MTD draft response: Accounting software

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This is the first in a series of six blogs in which I present my personal views on the questions in the consultation document MTD: Bringing business tax into the digital age

Please add your comments below, particularly if you disagree with me. I will be making a formal response to HMRC on behalf of the AccountingWeb community, so I need to read the full range of your views.

You can also respond directly to HMRC by email: [email protected]. or by completing a HMRC survey which covers the main questions from this consultation document.

I urge you to make a response, if only to one or two of the consultation questions, as every response is counted equally. If you don’t speak up you won’t be heard.

Q 1: What are the challenges for businesses that currently keep their records on paper or simple spreadsheets in moving to an integrated software package for record keeping, and what further measures or support would help businesses to meet these challenges?

Businesses who keep accurate business records in paper form or on spreadsheets should not be required to change the method in which those records are kept. If the current recording keeping method produces an accurate result, there is no justification for changing that method. If the taxpayer currently records each transaction in near real time on a spreadsheet, - why make a forced change to that recordkeeping?

Any forced change carries the risk that errors will be introduced into the business records, as the taxpayer may not understand how the software works. If the software is more difficult to operate than the current method of record keeping (paper or spreadsheet) the taxpayer will be less inclined to use it as frequently and omissions will occur.

Q 2: What information and guidance would you find helpful in choosing the appropriate software for your business?

Every business is different so will need different things from its accounting software. For some complex businesses, such as partnerships, or those which undertake many international transactions, no standard software package may fit the needs of the business, and bespoke accounting software will be required.

HMRC should undertake research into how many businesses, including partnerships and companies, currently use bespoke accounting software.  

HMRC should not try to explain the merits of different software packages. It should only publish a list of approved software packages, with the contact details of the provider.

Q 3: What types of business should a free software product cater for? What functionality would be necessary in a free software product?

Free software should not be provided. HMRC should instead permit those businesses who are eligible to complete the three line accounts on the SA tax return to submit those three figures in an online form. This gives the simplest unincorporated businesses a means to comply with its tax obligations with minimal costs.

Q 4: What level of financial support might it be reasonable for the government to provide towards investing in new IT, software or training, to whom should such support be aimed, and what is the most appropriate form for delivering such support?

See solution suggested in answer to Q 3. If that approach was adopted no financial support should be needed for the small businesses that use the online form submission method. Larger businesses should not need financial support.

However, free training in how to keep accounting records should be provided to any business which wants it. Software providers and accountants should be paid by HMRC to provide technical training to their customers, either face to face or by live webinar. Perhaps registered taxpayers could claim a voucher to redeem with a qualified provider.

Q 5: What other forms of support would help to make the transition to Making Tax Digital easier?

The two MTD requirements; recording transactions digitally, and reporting taxable profits digitally, should be separated. Businesses should be permitted to continue to record transactions in a fashion that suits the business, but they should report taxable profits to HMRC in a way to minimise cost to HMRC. See answer to Q3.   

Transition to MTD should be voluntary, not compulsory. If a business will benefit by using accounting software it will make the change.

Q 6: What facilities would make it easier and more secure for businesses to enrol for Making Tax Digital and use software regularly?

Businesses must be able to delegate all or part of the MTD reporting to their tax agent.

 

Replies (11)

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By youngloch
01st Nov 2016 00:13

Only point I would add to that Rebecca is that one of the "selling points" of software is that is intuitive and seeks to automatically post certain items.

I experienced this with a client recently who we had moved to an online digital platform from paper records to help her primarily with her sales invoicing.

Whilst the software did indeed import the entries for her from her bank, it failed to understand that Sainsbury's may mean cleaning materials, petrol, stationery or equally, and often, domestic shopping. This kind of data extraction discourages receipt led entry and even the likes of Receipt Bank, in reality, would find it hard to distinguish what is and is not a business expense for such a client.

Small business owners do not necessarily split business and personal spending in the way perhaps they should when managing their finances and, in that case, the result was an understatement of profit of circa £6,000 in a single quarter. The client didn't notice it as the software was effectively posting for her. More to the point the client does not have time to notice - she is trying to build a business up not learn to be a bookkeeper.

Intuitive software can cause careless mistakes through complacency and we all know they come with a 15% penalty if caught.

Making tax digital (for HMRC) should be compulsory e.g. CIS records becoming viewable to a sub-contractor but quarterly reporting and digital record keeping are unnecessary and, at the most, should be optional to those who see the genuine commercial value in doing so.

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Replying to youngloch:
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By Homeworker
05th Nov 2016 13:01

[quote=youngloch]

"Only point I would add to that Rebecca is that one of the "selling points" of software is that is intuitive and seeks to automatically post certain items."

Having had one our clients take on a cloud accounting package last year, after many years of using spreadsheets, I would also add that these packages also make assumptions about the VAT status of expenses. Going through their entries now, I am finding numerous examples of VAT inappropriately claimed (eg purchases through Amazon online), which they have not noticed. I hasten to add that they have always done their own VAT returns, otherwise I would have spotted the errors before.

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By adam.arca
01st Nov 2016 13:35

Q 1: challenges for businesses that currently keep their records on paper or simple spreadsheets

This is cart before horse territory. What evidence have HMRC produced that record-keeping via software is automatically more accurate than via paper / spreadsheet? I certainly haven't seen any.

HMRC are wholly wrong and worryingly naïve to conflate in this way. It is true that, in general, larger businesses will use software and will keep better records than smaller ones. That better record-keeping, however, is a function of being larger and more business-like and not a function of using software as HMRC assume.

As any accountant in practice will know, though, that general "rule" is in any case so punctured with exceptions that it is barely a rule whatsoever. I for example still have a couple of larger clients who use paper / spreadsheet and keep meticulous books; I also have some smaller clients who use off-the-shelf software but which I then basically ignore because it is so badly / inconsistently written up.

Before proceeding any further down this route, therefore, HMRC need to be asked to present their "evidence" for critical review.

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bike
By FirstTab
01st Nov 2016 13:36

I look forward to reading other blogs.

Q1 -To some extent disagree on point 1. It is time all businesses should go digital. If spreadsheets work, that should be acceptable.

At times forced change is the only way . This is one of those times.

I am pro MTD. It is the way to go.

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By adam.arca
01st Nov 2016 13:41

Q 2: What information and guidance would you find helpful in choosing the appropriate software for your business?

It isn't HMRC's role to act as a cheerleader for the software industry. Like everything else in life, if a business case cannot be made for using product X (software in this case), then it shouldn't be used. Simple as that.

So, come on HMRC. Let's actually hear the business case for compulsory digitisation of business record-keeping before leaping to the conclusion that it is actually necessary.

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By davebeman
04th Nov 2016 11:55

I cannot see any justification for imposing digital record keeping on my clients. Those who are VAT registered have become competent in on line filing of information. RTI, on the other hand, still presents problems to my most digitally aware clients. I have no objection to quarterly filing of information (VAT return style) but to impose the use of digital recording is a step too far. The HMRC claim that digital recording will reduce errors just reinforces my view that they are completely out of touch with the average small business.

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By westland
04th Nov 2016 12:16

I agree entirely that record-keeping and reporting should be separated, with the completion of an online for for the latter. Very few of my clients will be capable of running their own software, let alone being enthusiastic about it. HMRC's vision of the mentality of small business people is illusory. David H

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By westland
04th Nov 2016 12:16

I agree entirely that record-keeping and reporting should be separated, with the completion of an online for for the latter. Very few of my clients will be capable of running their own software, let alone being enthusiastic about it. HMRC's vision of the mentality of small business people is illusory. David H

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By NH
04th Nov 2016 13:52

I am pro MTD, there are huge benefits to moving with the times and getting onto digital.
But I do agree there has to be separation between keeping records (ie receipts and invoices) digitally and reporting.
Using banks feeds is one thing but if every receipt also has to be captured that is quite a different matter.

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By Digit Dabbler
05th Nov 2016 08:31

Some potential problems with scanning each receipt. Will business owners do it when even keeping the receipt is a chore? Will they do it consistently? Will they do it before it's sat on the dash and bleached in the sun or been screwed up in their back pocket all day? Will they care how the software categorises it? How will the software label the scan so you're able to identify it easily? Will the bank feed tie the scan up with the bank entry and cross reference the two? Now that will be impressive, especially if the business owner has a mixture of debit, credit and cash receipts.

How will the bank feed tie up customer receipts with invoices? Is it capable of allocating monthly payments against multiple suppliers invoices?

I had a client once with a Mac. She decided to go digital and scanned her receipts as word docs as she couldn't create pdfs on her Mac. Not saying a Mac won't only she couldn't. She labelled them obscurely and didn't link them to her accounting records. When you opened them the formatting was a mess and they were editable so totally unacceptable. I refused to work with them and we parted company.

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By eirianhumphreys
06th Nov 2016 19:54

Having consulted with our clients by the completion of a survey, it has become quite clear that South West Wales hasn't adequate broadband facilities to allow our clients access to their tax accounts online. Our survey revealed that only 29% of those surveyed thought they had adequate internet connection.
Our survey also revealed other concerns as follows:
74% of clients had not heard about MTD;
92% of clients were not aware that businesses and landlords with income of over £10,000 would be required to keep digital records;
and 91% of clients did not know that they were expected to submit quarterly submission s to HMRC as from April 2018.
The above statistics are a major concern for us as accountants as it will not only mean a tremendous amount of extra work, where will we get the people to do all this additional work. There is no benefit to the tax payer.

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