an accountant but that doesn't mean their accounts were correct.

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Replying to David Ex:
By petersaxton
23rd Sep 2021 13:12

"The Committee’s 2017 report identified widespread scepticism of the tax gap assertions. Most witnesses other than HMRC were unconvinced that MTD would reduce errors and so increase tax yield, and we concluded that the case for this was “not yet proven”. We also concluded that costs for taxpayers were understated and benefits overstated.”"
I think there's a lot of rubbish talked by HMRC about the tax gap. I do think that if a taxpayer is using bank feeds they are less likely to overlook transactions though but I dont see why that should be in HMRCs favour. HMRC are wrong if they think that taxpayers wont suffer increased costs at least in the short term. HMRC are also wrong if they think taxpayers will be able to do MTD without help from accountants and they have a crazy view if they think that all that is needed is to press a button every three months.
Some people (I'm not accusing you) seem to think that because I think that MTD is a good move it also means that I must agree with the comments HMRC say. That is simply illogical. It also doesnt mean that there wont be challenges in the short term for accountants and taxpayers.

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By Hugo Fair
23rd Sep 2021 14:51

Yaaaaay!
Statement made by Lucy Frazer, Financial Secretary to the Treasury, to HoC today:

"The Government recognises the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic over the last year.
In recognition of this and of stakeholder feedback, we will now be introducing MTD for ITSA a year later, in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025. The date at which all other types of partnerships will be required to join will be confirmed later."

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Replying to Hugo Fair:
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By Jo Nokes
23rd Sep 2021 16:33

Hugo-Do you think that the delay is because the details of how the end of year information (other income, salaries dividends etc) and the editing and adjusting of the quarterly filed information will all be filed digitally is nowhere near being worked out yet by the software houses?

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Replying to Jo Nokes:
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By AdamMurphy
23rd Sep 2021 16:44

I would say more an HMRC issue than software houses.

I'm in the usual position that's almost six months since the end of the tax year and only some clients' employment income shows in the API between software and HMRC.

If they can't even get up PAYE records in that time, how on earth would they cope with a major redesign of the tax system?

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Replying to AdamMurphy:
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By Jo Nokes
23rd Sep 2021 17:22

I agree with you about that. With Taxcalc, I expect to be able to fetch data, but it's hardly ever available, and when you do get to see the pension income, it doesn't include the DWP figure. It's still marked as Beta, but I think it's been there for over 3 years.

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Replying to Jo Nokes:
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By Hugo Fair
23rd Sep 2021 17:34

I'm afraid that it's unlikely to be for any straightforward/practical reason as logical as that. As Adam (above) hints the immediate driving force (or rather braking force) is most likely to be a combination of the overall mess that is stressing the standard processes within HMRC - with the added knock-on impact on their own state of readiness for MTD.
The quality of your/my data after they've "processed" it is unreliable - hence the problems within the data that they 'reflect back' to you via their beloved APIs.

With a bit of luck (to borrow John Hemming's phrase) the extra time *may* mean that they find the resources to listen to our other points (like the key one you're raising) - and, who knows, even carry out proper pilot evaluations where the nitty-gritty of practical life comes to the fore instead of ivory tower visions?

But I'm a cynic (from experience) so feel the leopard is unlikely to change its spots. Our more likely saviour will be the encroachment of politics into the ever lengthening timescales ... the govt has other priorities and everything changes if this runs crash-bang into a general election. Just think of the extra runway at Heathrow or HS2 or a number of other mega-projects that are not quite dead - but no longer even remotely attached to their original planned schedules!

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