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