The article says "where accountant have produced their own MTD-compatible software, either directly or in partnership with a software producer, they may be drawn into the definition of software supplier, and potentially be liable to a penalty if the software doesn’t deliver the correct metadata."
So, if I write an Excel spreadsheet for a client, and they use bridging software to submit their returns, could I be drawn into the definition of software supplier, or is it just the supplier of the bridging software who is liable?
How is MTD for property income going to work?
For example, take the following scenario, which is based on a real-life situation:
A client (a pensioner) owns some properties jointly with her husband (and he keeps the records), plus one property in her own name (and she keeps the records), plus one property jointly with her brother (and he keeps the records).
In order to do her self assessment tax return, she has to collate the income from 3 different sources, so she has to wait for her husband and her brother to supply her with the necessary information about the jointly owned properties.
It would be a nightmare to have to do this on a quarterly basis, within a 30-day time limit, when it depends on getting information from records held by other people. Also, what would the software requirements be? Presumably she, her husband and her brother would all need to take out separate software subscriptions, and then she would need software capable of combining figures from 3 different sources (and possibly from different software systems). This would be both costly and time-consuming - and for what benefit?
I do recognise the author's standpoint with respect to the ever increasing administrative and compliance burden. Now it's GDPR and MTD, but in recent years we have also had to contend with AE, RTI, money laundering regulations, FRS102, practice assurance etc etc, and as a sole practitioner with no staff, the administrative burden all falls on me, and I am spending an ever-increasing proportion of my time on administrative tasks, rather than on doing client work.
I am nearing retirement, and was planning to retire gradually, but the latest developments have made me seriously question how much longer I want to carry on.
re: Xero improves bank feeds
I would not be happy giving my bank account login details to any 3rd party (or software company), and I know my clients wouldn't either. Aren't other people concerned about this? Surely there is a security issue here.
What about all the VAT-registered businesses which are below the VAT threshold? I thought they would not be affected by MTD yet, but the above article says:
"A business may be exempt from MTD reporting on any of the following grounds:
Its turnover for the year ending with previous month is less than the VAT registration threshold; .....
If one of these circumstances applies the business will have to contact the VAT helpline to discuss alternative arrangements to submit their VAT figures."
Does this mean that every small business, which is registered voluntarily, as it is below the VAT threshold, will have to contact the VAT helpline to discuss how they can continue to submit their VAT returns?
I don't understand the statement that corporate landlords cannot use fixed mileage deductions. If a corporate landlord has an employee/director, who is paid a salary to manage the properties, and the job involves travelling to the properties, does this mean that the employee cannot claim mileage from his employer?
FRS 102 does not suit better. The property investment company I am referring to is a very small family company, and its accounts are very simple, and FRS105 would be ideal apart from the need to do the contrived depreciation calculations described above.
The company also has interest-free loans from the directors, and FRS102 would require some complicated calculations of the "present value of future cash flows", which would just confuse the shareholders (see http://www.icaew.com/en/members/practice-resources/icaew-practice-suppor...).
FRS105 would be far more suitable, and I intend to use it, as it will avoid the need to keep revaluing the properties and calculating deferred taxation, and it will allow me to just show the interest-free loans at the amount outstanding on the loan.
However, there is a very real practical problem with the depreciation calculations on the properties, and if the standard setters want to simplify the accounts, it would be better to allow freehold investment properties to just be stated at cost, without any depreciation, provided that they have an estimated useful life in excess of 50 years, and provided that their net realisable value is greater than the cost.
It is ridiculous to depreciate an investment property
I don't have a problem with showing investment properties at their historical cost, for the sake of simplicity, but I do have a problem with depreciating them. It is quite ridiculous to charge depreciation on an asset which is appreciating in value.
Also, for many properties is will be impossible to separate the cost of the land from the cost of the building. And how do you determine the estimated useful life of a building which is already over 100 years old?
We have an investment property which was bought in 1962 for about £16,000 and is now worth over £200,000. I am happy to accept, for simplicity, that it should just be shown at its original cost of £16,000. But I'd just have to guess how much of the cost related to the building. And if I then calculated depreciation at 2% per year, the written down value of the building would be nil.
Is is possible to justify an argument that the depreciation of the building should be nil, because its estimated useful life is more than 50 years, and its estimated residual value is more than cost?
What about pensioners?
If tax and NICs are combined, I have serious concerns about the effect on pensioners, and this cannot simply be resolved by "some slight tweaking of the tax threshold or the state pension". Most pensioners rely not just on the state pension, but also on private pensions, rental income, savings income etc. If the tax rate on this income goes up from 20 to about 30 percent, in order to include NI, this will have a devastating effect on many pensioners, who are already struggling to make end meet with falling returns on investments and low annuity rates. And I would not have any confidence in an increased personal allowance or state pension lasting very long. Look what is happening the age allowance now. If it were reintroduced to compensate pensioners for paying increased tax (to include NI), it would only be a matter of time before some future government decided that the age allowance ought to be abolished and personal allowances should be the same for everyone.
My concern is with the treatment of freehold investment properties held by micro-entities (turnover about £30K from rental income).
I understand that if I use FRS102, I will have to continue to revalue them every year, but the revaluation reserve will have to be transferred to the P&L account, which I think is misleading. Also, (I think) I would have to account for deferred tax on the revaluations.
The alternative is to use the micro-entities regime, which uses historical cost, less depreciation. It would be much simpler to revert to just showing the properties at cost, and not have to revalue them every year, but it is quite ridiculous to depreciate them when they are worth considerably more than cost.
One of the properties was bought in 1962 for about £16,000 and is currently worth over £200,000, so it would be ridiculous to have to start depreciating the £16,000. Does anyone have any idea what depreciation rates one would be expected to use for an investment property? Or, is it acceptable to say that (provided the property is maintained) the expected useful life is over 100 years, and the expected residual value is in excess of cost, therefore the depreciation is nil?
I think the mirco-entities regime needs to be amended to say that, where investment properties are shown at cost, there should be no requirement to depreciate them, provided that the directors are satisfied that their value is no less than cost.