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Making Tax Digital - what on earth's going on!?!

14th Jul 2017
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The view of a small practioner.

This time last year Making Tax Digital (MTD) was looming large on the horizon and I remember going for my nightly run and it slowly dawning on me what a huge challenge it was going to be to our practice of over 300 small businesses.

If I am being honest fear presented itself in my mind pretty suddenly as I realised that every month we were going to have a "last week of January" and what effect that would have on our practice, our staff, clients, my family. This fear had to be confronted and it consumed my mind for months as I looked for a realistic plan that could work for all stakeholders.

I engaged heavily in the consultancy process, wrote to my MP, I even made submissions to the Treasury committee and, later, the Lords Economic Affairs Committee and yet, despite everything the Government were not going to budge.

So what to do? Well we began to adopt cloud software with our favoured product being Quickbooks and the first migration was ourselves.

Three months in and I was seeing the value and so began the slow roll out from the largest clients downwards as I saw no point starting with the smaller "simpler" ones. It was a good decision and, as of last week, nearly 10% of client numbers are migrated and, in every case, the PR with our clients has been great. Staff are engaged, clients are engaged and positivity reigned (and with it many client referrals).

However April 2018 and 2019 with the clients with lowest turnovers joining was still bothering me as clearly the "carrier bag" John the plumbers were the biggest challenge.

Plans began to increase our office space and take on two new members of staff. An office refurb was planned and all driven, mainly, because of MTD.

I went to the Accountex conference and spoke to all our suppliers including spending half an hour talking to one of the main directors of our tax software supplier. I was told that HMRC were deluded but that they were going to push ahead no matter what. I was also told that HMRC's view was not that these new quarterly updates had to be 100% accurate but, rather, they just wanted businesses to use better systems. "They're not interested in the quarterly numbers" I was told.

In one bizarre exchange I asked what would happen if a client submitted their own quarterly figures and then we had discovered numerous mistakes e.g. "what if a builder client built a home extension and put through £60,000 of bills? Would we have to correct each entry on the system as part of the annual update?" the answer was "no - you'll put one figure, -£60,000, against materials". What a joke! Hundreds of lines of data entered for quarterly submissions would be wiped out by one single figure in a box! Effectively we would ignore the clients work, re-do it and strike out their numbers.

What also struck me as bizarre was the fact that a quarterly update had a one month window but the year end update gave you nine months!?  My view was very much one of "oh well as long as the staff we take on to get this initial processing done and submitted are able to produce something of a better standard than our client will, doing it on their own, then we'll be fine and just tidy up at year end". What a waste of time and energy though.

But that was the reality I was told was ahead. This individual was speaking to the HMRC business and personal tax teams regularly - the trouble was the HMRC teams were not talking to each other.

Then as recently as last week I was reading the ACCA monthly magazine and they had an interview with the chairman of HMRC who was asked about the speed of implementation of MTD. I read the article searching for a glimmer of backing down but Mr Troup defended MTD saying " ‘There has been no tax change in my career where someone hasn’t said: “It would be better if we had more time.” Can we do it in this time and are we confident we are on track? Yes and yes.’ "

Reading that I accepted the inevitable, which was that the timetable was unmovable, and, having written to clients warning them of what MIGHT lie ahead, I spoke to our cloud software supplier and signed up for our next 100 licences ready to continue the roll out. 

Many commentators were saying that they were not going to be communicating with their clients until there was certainty but my view was, and still remains, that it is better to tell clients what MIGHT lie ahead than for them to hear it from a third party. More important still was communicating to clients that they should not worry about it and that we would find a solution and look after them on as cost effective a basis as we could find (albeit we made no secret of the fact that fees would likely have to rise slightly). I have to say that this strategy worked well and even our smallest clients found security in that message from us.

...and then yesterday the whole thing gets put on the back burner.

Am I happy that things have been slowed down, as someone who screamed from the rooftops that this was crazy, well yes and no if I'm honest.

My view was, and remains, that the sensible option was to only apply this to businesses over the VAT threshold who already report quarterly but, beyond that, I believe that if HMRC want proper data they just need to give people a longer filing window. A quarterly submission in a 30 day window was just not practical for those many millions who use the services of bookkeepers and accountants - the pressure would be huge, fees would have to increase and then you'd see many of the smallest just go off radar.

HMRC's YouTube video (with only 11,000 views since March 2016 - which says a lot about their marketing doesn't it) believed that John the plumber dreaded the annual tax return and wanted to be on top of his affairs. I can honestly say that every time I watched that video with a "John the plumber" type client that they did not relate to any of it!

If only HMRC had properly consulted with those of us dealing with the smallest of businesses then this could have turned out so much differently.

The message I submitted via the consultancy, and to my MP and the various Committees was, in my opinion, to give a 90 day window to submit quarterly reporting for those below the VAT threshold. This would give us all the best of both worlds. Time to prepare good data, file on time and move away from the nightmare which is January.

That's for later though. In the meantime there's more uncertainty as it seems the online HMRC statement contradicts with what was actually said in Parliament which was that businesses could voluntarily file under MTD before 2020 and that nothing beyond VAT would be rolled compulsorily into MTD until at least 1 April 2020. 

Some have said that means that MTD will not apply to businesses with turnover below the VAT threshold but I have a feeling that all they are actually saying is that the self employed, partnerships and landlords are now not going to join before companies were due to. I certainly don't look at that and think that HMRC plans are for self assessment to continue for the smallest businesses long into the future.

For now though we continue our cloud push for clients. Less than two years until MTD arrives for VAT and so our task is to take all clients, above the VAT threshold, whose record keeping suits cloud accounting across to the platform in the next two years. Three or four a month is easily achievable and means that, whatever may be coming next, we are future proofing our clients, promoting ourselves as an eyes open practice and doing it, importantly, on our own timetable now rather than that of a completely hapless government who were clearly scared of a backbench revolt.

Do we honestly believe that if the Conservatives had got their large majority that MTD would have been delayed? Dream on!

My message to practioners resistant to change is to open your eyes to it and use this time to give cloud accounting a go for those clients that it will suit. HMRC have lost control so this is OUR chance to take control as otherwise I fear that in a few years time we'll be right back to square one.


Replies (12)

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Richard Sergeant
By Richard Sergeant
18th Jul 2017 11:14

Good article - and balanced too!

I think this has been a (poorly managed and badly communicated) wake up call to us all that of the direction of travel - and 2 years isn't actually that far away.

Reviewing systems and processes and moving clients over to cloud (that need to) is just sense now.

Thanks for this.

Thanks (3)
blue sheep
18th Jul 2017 11:14

Couldn't agree with you more, and your experience is almost exactly the same as ours.

MTD was the push that we needed to get moving on cloud accounting, and we are starting to see benefits even though it is a huge amount of work initially for certain clients.

Thanks (4)
By raybackler
18th Jul 2017 11:22

What a great article. There have been several postings saying that accountants have to get off their backsides, embrace new technology and stop being luddites. I have never detected any resistance to technology from accountants, because no accounting practice would survive without it. The resistance arose, because of the blind stupidity in the way MTD was being introduced.

It must be the head honchos in HMRC either leading gullible politicians or giving assurances to forceful politicians that it can be done. Your article shows the kind of decision making that has to be considered by every accountancy practice and should be required reading for anyone at HMRC or in politics. The announcement of the delay, has come after David Gauke has been moved and Jane Ellison lost her seat. Have we got someone in Mel Stride, who better understands the issues? I hope so.

Thanks (3)
By evo36nre
18th Jul 2017 12:01

Yes - good article and mirrors myself and our business - thinking that the whole idea and expected deadlines were nuts, the terrible worry and concerns about it all and having to persuade clients, who didn't even have online banking at the time, that cloud accounting was still the way forward. We have had to carry out a lot of leg work to get to the stage where we have moved over 50% of our accounts clients over (also QBO). Only a small number remain, who are over the vat registration threshold and are still against it, plus it will not be cost effective at this point to move over the smaller clients, when they don't need to. Whilst we are bearing the cost of many licences at the moment, this should be recovered over time. It will reduce time spent on clients' accounts preparation, plus it will remove the January nightmare as we will now be in charge of the work load throughout. Payroll and pensions information from HMRC is also starting to be pulled through on IRIS, although not perfect as yet, which is a positive move forward.

Now waiting for the next instalment of GOT - Government On Tax - although Game of Thrones is much better!

Thanks (3)
By David MacBean
18th Jul 2017 13:28

The MTD idea is fundamentally flawed - computers are hugely useful but there is an old saying 'rubbish in rubbish out'. The worst bookkeeping disasters in my almost 5 decades have been clients computerising themselves which is basically what MTD is about. Some will cope well others really don't have a chance unless they pay someone else to do it. The interface required to finalise everything in the 5th filing & the subsequent reconciliations required to final accounts will be challenging as from what I can see MTD is just a list of income & expenses with no balance sheet. It will be good business for accountants & software suppliers & some honest taxpayers will have to take the hit in what is in my opinion an infringement of human rights on a misconception that computers have some sort of artificial intelligence of their own. David Gauke is just an aggressive overgrown schoolboy who has made a name for himself & moved on to bigger & better things leaving a trail of wreckage in his path for a substantial number of hardworking citizens

Thanks (2)
Replying to David MacBean:
By youngloch
18th Jul 2017 14:47

Couldn't agree more with you.

As time has gone by whenever I read that cloud accounting = lower accountancy fees I have a quiet laugh to be honest.

I think we all know what John the Plumber would produce given an app and, if one thing is for sure, it wouldn't save us time.

Overall though, just as we moved from red ledgers and analysis pads to spreadsheets and then to desktop software, moving to the cloud is just the next step and, based on previous experience, it does not mean that fees fall it just means we can be even more useful than we were before.

HMRC just needs to learn that giving professionals a one month window, once a quarter, will only ensure that quarterly submissions are nothing more than a rushed job, undertaken in order to avoid a fine, with proper figures being filed according to the same timetable they already are. In my opinion that is the biggest flaw in the design.

Thanks (2)
By mfbrown185
21st Jul 2017 10:31

One (of the many) points made here that I agree with is the ambiguity over the HMRC announcement. Quite a few contributors believe MTD to be dead for the smallest business's unless they wish to participate - I'm not at all sure that's what has been said. Some clarification by the Powers that be would be very helpful!

Thanks (0)
Replying to mfbrown185:
By youngloch
21st Jul 2017 10:50

I already commented to Accounting Web that I found their table misleading when it suggested that the smallest businesses would not be moved to MTD until 2020 and then on a voluntary basis.

From reading the Government announcements I personally believe the better wording would be to say that that MTD is not compulsory for the self employed before 2020 at the earliest but can be used voluntarily before then as, lets face it, the system is supposedly sitting there ready for April 2018?!

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By Pavilionaire
24th Jul 2017 10:01

I echo what has been said already about the blog article being spot on - it really echoes our experience.

However, the delay is not the end of the story and judgements still have to be made about how far we push cloud software onto clients under the VAT threshold. At what point do we advise the John The Plumbers turning over £70K with a functional if unspectacular Excel spreadsheet that they need to switch to cloud? And what if HMRC eventually bin the idea of quarterly reporting altogether and simply rebadge the annual Tax Return?

Thanks (0)
Replying to Pavilionaire:
By youngloch
24th Jul 2017 11:37

My personal opinion is that we don't and won't push any client to a system that does not best support their needs in regards to their own accounting info requirements as well as being a time/cost effective solution from our perspective.

Original proposals said spreadsheets were permitted as long as they could be linked to an MTD compliant system and, having spoken to our tax software supplier, we were assured that a solid solution would be in place within their systems.

Overall it just depends on the client - I believe it is our duty to give clients best advice that reflect legislative requirements, and the most cost effective blend of their/our time taking into consideration their personal abilities. That will give us a mix of cloud and spreadsheet as, in 27 years of practice, I have never yet found a one size fits all. It is our job as professionals to give the advice of what is right for that particularly client.

If I was a one man band practice then, perhaps, I'd look to the likes of Receipt Bank to assist but with a pool of staff then we can process records, correctly first time at a lower overall cost. Whether that means cloud or spreadsheet is irrelevant - it's about time -v- money -v- accuracy. That might mean different decisions from practice to practice.

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By chatman
24th Jul 2017 10:24

Pavilionaire wrote:
At what point do we advise the John The Plumbers turning over £70K with a functional if unspectacular Excel spreadsheet that they need to switch to cloud?

John the Plumber is my client. I insist he issues all his invoices on a cloud system, which he can access from his phone or his computer, and that he gives me all his purchase invoices so I can scan them and send them off to Auto Entry for processing. Spreadsheets just take too much time, when you factor in the leeway they allow him to make stupid entries.

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By [email protected]
17th Aug 2017 10:58

Jumping in a bit late here. I cannot understand or get my head around how this will work.
I am a very small Agent with some half dozen small clients (only one is vat registered), who when they buy materials also buy their daily paper, cigarettes and dinner, how will a scanned receipt know the difference between business and personal. I guess that is where we have to adjust (it seems like a lot more work that I cannot justify extra charges for).
I currently use an older version of Sage (not cloud) are HMRC now saying my software will be useless and I have to go Cloudbase? I will have to wait and see what 'free' software will be available, if I have to pay for the cloud it is just not cost effective for my little business and and I might as well close it down. My clients are not the type of people to get involved in their own bookkeeping or scanning of receipts with the likes of plumbers and builders. I just cannot see how this will work and feel that for us small Agents out there we are doomed.

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