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Is MTD ITSA more an opportunity for bookkeepers or accountants?
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Will MTD ITSA divide accountants and bookkeepers?

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Is MTD ITSA more an opportunity for bookkeepers or accountants, asks Richard Sergeant.

14th Sep 2021
Director Principle Point
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One of the side effects of Making Tax Digital that makes accountants nervous is the possibility of being left out of the loop between the taxpayer and HMRC, especially when the regime reaches out to constituencies who previously were beyond their reach.

The current situation with MTD has similarities to the beginnings of auto enrolment in 201. At the time, independent financial advisers saw it as a fantastic opportunity when their traditional model was under threat from the Retail Distribution Review (RDR). The end of those juicy commission terms seemed to be exactly as millions of small businesses would need to set up pensions. 

The reality however was that it was more of a payroll opportunity. 

The hard part was not getting the pension set up (although not without challenges), but administering it. A direct link between employee decision making, fast changing data, calculating contributions, and regulatory compliance meant that it was always going to be a game for payroll  - and thank you for doing it!

The quarterly reporting shock

Few accountants seem to be looking forward to MTD ITSA and you can see why. The huge diversity in client attitudes and abilities when it comes to administration will make it almost impossible to deliver a one size fits all solution. 

Segmenting clients into what kind of support and tech they will need should quantify the challenge. But the self-employed and landlords who are used to working to an annual system are going to be in for a shock when quarterly reporting arrives.

If these businesses need extra help checking or even maintaining their books, practices geared around the tax return busy season may find themselves overwhelmed. Experienced and efficient bookkeeping teams could be in a better position to scale and accommodate these additional client needs.

MTD ITSA isn’t a tax opportunity, but a bookkeeping one.

Client demand

The flip side of this situation is the more clients can do themselves, the better.  “Most [self employed and landlord clients] would be small and simple, so able to do the quarterly returns themselves and just get help with the year end,” argued Della Hudson. That might mean that tax agents could jog along and pick up the equivalent of what they currently do at the end of the tax year.

Some clients will want to minimise the cost of compliance, so MTD ITSA might spur them to become more involved with their bookkeeping. But the sheer scale of the MTD ITSA intake makes it difficult to predict how many will take this approach. 

Chris Downing at Sage suggested the fear of getting things wrong might outweigh the resentment of cost: “We need to consider that the fear of tax will drive those without an agent to one.  We saw this with MTD for VAT.  So there are potentially a million plus individuals, who currently file their own trade and rental tax submissions, who may feel more confident in their quarterly updates if the trained eye of a professional was at hand in preparing/checking the returns”.

Bookkeepers primed

If you’re working at the sharp end of the numbers and are used to the fickleness of clients and their data, then surely this is your time to shine? 

Bookkeepers play an essential role in the small businesses community precisely because, as Ami Copeland Director of the ICB put it, “They've got that close relationship and don't immediately shy away from those smaller Excel clients”. 

Given the technical, yet hands-on nature of bookkeeping, the potential opportunity is obvious.

For an accounting firm that may do a small amount of bookkeeping, confirming their service offering sooner rather than later will ensure the tools and processes are in place. Partnering with bookkeeping firms could be an important element of that service.

Working together

And let’s not forget that accountants and bookkeepers can work effectively together. “When I was back in practice, my best clients (fee generating and quality of records) were those where I had partnered with a bookkeeper”, Downing recalled. 

However, the crucial sticking point is still resources, and specifically the shortage of people to do the work. We know this to be true generally within accounting practices, but it’s a similar challenge for bookkeepers too, “It's a massive opportunity for bookkeepers, but every bookkeeper I speak to is at capacity. We desperately need more great talent to come on line”, explained Copeland.

The irony that digitalisation might depend on the availability of trained humans won’t be lost on anyone here. 

The opportunity

To answer the question, and without wishing to be a cop out, both accountants and bookkeepers are going to be needed if MTD ITSA is going to be a success. Time will tell if it was more of an opportunity for one rather than the other. But given the sheer number of taxpayers impacted, there’s quite literally going to be more than enough work for everyone.

Replies (50)

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By Hugo Fair
14th Sep 2021 17:48

The issue isn't whether "there’s .. going to be more than enough work for everyone" - and certainly not a competition between book-keeping and accountancy/tax agents. Only a 'systems' guy with rose-tinted spectacles would be so focussed on 'process' - with an assumption that everything will be alright if the process is followed.

The BIG issue is ownership, and therefore responsibility when things go wrong - which they will ... within HMRC systems (and back-end processing interfaces/transfers of data across govt).

The more fingers in the pie (taxpayer, software package, book-keeper, accountant, tax adviser and so on), the more that HMRC are happy that all failings can be blamed on "someone else" - without any need for them to get involved in investigating errors, let alone corrections or (heaven forfend) updates to their own software/processes in order to prevent re-occurrences!

If you imagine the Post Office fiasco repeating, but for all self-employed traders not just sub-post office owners, you've got a glimpse of what's around the corner. And the only people making money out of it will be lawyers (eventually).

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By Paul Crowley
14th Sep 2021 20:38

A good bookkeeper is essential for VAT
After all, VAT is a real report and money needs to be paid
The VAT needs to be correct, not somthing that software apps can do on their own.

The only MTD ITSA report that does any job at all is the final one. I will not be partnering with bookkeepers for all the little minoes that get caught in this obligation.

Why?
Because there will not be enough bookkeepers
We all know it

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Replying to Paul Crowley:
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By Rgab1947
16th Sep 2021 10:10

"Because there will not be enough bookkeepers
We all know it"

Says it all.

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By ireallyshouldknowthisbut
15th Sep 2021 09:38

Quarterly filing is a bookkeeping issue.

You don't even need a good one, any unsupervised 'trainee' wage fool mashing the keyboard will do so long as something gets filed.

The problem however is however those low quality filings suddenly becoming set in stone by history, and become 'real data' that your client is then taxed on down the line. That is where all the fun will start.

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Replying to ireallyshouldknowthisbut:
Richard Sergeant
By Richard Sergeant
15th Sep 2021 10:11

Agreed, however it looks like fines can be levied on the basis of 'behavioural' aspects - which means if it's quite obviously garbage then expect a tasty brown envelope or two. Also, Verna Gellvear from HMRC has said that that the quarterly updates are not expected to be 100% accurate, and the end of year adjustments are an opportunity to bring things into line. Fine if you are using an agent...

As a note -there is the 'anticipation' of the regs (and fine structure) being released this side of Christmas (2021 before anyone quips!).

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Replying to rsergeant:
Tornado
By Tornado
15th Sep 2021 15:10

"Agreed, however it looks like fines can be levied on the basis of 'behavioural' aspects"

This assumes that HMRC have enough staff to make these sorts of decisions in tens, if not hundreds of thousands of cases. I find it impossible to get a response from HMRC to a single appeal so heaven knows how they are going to deal with the masses of extra cases that require human intervention right across the spectrum of MTD.

The fact is that MTD for ITSA, or anything else, will simply not happen until the aspirations of HMRC are tempered to something workable and pragmatic.

To be honest, I am am past caring about MTD as it is NOT my responsibility to make it work, it is most definitely the responsibility of HMRC and they have been given £billions of our money to make it work and I have been given nothing. Why should I worry?

Any Accountant of experience should be able to assess the chances of success of a new enterprise and advise their client accordingly and if the client refuses to take that advice then that is their decision. Vast numbers of Accountants (without vested interest) have assessed the chances of success of MTD for ITSA and have come to the conclusion that it will not work in its current proposed format. If the Government/HMRC choose to ignore this very well informed advice, then that is their problem, not ours.

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Replying to rsergeant:
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By Hugo Fair
15th Sep 2021 15:21

".. it looks like fines can be levied on the basis of 'behavioural' aspects."
On what basis (source of info) is this claim being made?
And what's next then ... fines because someone doesn't like your 'attitude'?

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Replying to Hugo Fair:
Richard Sergeant
By Richard Sergeant
15th Sep 2021 16:14

Again the source was Verna from HMRC in a recent webinar - I'm happy to share the link if that's useful.

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Replying to rsergeant:
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By Hugo Fair
15th Sep 2021 16:53

Yes, please.

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Replying to Hugo Fair:
Richard Sergeant
By Richard Sergeant
17th Sep 2021 09:54

This is an example https://www.facebook.com/ICBUK/videos/712493733484256

Fast forward to 44.05

It's not the only example, but gives the flavour.

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Replying to rsergeant:
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By Hugo Fair
17th Sep 2021 11:58

Thanks ... but having gone to the indicated section, I'm not really any the wiser because 'behavioural' is just a throw-away by Verna when listing penalty 'types' that don't currently exist. They are set in law not just made up on the hoof.
It's not then explained nor expanded upon, although it's stated that these "would come into play if someone's going to do that".

The context was what HMRC can/will do about people taking literally the concept that "quality isn't paramount" within the quarterly returns and so submitting 'nil updates'.
Leaving aside that I find this an unhelpful phrase (as any accountant OR software developer will tell you there is a difference between nil and zero, which is what she presumably meant) ... it's classic Civil Service to answer a question by positing a response to a slightly different question for which an answer has been prepared.
The question was where should agents (or indeed taxpayers) try to draw the line that balances between the relative unimportance of accuracy (HMRC guidance) and the need to have data that is accurate other than in known aspects (to avoid duplicating all the accounting effort).
[It's also inaccurate to describe the quarterly submissions as 'updates' as that is explicitly NOT what they are ... only the final year-end submission is intended to be an update. So a two-word phrase in which both words are mis-leading ... no wonder we all treat HMRC pronouncements with disdain].

And then she concludes with "If people are keeping their data digitally, it's just a case of you putting those parameters into your software and then that files off what the update is for that quarter for you"!
That rides roughshod over the concerns of most SMEs (and their agents):
What software? How did the digital data get there? And (going full circle) what about all the other data needed to transform all this into meaningful accounts?

Personally I've always doubted that (based on past performance with PAYE and CGT etc) that HMRC have either the capacity or knowledge base to do anything useful with all this data ... but now there's evidence that the Customer Readiness and External Stakeholder Team is all mouth and no substance!

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Replying to rsergeant:
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By Matrix
17th Sep 2021 12:15

Thanks for this.

She seems to think it is all quite funny.

All this (low value) extra work for us and stress for clients because she had a few transpositional errors when she was an inspector. And I don’t see how using spreadsheets would solve this perceived cause of the tax gap.

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Replying to rsergeant:
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By cmiskin
17th Sep 2021 12:29

There are no inaccuracy penalties for quarterly updates and no plans for them. Record keeping penalties might be relevant but these have not been refreshed for MTD.

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7om
By Tom 7000
15th Sep 2021 09:56

Winter is coming... gear up for it...

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Replying to Tom 7000:
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By North East Accountant
15th Sep 2021 10:57

And pray HMRC don't bring out the anti-freeze on the 20th March 2023 and delay it all for a year or two.

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Replying to Tom 7000:
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By North East Accountant
15th Sep 2021 10:57

And pray HMRC don't bring out the anti-freeze on the 20th March 2023 and delay it all for a year or two.

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By GDavidson
15th Sep 2021 10:25

Businesses with £10,000 in sales don't have bookkeepers.

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Replying to GDavidson:
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By C Graham
15th Sep 2021 10:50

Perhaps if they did they could focus on increased sales!

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Replying to C Graham:
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By AdamMurphy
15th Sep 2021 11:28

They don’t have a low volume of sales because they’re busy doing bookkeeping……..

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Replying to AdamMurphy:
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By C Graham
15th Sep 2021 11:48

It was a tongue-in-cheek remark. Never mind.

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Replying to GDavidson:
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By Paul Crowley
16th Sep 2021 11:08

Nor landlords

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By North East Accountant
15th Sep 2021 10:57

We're all bookkeepers now.....

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Maytuna
By DJKL
15th Sep 2021 11:29

Oh, the Bookkeeper and the Accountant should be friends,
Oh, the Bookkeeper and the Accountant should be friends.
One they like to post all in,
The other likes to make a claim,
But that's no reason why they cain't be friends.

Territory folks should stick together,
Territory folks should all be pals.
Accountants dance with bookkeepers’ daughters,
Bookkeepers dance with the accountants’ gals.

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Replying to DJKL:
Richard Sergeant
By Richard Sergeant
15th Sep 2021 11:32

I'm draw to the idea that all comments should be made in poetry or lyrics. Excellent

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Replying to DJKL:
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By DMBAcc
15th Sep 2021 13:57

But be sure to lock up your wife and daughter !!! ;-)

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Replying to DJKL:
By SteveHa
16th Sep 2021 11:19

Have you seen the writing on the wall?
Have you seen that writing?
Can you see the riders on the storm?
Can you see them riding?
Can you see them riding?

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By 0620115
15th Sep 2021 12:14

As someone who has recently retired from running my own accountancy practice I read this with interest tinged with a certain detachment - as it's not a problem I will have to deal with.

There has always been a shortage of good bookkeepers, who understand double entry and trial balances. Many bookkeepers have in the past worked part-time on a freelance self-employed basis and I wonder how many existing or would be bookkeepers will be put off because of the hassle of having to submit figures under MTD every quarter to a very tight deadline whilst also having to comply with the AML regulations etc. It's no wonder there is a shortage of bookkeepers. In the good old days there were some retired accountants who were happy to do a bit of part-time bookkeeping. I doubt they will want to now.

My guess is many accountants will not want to deal with the small businesses, that are unwilling or unable to deal with the bookkeeping and/or quarterly MTD reporting themselves, because the client won't pay the extra fees. MTD will, in my view, end up being (like auto-enrolment) another time consuming exercise that will bolster the profits of the software companies and ultimately erode the profitability of accountancy practices. When Xero etc. can produce the tax returns and accounts required by HMRC, Companies House etc. who needs an accountant?

Yes, there will be lots of work for bookkeepers who know how to use the software. Good luck trying to find them...

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Replying to 0620115:
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By Hugo Fair
15th Sep 2021 12:38

Interesting mention of AE en passant ... as it provides an indicator of MTD direction.
Public objective met (substantial increase in number of people now a member of a scheme) ... BUT completely pointlessly as the average contrib level (and subsequent pot value) is miniscule. Projected pensions are almost too small to measure - but should be just enough to remove recipients from entitlement to many state benefits (so the govt saves because people pay more in but end up no better off financially)!

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Replying to Hugo Fair:
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By 0620115
15th Sep 2021 13:07

"BUT completely pointlessly as the average contrib level (and subsequent pot value) is miniscule."

Going off on a tangent but my son has a pension pot from a job as a lifeguard at the local pool, he left years ago. Latest statement shows it's worth £250. I suspect there will be lots of similar miniscule amounts that nobody knows what to do with them.

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Replying to Hugo Fair:
Maytuna
By DJKL
15th Sep 2021 14:13

Don't knock it, for all my working life nobody contributed to my pensions but me, then along comes AE and I suddenly get my employer adding something, of course it will not amount to that much, maybe £20k or so in total in my AE pension, but that £20k may be one' year's drawdown when I retire.( I appreciate that I paid circa half of the £20k but even so, better than a kick in the teeth)

The problems with AE are it is woeful where individuals hold a number of limited wage jobs (probably the part of the population who needed a pension most) and the message that it is merely one part of someone's retirement planning seems to have been very overlooked within the publicity.

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Replying to DJKL:
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By Hugo Fair
15th Sep 2021 15:12

We're going off piste within this thread ... but I wasn't knocking the idea that pensions should indeed in your words be "part of someone's retirement planning".

On the other hand, the policy wasn't generated to promote activity by people with your knowledge or options ... it was quite openly targeted as a 'nudge' method to get more of the low-paid into a pension scheme.

Whether due to incompetence or not caring about the outcome, policy makers have been happy to claim a 'win' - whilst leaving rules (bands/rates etc) almost designed to ensure an insufficient pot to do more than take those people out of means-tested post-retirement state benefits.

Result = all fur coat and no knickers, as an elderly relative would describe it!

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Replying to Hugo Fair:
Maytuna
By DJKL
16th Sep 2021 00:14

Your last line is very Weegie versus the "refined" denizens of this fair city.

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Replying to DJKL:
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By Hugo Fair
16th Sep 2021 10:02

Actually more East End dahn my way.
I couldn't type here his response to me when I (being a hormonally challenged near-teenager at the time) asked for an explanation ... but it included 'attractive exterior' and 'clapped out' (which seemed to amuse him) somewhere in there.

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Replying to 0620115:
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By AdamMurphy
15th Sep 2021 16:49

Can’t wait for hmrc to get garbage from Xero , QB etc. Drawings as tax deductible salaries for starters

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Replying to AdamMurphy:
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By Paul Crowley
16th Sep 2021 11:14

Very likely
All subcontractors tend to use the word wages for drawings

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Replying to 0620115:
By petersaxton
16th Sep 2021 12:49

"I wonder how many existing or would be bookkeepers will be put off because of the hassle of having to submit figures under MTD every quarter to a very tight deadline"

I'd be surprised if there are any good bookkeepers who can't keep their bookkeeping less than a month behind.

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Nigel Harris
By Nigel Harris
15th Sep 2021 12:49

Bookkeeping has been the big growth area for our practice in the last couple of years. We always avoided it, but finally caved in to the pressure from clients! So we sit across both camps, but we still need an effective solution for the micro-micro businesses who won't pay for bookkeeping. We're currently looking at Mettle - a free basic NatWest business bank account with free FreeAgent cloud software.

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Replying to nigel:
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By 0620115
15th Sep 2021 13:14

I and other accountants I know also avoided bookkeeping as there was never any money in it and lots of scope for problems. Perhaps the answer is with free software although very little in life is really free.
I suspect that those businessses that do get to grips with paid software will find that the monthly subscriptions will escalate once MTD has bedded down and the market is dominated by a few providers - Xero, quickbooks etc.

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Replying to 0620115:
Richard Sergeant
By Richard Sergeant
15th Sep 2021 13:46

HMRC have restated their commitment to free software for (and I quote) "the very simplest businesses' - I am not aware of the definition of 'very simplest business', and indications are that it is expected that an external software provider will be the source of this free tech.

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Replying to rsergeant:
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By Paul Crowley
16th Sep 2021 11:16

They always did
but originally it was free software for all

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Replying to 0620115:
Tornado
By Tornado
15th Sep 2021 16:55

For the last 20 years I have been able to provide my clients with 'free' (but sophisticated) spreadsheet based Accounting Software which some people adopted and still use but many others rejected as they were not able understand the concepts of accounting let alone using a computer. Larger clients are not a problem as they have their own accounting systems and dedicated staff to look after them.

Those that adopted our system usually email the spreadsheet to us each month for checking but in only one case are the figures usually correct. The system flags up errors with warnings or showing cells with errors in them in red and we usually find red cells littered all over the place either because the client does not know why there is an error or does not want to bother to put it right.

We sort out the problems, perhaps raise queries and send back the correct records for the next months entries.

For those that cannot deal with computer accounting at all or would take too long tying to enter information themselves, they provide us with source records every month or three months and we maintain the records.

For others, the annual records are perfectly adequate and it is usually quicker and easier to prepare Rental Accounts, in particular, this way.

The point to note is that Free software is of no particular value if the person that is expected to use it has no idea of how to use it, does not have the time to learn how to use it and retain that knowledge, cannot afford the significant charges for someone to keep the records for them and most of all, will obtain no benefit whatsoever from the use of that software.

Free or cheap MTD software is just one of the spurious arguments put forward to justify the introduction of MTD which quite clearly creates more problems than it solves, even for the Government.

Put People First should really be the approach to MTD and always remember that you can lead a horse to water, but you cannot make it drink.

It seems about time for a high level protest about MTD so I think a protest on the M25 would be a good way to get attention. Anyone interested should meet me down the Bulls Head on Friday evening and we can work out our plans for raising the profile of this problem. Banners and signs with STOP MTD would be useful and some sandwiches and apple juice for the blockade will be a necessity.

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By GHarr497688
15th Sep 2021 13:48

Our firm offers book-keeping , accounts and taxation service to smallest business clients. I have worked in the profession for over 40 years from junior trainee to business owner working with clients, book-keepers and staff. Many small clients let the "wife/husband" keep the "books" - this is because book-keepers who know what they are doing are like gold dust whilst others just play at keeping records usually producing complete rubbish. The Accountant then uses knowledge and experience to adjust this rubbish to a set of adequate Accounts. HMRC are fully aware of this. Anyone who happily start typing in figures to a piece of software and then presses a button to send the data to HMRC is playing a very risky game. All HMRC would need to do is train their people to sit in remote offices asking loads of question to prove a case and then ask for interest , penalty and back tax. This theory that anyone can sit with a software solution take pictures and let the programme sort it all out has no knowledge of the real world or what the result of allowing unchecked data filter into HMRC systems. The data entered on a computer is as good and accurate as the person inputing the data and that's a fact.

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Replying to GHarr497688:
Maytuna
By DJKL
15th Sep 2021 14:22

Spot on, even as an accountant I still needed to check earlier today ,when posting small value Google monthly purchase invoices onto our software, that I had not already posted them on the fly via the vatable bank transaction routine, I could very easily have ended up with a double count of costs, double claim re the input vat and an erroneous creditor hanging around in our P/L.

Once you get into not vat petrol receipts plus vat ones both being posted, failing to mark what has been posted so they end up being posted twice etc, there is a recipe for chaos within any accounting software. (At least with manual books, or Excel, even stupid clients could spot the same line twice)

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By tedbuck
15th Sep 2021 14:07

Interesting the comment re Xero etc producing accounts for HMRC and Cos Hse. I often wondered where some of the figures on CH came from - obviously nonsense but unchallenged by CH - perhaps HMRC had them as well.
Recent client submitted their annual records on FreeAgent. Not the best bookkeeper in the world but they tried. Error factor in a short Covid affected period was about £18,000 on a turnover of £80,000 which is a pretty high level. Not a problem as client not VAT registered and passed the books to us but.... FA offers the opportunity for users to do their own accounts - out of curiosity I pushed the button. Well they looked very nice but obviously nonsense .. but .. wait a minute... it's digital and straight from the computer's mouth so it must be correct .. surely, so it would be accepted by HMRC wouldn't it? Answer - yes because they wouldn't know any better because they have no local knowledge and no practical experience. After all if CH accept rubbish why wouldn't HMRC - it is digital so must be right.
Lunatics in charge of the asylum.

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By Tom Herbert
15th Sep 2021 15:32

Making Tax Digital for Income Tax AND accountants vs bookkeepers in the same article? Why, you're really spoiling us Mr Sergeant ;-)

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Replying to TomHerbert:
Richard Sergeant
By Richard Sergeant
15th Sep 2021 16:19

One tries -However, ITSA dangerous game to play.

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Replying to rsergeant:
Tornado
By Tornado
15th Sep 2021 16:56

Perhaps double the fee ....

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By Ian McTernan CTA
15th Sep 2021 17:01

Most [self employed and landlord clients] would be small and simple, so able to do the quarterly returns themselves and just get help with the year end,” argued Della Hudson.

Hahahahahahahaha

So totally detached from reality.

They might be small but they also tend to be those that don't want any sort of interaction with HMRC and the small self employed certainly won't want to try and sort it themselves.

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Replying to Ian McTernan CTA:
Tornado
By Tornado
15th Sep 2021 17:30

"Hahahahahahahaha"

Too many Ha's and not enough Ho's

HaHaHa and HoHoHo, heading for disaster is the way we go (HoHoHo)

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Replying to Ian McTernan CTA:
By ireallyshouldknowthisbut
16th Sep 2021 14:18

that comment from Della is right up there with the £20 a week loss in benefits being equal to 2 hours work.

Complete lack of any sort of awareness of the people they are talking about.

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