Brought to you by
123 sheets logo
123 Sheets is HMRC-recognised software for spreadsheet record-keeping and governmental filing for...
Save content
Have you found this content useful? Use the button above to save it to your profile.

How To Find Answers to the "Unanswered" MTD ITSA Questions

8th Aug 2022
Brought to you by
123 sheets logo
123 Sheets is HMRC-recognised software for spreadsheet record-keeping and governmental filing for...
Save content
Have you found this content useful? Use the button above to save it to your profile.

This article sets out how accountants may be able to find the answers to supposed "unanswered" questions about ITSA MTD: from their software providers. It also explains the new movement of software vendors into the tax educational sector and why HMRC are not answering questions.

Where Are The Answers!

It is generally believed by accountants that HMRC have recently (July 2022) released new information telling accountants that three-line accounts are permissible for ITSA MTD quarterly filings, but software vendors have known this and implemented it in their software from 2021 or even before.

On 5th August, Rebecca Cave wrote that HMRC still has not answered the following questions:

1. How residential property landlords, who are permitted to submit only two totals – income and expenses – should report the property finance costs that qualify for a tax credit but not as a deduction

2. How joint landlords should report income from different portfolios, which may be separately recorded on either the cash or accruals basis

3. How businesses should report estimated figures if they don’t use an accounting period ending between 31 March and 5 April

4. Whether adjustments for corrected figures should be made to quarterly updates or if those adjustments should be made annually

5. Where voluntarily class 2 NIC liabilities are reported

6. Where CIS tax deducted from subcontractors’ income is reported

7. Where losses brought forward are reported.

HMRC Not Answering

 I would argue that essentially the wrong person is being asked: it is the software vendors who have the answers to these questions, whilst HM Revenue & Customs appears reticent to answer. The HMRC staff tasked with standing up at MTD conferences have not been trained to give adequate answers to the questions accountants have, leaving accountants with the belief HMRC do not know what they are doing.

HMRC are holding their "cards close to their chest", but all Rebecca’s questions can be answered by software vendors, who have a different channel of conversation open with HMRC, as it is the software vendor that must implement HMRC’s APIs, submitting information in the format HMRC want. HMRC make available to software vendors what they are not telling the accountants and taxpayers.

Software Vendors Enter the Tax Education Sector

This is why John Hemmings has been so useful on the Accountingweb forum, the lead person at one of the ITSA MTD vendors. This is why when a taxpayer calls HMRC about a problem they have, almost always the HMRC officer's first response is to ask the caller to deal with the software vendor. Indeed, right now, in order to get into the MTD ITSA pilot, accountants and taxpayers must do so through their software vendor, rather than directly with HMRC themselves.

HMRC are expecting software vendors to not only offer the software but explain the whole process to accountants and taxpayers, answering their questions, so that is where accountants and tax payers need to go if they want immediate answers to ITSA MTD questions.

This delegation of the tax educational role to software vendors is to some degree understandable, as it is the vendor who will implement the solutions that answer the accountants’ questions, potentially in different ways, so HMRC is not always able to answer questions if software vendors use their APIs differently.

Problems

This new method of obtaining answers (from the software vendors) unfortunately presents three potential pitfalls for accountants. Firstly, not all software vendors are going to provide comprehensive solutions, using all HMRCs APIs, or provide software all types of taxpayers might need for a particular API and so naturally those software vendors do not know all the answers. For example, I recently heard a software vendor at an MTD event say that HMRC hasn’t decided yet how to allow landlords to use the rent-a-room scheme for ITSA MTD, which is simply not true, there has been an API available for rent-a-room landlords for at least over a year. 

The second problem is that many software vendors are not yet in a state to answer these questions, because they have not yet decided what to do for their customers yet. Many software vendors have hardly started their software devolopment, so are not in a position to answer questions.

The third problem is that most software vendors have not recognised that they are now educators in tax matters for their users. Many vendors, particularly the larger ones, put staff members in front of accountants who have no idea what they are talking about. I have heard software speakers at MTD conferences give out incorrect answers, often blaming HMRC.  I've seen plenty of our competitors talk about MTD, but the one's I've seen are either sales staff with little understanding of tax legislation and practice, or ex-accountants who know the tax law, but aren't from an IT background and don't see the conversations their IT staff are having with HMRC to implement the APIs. You'll find small software vendors often know a lot more, as their staff have to wear multiple hats: a single person might need to know the tax law, what accountants are looking for and work with the APIs HMRC have developed. The problem larger software firms have is that their staff work in different departments with no-one having an overview of all the stakeholder positions. So software development staff, Accountant relationship managers and tax technical staff individually do not have the answers. Software vendors need to start realising that they are now a portal for tax education for their accountancy firm customers, and need to have at least one member of staff who can speak to accountants who have an overview and detailed understanding of the requirements from all stakeholders: the IT department, the accountant, the government and HMRC. 

Bermuda Triangle

This new triangle of HMRC - Software Vendor - accountant (or taxpayer) is something that all three of them are still getting to grips with. Of course, one might question the wisdom of a cost-cutting exercise where HMRC rely on software vendors to explain how HMRC interpret the law, and it may well be that HMRC will have to provide substantial guidance if the software vendors fail to adequately answer questions. No doubt many software vendors will not want to invest in becoming educators of tax, but even so, this move, in my opinion, is here to stay; even if HMRC is forced from time to time to provide clearer guidance that it would prefer to leave to the software vendors to provide.

Peter Hamilton FCA CTA