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MTD ITSA: What price is free software?

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The swirling mass of information around Making Tax Digital for income tax has AccountingWEB tech editor Tom Herbert wrestling with some fundamental questions: when is free actually free? And when can you call software software?

18th Mar 2022
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Covering the rolling behemoth that is the Making Tax Digital for income tax project over the past seven years has been at times akin to walking into a 3D version of an MC Escher picture or diving headfirst into a Boolean logic pool. It baffles and disorientates you, making you question many of the linguistic foundations you once took for granted.

This isn’t the fault of one specific person, event or department: many cooks have contributed to this heady broth of confusing policy and contradictory communication, from government to vendors and many others in-between.

Two of the specific, fundamental questions I’ve been wrestling with recently have been as follows: When is free free? And when is software software? 

Let’s start with software. HMRC is adamant it has no intention of offering its own MTD ITSA software - it’s backing the market to provide products, from simple, free (we’ll get back to that word shortly) offerings to accounting solutions with all the bells and whistles. 

Parallel to this, however, the tax authority has briefed developers that they’ll provide free services for non-mandated end-points. Taxpayers can enter expenses, employment or bank information via HMRC tools - although they won’t be able to file the mandated submissions. 

Is this a hedge? If so, it’s not a great one for the specialist tax providers serving accountants, but not a bad one for the bookkeeping engines steadily branching out into tax offerings. 

At an unspecified time in the future, HMRC Assist - the Revenue’s nudges and prompts system that exposes HMRC’s internal error-detection rules to the outside world  - will also be layered on top of this. Once you’ve got a calculation in place, it’ll come back with top-level advice on things like expenses submitted.

For example, if you’re a hairdresser with a £20,000 turnover with £15,000 worth of expenses your figures are probably incorrect, with a rules-based nudge likely to state the equivalent of ‘if you submit this you’re likely to be investigated’. A useful tool without a doubt, but is this not… software? Or does software in this case mean the quarterly submissions, EOPS and final declaration filings?

MTD: Freedom isn’t free

And how about ‘free’? It’s a ministerial commitment that free software will be provided for Making Tax Digital. Surely free is a simple enough concept, but what does it mean when the MTD ITSA prism is applied? Table stakes would surely be the ability to hit those mandated end-points, not just the bits leading up to it.

HMRC anticipates “a strong MTD for ITSA software market, with a number of choices for customers, including free products”. Two out of the three companies listed in the ‘available now’ section of HMRC’s vendor list for MTD ITSA software at the time of writing (Cirrostratus and Apari) say they will operate on a ‘freemium’ model with free versions of their tools available - which will include EOPS and final declaration mechanisms.

They’re both currently small businesses with big ambitions and dynamic, knowledgeable people at the helm, and have ‘land and expand’ plans to acquire customers in the rush to MTD ITSA and move a proportion of them to a paid version of their product - they’re in business after all. 

None of the larger players I’ve spoken with has any plans to offer a free version of their products, so if things progress as HMRC expects then it’s reasonable to assume that in just under two years’ time we’ll have a mix of smaller vendors on freemium models and larger ones offering paid services. 

That assumption then prompts the question: is freemium the right approach to take? What are we hoping to achieve with this model, and how can we ensure that the free products aren’t just vendors in minimum compliance mode seeking to upsell taxpayers? 

It’s not an exact comparison, but the shenanigans around the Free File programme across the pond point to the fact that trusting the market to behave itself can have its drawbacks. Accountants on this side of the Atlantic have already complained about the perception created by Making Tax Digital TV adverts from software vendors that MTD is as simple as taking a quick photo of your receipts.

One of the central planks MTD was originally sold on was the increased efficiency and productivity digital tools would bring to UK PLC. Is this no longer the case if the free tools inevitably adopted by the smallest firms end up lacking all but the most basic of functionality? 

If the government truly believes in the productivity benefits of digital, then it should put its money where its mouth is and take up the suggestion from AccountingWEB columnist and former ICAEW President Paul Aplin and extend the Help to Grow scheme to unincorporated businesses and those with fewer than five employees so the software doesn’t have to be free.

We have two years before go-live, and there’s a fighting chance many of the issues outlined above will be ironed out as we inch closer to mandation day. My fear is that with seven years already on the clock and awareness among many of the four million due to join in 2024 still relatively low, it will take a well-planned and well-executed delivery and communications effort to nail the landing on MTD ITSA.

 

Replies (26)

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Tornado
By Tornado
18th Mar 2022 10:40

"For example, if you’re a hairdresser with a £20,000 turnover with £15,000 worth of expenses your figures are probably incorrect, with a rules-based nudge likely to state the equivalent of ‘if you submit this you’re likely to be investigated’. A useful tool without a doubt, but is this not… software? Or does software in this case mean the quarterly submissions, EOPS and final declaration filings?"

This is an interesting one which we have encountered before early on in Self Assessment. The parameters for this type of message seem to be initially set too broadly so these anomalies are flagged up in their tens, or even hundreds of thousands and HMRC will have no significant numbers of staff to look at them all let alone investigate any of them. The threat of investigation will have no teeth and probably not frighten anyone, particularly in the current circumstances where there is no normal whatsoever to any trading results due to the pandemic and anomalies galore are common.

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Replying to Tornado:
By ireallyshouldknowthisbut
18th Mar 2022 14:42

Of course there are quite a few scenarios when £20k t/o and £15k costs might occur.

For example they just opened a new shop and have a lot of overheads for which 100% CA's are claimed.

Which is why 'rule based' nudges like this are essentially useless.

There are wide variations of cost and income and general metrics wont help you tell if the tax is right or not, only by looking in detail at the specific business will you find this out.

Moreover if HMRC publish the "we accept this number" parameters within 3 months there will be an under the table "HMRC cost guide" on the maximum numbers you can put into your expenses without triggering HMRC. Essentially legalising tax evasion...........which is presumably why they don't publish such a thing now as its really really really dim.

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By johnjenkins
18th Mar 2022 10:42

"download this it's free" Yep the download is free but you have to pay to make it work. "Upgrades" another scam and the list goes on. It's all a ruse to get you to pay for something that may or may not be needed or indeed be suitable.
I really can't see this going live in two years. I also think there will be many business drop out of VAT come April this year.

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Replying to johnjenkins:
Tom Herbert
By Tom Herbert
18th Mar 2022 10:59

One trend I've seen recently is the rise in the price of MTD VAT bridging tools - haven't put together a proper analysis yet, but have reports from multiple firms using them that prices have risen 50-100% in some instances.

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Replying to TomHerbert:
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By johnjenkins
18th Mar 2022 11:24

The Price of nearly everything is going up. Insolvencies increasing. HMRC can't either answer phone or reply to post at same time. England rugby not good. Still with the warm weather coming we can sit in the garden with half a beer instead of a pint.

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Replying to TomHerbert:
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By Paul Crowley
18th Mar 2022 18:07

The initial free or cheap offerings fot MTD VAT slid away very quickly
But in fairness to the suppliers it was really just onboarding and hope the clients are too inactive to move on
Some cheap offerings went way over 100%

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By Duggimon
18th Mar 2022 11:06

There is no free option for someone keeping ledgers of their income and filing their tax return on paper every year because they don't own a computer or know how to work one.

Free software on it's own does not make the filing free, or comparable with the current process in cost. I recognise it's a very small subsection of the tax returning population, but they undoubtedly exist. My father does not use a computer and files his own tax return on paper every year. How are HMRC intending to offer him a free option per their ministerial commitment?

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Replying to Duggimon:
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By Jane Wanless
19th Mar 2022 10:05

For the "don't own a computer or know how to work one" people, I don't see that digital record-keeping/filing is going to improve accuracy. If anything, using an unfamiliar system is going to increase the risk of errors.

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Replying to janewanless:
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By Geoff56
21st Mar 2022 13:51

Bit of an understatement there, Jane.

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Tornado
By Tornado
18th Mar 2022 11:09

Let’s start with software. HMRC is adamant it has no intention of offering its own MTD ITSA software

In my view, this is essentially where it where it started to go wrong.

HMRC should have created software for all of us to use for free that was designed to do exactly what HMRC wanted it to do and could be updated and improved as they went along so the same updates were sent to all users at the same time. HMRC could have used commercial developers to do the work for them but just ONE version of the Software for all of us to use is all that was required.

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Replying to Tornado:
LL
By RickyRoark
18th Mar 2022 12:08

Interesting.

Whenever I attended an MTD event/webinar HMRC were adamant there would be free to use software available to gen-pop.

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Replying to RickyRoark:
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By Paul Crowley
18th Mar 2022 18:11

HMRC people delivering webinars are just told what to say and are not part on the process
Logically how can HMRC mandate developers to give away free stuff

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Replying to Tornado:
Tornado
By Tornado
18th Mar 2022 14:19

As a reference I came up with this suggestion nearly six years ago -

https://www.accountingweb.co.uk/any-answers/universal-free-tax-accountin...

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Replying to Tornado:
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By Winnie Wiggleroom
18th Mar 2022 14:44

Tornado wrote:

Let’s start with software. HMRC is adamant it has no intention of offering its own MTD ITSA software

In my view, this is essentially where it where it started to go wrong.


I agree that would have been nice, of course we were already part way there with SATRs, yes there is a free HMRC product but not if you are an agent and anyway the HMRC version is pants and your accounts prep software that you already have probably does the SATRs for not very much more money.

And thats the problem with HMRC providing free software, its probably not going to be very good (basic tools anyone?)

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By Nebs
18th Mar 2022 11:44

In the 1990's the taxman issued estimated assessments, taxpayers appealed, and the day before the commissioners hearing the accounts were delivered to the taxman. Then someone decided to simplify things and they came up with Simplified Assessing, where taxpayers submitted their own tax return by a certain date, or paid a fine. The taxman got loads of advertising paraphernalia printed that had SA in big letters all over it. Then it slowly dawned on them that this was not simplified. Quick huddle, few meetings, simplified was dropped, and the name was changed to Self Assessment so as they could still use the SA advertising posters.
I wonder when they will change MTD to Making Tax Difficult.

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By JustAnotherUser
18th Mar 2022 12:24

Find software for Making Tax Digital for VAT (via HMRC)

563 "Five-Hundred"

Find software that's compatible with Making Tax Digital for Income Tax

3 .... Three ( have to giggle at this)

Self Assessment commercial software suppliers

43

seems we have a long way to go.

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By ireallyshouldknowthisbut
18th Mar 2022 14:50

I fail to understand why any developer would offer a free product

As you started Tom, no-one is offering it. Why would they? I don't offer free tax returns. My customers don't work for free either.

Its seem to be yet another HMRC claim that holds no water but is either (a) raised in naivety due to the general lack of any sort of business acumen of their top bods, or (b) more likely utterly cynically to depress the costings of the project.

HMRC also widely claimed there would be free VAT tools for the VAT filing. They don't exist either and the VAT is infinitely simpler to program.

Similarly the chances of filing quarterly income tax filings in 6 minutes is clearly rubbish, We wont have time to do any more than open the software, shrug at the data and press file.

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Replying to ireallyshouldknowthisbut:
By Charlie Carne
23rd Mar 2022 11:25

Which I guess is why Google don't offer free search or email software or why Spotify don't offer free music subscriptions (to name but two companies).

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Replying to charliecarne:
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By NotAnAccountant2
24th Mar 2022 12:15

charliecarne wrote:

Which I guess is why Google don't offer free search or email software or why Spotify don't offer free music subscriptions (to name but two companies).

But can you imagine:

I'm DoNoEvil Software Company Ltd and I offer free software and a portal to allow you to submit your MTD information.

I also have my customers who actually pay me.

Consider the letter:

From: High End Bespoke Kitchens Ltd
To DoNoEvil Software Company

Dear Sir,

Please could you provide a quote for details on all taxpayers who show a net taxable income exceeding 25K in any MTD quarter in the last 36 months.

or

Please could you provide a quote for sending our marketing information to all taxpayers who...

I am VERY concerned about where this is going and HMRC really haven't thought it through properly although it will probably be 5-10 years before the excrement hits the air moving equipment. Prior to that there will be some (easily dismissed) complaints until finally a whistle blower comes forward.

(Or there will be no free software at all - in which case there's going to be millions of very angry taxpayers in Q1 2024 instead...)

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By Paul Crowley
18th Mar 2022 18:23

I looked at the three offerings as well when looking at the other thread
But given that HMRC seem to be stuck on the problem of partnerships and probably cannot even comment on jointly owned properties in various proportions, no software will pick up sensible figures without lots of human corrections if bank apps are the start point.

I also worry that suppliers are expecting more footfall than will happen until penalty demands start falling through the letter boxes of the currently unrepresented

An awful lot of tax returns go in on HMRC freeware with no logic review

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Replying to Paul Crowley:
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By justsotax
21st Mar 2022 10:18

'no logic review'......should be written on a post it and taped to the head of the whole of the HMRC senior mgmt team (and probably the cabinet minister responsible)

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By North East Accountant
21st Mar 2022 10:22

HMRC might get what they want with "free" software.....everyone being unrepresented taxpayers.

John the Plumber will sign up with "mickey mouse free software" and then find out that no accountant will help him with the year end.

Already we are seeing Accountants, using only QB, Sage or Xero and others withdrawing from the sole trade/landlord market.

And the tax take will only go one way.....and that's down.

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Replying to North East Accountant:
paddle steamer
By DJKL
21st Mar 2022 16:31

But the penalty take could go up.

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By C J EYRE
21st Mar 2022 16:45

Free Software would be great. Unfortunately, every software supplier coughs when I ask do you do one for cash traders with a restricted business bank account. I would be grateful if anybody out there knows of one

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By NotAnAccountant2
22nd Mar 2022 16:18

My plan was to scrape the API documentation to create a json file, from that auto-generate spreadsheets for uploading information and basically try to automate everything and leave the taxpayer with the sole job linking the cells in the spreadsheet to whatever external records system they had.

But I've shelved it for now for several reasons.

1. HMRC regularly and gratuitously make random changes to their api documentation that are completely non-functional but mean that I have to spend hours fixing the parser each time.

(Why they cannot publish a machine readable documentation of the API is beyond me - I suspect they already have it for generating the website!)

2. They've got a completely daft idea of how security should work, which means either the software supplier has to provide a portal (so that they can sniff all the data being sent to HMRC - I presume this is why HMRC were convinced to go with this model) or every taxpayer will have to register their own copy of the software. (The third solution is to (effectively) publish the key that the software uses)

I don't really care about this - and perhaps 4 million people trying to register their copy of the software/key with HMRC and do the "conformance testing" might make them see sense. I'm not willing to (try to) provide a portal.

3. While I was still wary of a possible early general election, I cannot see that happening now - which means MTDfIT will go live in April 2024 and there's a general election in May 2024. I cannot help but assume it will be delayed or scrapped in the run up to the general election (or there will be a promise to scrap it)

4. I'm only really interested in a very simple case - jointly owned property - which, itself, is still up in the air about how it should work, and while it won't be hard for me to provide spreadsheets to access all of the endpoints for everything, I don't pretend to understand what everything is about, let alone whether an auto-generated spreadsheet can actually do what is required to submit to all of the endpoints.

5. I have other interests. While we were in lockdown I had lots of spare time. Less so now so I'm not willing to spend time on this until I'm sure it will be useful.

FWIW, you can see my json description of the API (autogenerated from the website around August last year so possibly a bit out of date) here https://www.making-tax-difficult.uk/

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By TASG
23rd Mar 2022 10:00

Given the slow and user unfriendly interface of HMRC PAYE Basic Tools I am actually glad HMRC aren't trying to produce their own free software. I am however not glad about anything MTD related at all.

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