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Government sleepwalks MTD into disaster

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In this MTD epic, tax expert Andrew Oury delves into recent updates of the MTD roadmap and analyses the material implications for small businesses and accountants.

9th Jun 2021
Partner at Oury Clark
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By April 2022, MTD will cover all businesses that pay VAT, and by April 2026 corporation tax will be paid by all companies via MTD. Self-assessors will come into the scheme by 2023.

One of the main motivations of MTD appears to be to increase revenue by pulling forward tax payments, without the government raising tax rates. 

Cross-sector impact

In March 2021, HMRC commissioned Kantar to conduct qualitative research on the costs and benefits of MTD for small businesses. Worth noting is that: 

  • The sample size was small (31 interviewees), making it difficult to do a completely thorough analysis of the impact MTD has had. 
  • The “majority in the sample found themselves in a neutral position” in terms of costs vs benefits. Tor these users the benefits of MTD were counterbalanced by software costs and time spent learning, integrating and implementing it.
  • The data was meant to be a multi-sector analysis, with a list of 19 possible sectors at the end. Nevertheless, over half the interviewees appeared in just two sectors. 

The sector analysis was a particular weak spot in the research. MTD will affect cyclical sectors such as farming differently than a professional services industry, which has a more linear income model. 

This could be a potentially major issue because of the time it takes to calculate corporation tax. All accounts are based

Corporation taxes are derived from accounting profits reported under IFRS or UK GAAP. Making the proper provisions and valuing stocks and impairments correctly takes time and to agree on what is recoverable. In some cases it’s impossible to put together compliant accounts in real-time. 

For example an arable farmer with a 30 September year-end will face several questions:

  • Are they going to be able to accurately estimate the amount of grain in their barn as well as its value in an instant? They could get somebody in to do this assessment, but are they all going to do it on 30 September? 
  • What is the lead time? Otherwise, the whole of the farming industry is going to have to stop at the end of September to work out accounts for the government and then pay the money over. 
  • How would the farmer go about estimating income quarterly? How would they know what to pay? Would it have to be some sort of estimate?

More recently, dry spring seasons have stunted crop growth and a wet autumn and waterlogged fields could curtail new plantings and harvest yields. Next year, growth may be perfect, but for some horticultural crops, an entire farm’s output could be wiped out by freak weather. 

When even the Met Office is unsure about weather predictions a week ahead, how can HMRC expect certain businesses to forecast what it’s going to be like next quarter? 

Add to this the poor broadband connection in some rural areas, and it’s clear MTD will present significant challenges to certain sectors. 

Endangering entrepreneurship

When starting a new business, first-year profits are frequently invested back into the business, creating employment and stimulating activity. To have to pay corporation tax so soon could stifle entrepreneurship. 

With a greater onus on recording transactions swiftly and correctly, the burden of proof falls on the company or self-assessor to explain any anomalies in the tax year. For the most part, however, these entities are not qualified tax professionals. 

They do not have the years of training required to protect their business properly, so tax breaks could go unclaimed while avoidable errors are penalised by HMRC. 

The Kantar research found that employing an adviser to help a small business input the data correctly alongside quarterly fees for an accountant to enter the VAT returns and the cost of the software package to do so created a worst-case scenario. 

And many entities might well end up consulting an adviser for corporation tax returns. 

Bumps in the road for HMRC

The MTD rollout begs the question of what would happen if a taxpayer overpaid their quarterly tax. HMRC says that income tax rebates are generally completed within 8-12 weeks and it’s unlikely that process is going to speed up. 

It’s not just because of an institutional reluctance to give back money, but because of due diligence and legislative red tape. This could leave us with a traffic jam of tax rebate requests that will only get worse. 

Thinking back to our farmer example, HMRC could look at their average profitability over whatever timespan and say this is how much they owe per quarter. If that farmer has had a bad year and claims a rebate, how will that work year in, year out? 

There are many of these examples; take Christmas cards and crackers or fireworks (or any festive item). These industries need to invest and invest and then fit all of their sales into a very short period – they cannot even out the cycles that underpin their business.

The pandemic illustrates how harmful MTD for income tax could be. Some people paying their quarterly income tax on account would have ended up suddenly losing their businesses. How would the government deal with the sudden deluge of tax rebates at a time when it really needed the money?

Security concerns

There are security issues to think about. We were concerned to see that on the very first page of suppliers listed, one of them doesn’t use a secure SSL certificate (https) for its website and, more egregiously, its login page. Given how sensitive the data being inputted is, this is very troubling. 

There are several ways a fraudster might be able to get access to the credentials of somebody logging into a poorly secured website. That scammer could interfere with VAT returns for the month, which might take HMRC up to 30 days to reimburse. This could have a serious impact on a small business and would be exponentially worse if it was MTD for income tax.

The question is, does the software provider take any responsibility if their poor internet security was responsible for the taxpayer being penalised? Should they be answerable?

Interrogating the software providers 

The government does not provide MTD as a direct service. It is a legal obligation for the taxpayer. The only service HMRC provides is an application programming interface (API) for the software providers. Private software providers are facilitating the service for the taxpayer/adviser. 

It seems like an obvious distinction, but it becomes more relevant as we scrutinise the position of the software companies in this relationship.

HMRC lists more than 500 professional software companies that supply MTD for VAT products, but there is little to no help from them when it comes to choosing the provider that may be right for you. 

If they are not going to be answerable to HMRC for any failings on the website, then we believe that they should be compelled to adhere to secure IT practices, either by some legislation or by some sort of ombudsman. 

IT best practice is not the only area that is worth focusing on. Financial software is by no stretch of the imagination a novelty; it is the real-time connection to HMRC that has truly changed the nature of the software provider. 

It is unsurprising therefore that these providers leapt at the opportunity to adapt their business model and attract more customers. Many claim that in using their packages, the user will save on costly accountancy fees. 

The death of the accountant?

Software providers promote their software by saying how easy it is to use and how it will solve tax problems at a few clicks of the button. This rhetoric is dangerous. Software companies are lulling people into a false sense that they can rely on the software and don’t need expensive advisors. 

But the truth is rather different. You cannot know a payroll has been correctly run or a tax correctly claimed unless you understand the law and rules involved. You very much do need to know which box to tick, or button to click.

So taxpayers are being encouraged to move away from professional services providers and work more directly with the software to calculate tax liabilities that will be due immediately. Trying to unpick an honest mistake when they put in their accounts “wages” but meant “dividends” is going to be all but impossible. And HMRC could further hold them liable for their errors if it deems they acted in a negligent or even fraudulent manner. 

Some providers say that they have accountants on staff in order to reassure the users. However, when looking through the staff lists of many of these providers some of the most senior staff positions were occupied by junior accountancy professionals or ones who hadn’t even qualified yet. 

As software providers flex their muscles more and more, users will also expect from the software companies a measure of decent tax advice. Although this cannot compare to a qualified tax professional giving direct, experienced advice, understanding how that advice is going to fit into the framework of professional standards will be an ongoing challenge.

Conclusion

My concern is that the government hasn’t considered the full ramifications of the MTD project. To my eye, it looks like MTD has been designed with a linear mindset that only has one goal: to meet revenue targets. Businesses have always had idiosyncrasies – unexpected periods of fallow earnings, for example – and, up until now, there has been some leeway in coping with them within the comparatively rigid tax framework. I also would hate entrepreneurship to be stifled in this country as a result of taxing income too rapidly.

Serious questions will need to be asked of this initiative to avoid sleepwalking into disaster.

Replies (49)

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By kdbr
09th Jun 2021 13:47

Meanwhile, in the real world, where taxi drivers, window cleaners, driving instructors etc, tax advisers too, earn say £20 to £50k pa gross - this is all going to work well. And the professional bodies can do little other than wave it on, regardless of the impact on their members far less the clients of their members.

Retiral plans dusted down...

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By ireallyshouldknowthisbut
09th Jun 2021 13:53

Agreed with the article write. The lack of understanding about business amongst decision makers is absolutely shocking.

Moreover at no point do we seem to be comparing another very simple way to accelerate tax payments - the existing payments on accounts system which works as well as 'real time' data will given the very large number of mistakes and issues that will arise with quarterly tax computations for an annual bill.

I don't think anyone would be that fussed about early SA or CT payments using the existing systems.

They could also encourage overpayment of SA very simply - by paying interest of 1-2% on deposits. Clients with 'cash in the bank' would jump at paying early.

But no, instead we have a massive increase in the administration cost of an already largely dysfunctional tax system under the fake disguise of digitisation to get the same end purpose- tax in a bit quicker - which bizarrely counts as 'income' due to the inept manner in which government cash accounting works.

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Replying to ireallyshouldknowthisbut:
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By atleastisoundknowledgable...
09th Jun 2021 17:12

Excellent point - why not just have quarterly PoA for IT & CT, same calculation basis for the current 2 SA PoAs

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Replying to atleastisoundknowledgable...:
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By atleastisoundknowledgable...
10th Jun 2021 09:42

atleastisoundknowledgable... wrote:

Excellent point - why not just have quarterly PoA for IT & CT, same calculation basis for the current 2 SA PoAs

How many much money would this have saved the Government, to go against some of the Covid debt? Not to mention stress for accountants. And business owners. Also it would be a far easier sell to both of those groups , as well as overcoming any seasonality issues mentioned in the article.

Bish, bash, bosh [rubs hands together]

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Replying to ireallyshouldknowthisbut:
By jon_griffey
09th Jun 2021 17:52

Very good idea.

Client often complain that the POA means they they are paying in advance, but I make the point to them that the 31 Jan POA is 10 months into the year anyway and so is not in advance at all. HMRC are actually giving a lot of credit - far more than anyone suffering PAYE or CIS deductions. Lets just bring POA's forward and forget this MTD nonsense.

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Replying to ireallyshouldknowthisbut:
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By justtoconfirm
10th Jun 2021 10:24

Absolutely agree with this and have been saying it for years. Have put it forward directly to HMRC when beta testing MTD systems and also to the ICAEW MTD ‘team’. HMRC should have been honest from the start in saying that the end goal was to accelerate the collection of tax. We all knew this would be the main reason behind MTD but it has been denied consistently until quite recently. If the need to accelerate tax payments had been put to the business world in an honest way then there would likely have been little objection.

Unfortunately we seem to have reached a point, as we seem to do with certain large government projects (HS2), where no-one will back down or listen to logical reasoning. HMRC will not realise what they’ve done until it’s too late.

MTD is a good idea in principle but whilst we have such complex tax law it will end in chaos as agents get pushed aside. Step 1 should be to increase the frequency of payments on account using the existing system. Step 2 is simplify tax law ( maybe by optional concessions along the lines of flat rate VAT). Step 3 is to introduce MTD as optional and not mandatory in the first instance.

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Replying to justtoconfirm:
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By execprac
10th Jun 2021 10:36

I think we are all wasting our time there is no-one listening

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By GHarr497688
09th Jun 2021 18:35

HMRC live in an ideal word and are delivering a new tax system when they don't directly work with the "end user". In 42 years of working in an Accountants office I have never seen a small business 100% up to date ready to file and pay. If the where ready and just pressed a button sending data that was unchecked then that data would be wrong in most cases. It really is a recipe for disaster with taxes being paid unchecked not knowing if the figures are wrong or right and no one at HMRC to check them. It's time to retire rather than be a puppet too the farce.

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Replying to GHarr497688:
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By Self-Employed and Happy
10th Jun 2021 09:49

All of our clients that are MTD are up to date within 14 days of every month end, along with rolling CT estimate.

This is the type of service Accountants should be moving to for the majority of their clients (impossible for some) if they wish to remain relevant.

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Replying to Self-Employed and Happy:
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By meadowsaw227
10th Jun 2021 10:24

Whilst what you say may be true I do not have a single client that doesn't need some sort of adjustment/checking/scrutinising/hand holding , from my biggest client circa £5 million t/o with an in house accounts department down to the chartered accountant who is now a photographer.

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By Self-Employed and Happy
10th Jun 2021 09:47

I would be more concerned about the complete lack of thought for accountants.

We save HMRC incalculable amounts of time yet they don't see it fit that an agent can have access to the VAT balance of a client via the Accountants MTD portal.

Also when a client changes acocuntant, getting VAT Auth AND getting an MTD Account changed over is an absolute farce, especially if the client doesn't even have their own gateway.

We as accountants have to adapt to survive, my concern is HMRC do seem to be pushing qualified accountants aside when they don't have even remotely the requisite skillset in their ranks to replace what we do.

Quarterly PoAs for CT would be great, we don't have a problem with it ourselves but it would encourage other Accountants / Companies to submit Accounts / Return quickly to ensure they aren't vastly over / under paying for 9 months.

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By msas
10th Jun 2021 09:48

It reminds me of a song "They would not listen, they're not listening still. perhaps they never will..."
MTD is a disaster for smaller businesses and the accountants that deal with them. I am too young to retire!

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By sammerchant
10th Jun 2021 09:49

I am still struggling to understand what MTD for SA and Property Income will PROVE. Unless accounts are prepared on a cash basis, the figures are meaningless. And even then, what about those expenses which are both business and personal (accommodation, telephone, internet etc)??

Sheer madness. The Government/Chancellor seems to be in thrall to HMRC. It gets whatever it asks for.

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By [email protected]
10th Jun 2021 09:51

Another fallacy of accelerated tax payments is that it increases tax 'income'.
No it doesn't, it generates a one-off cash injection and then government cashflow reverts back to the previous level.
The trouble is the government is tax junkie, give them an extra 'fix' and they need the supply to be permanent; that means tax increases.

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Replying to [email protected]:
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By taxinfo
10th Jun 2021 10:23

robert-AT-freestone-co.co.uk wrote:

Another fallacy of accelerated tax payments is that it increases tax 'income'.
No it doesn't, it generates a one-off cash injection and then government cashflow reverts back to the previous level.

I have been arguing this for what seems like ages. Changes such as this do not result in a never ending increased stream of cash for the government. All they do is put more strain and stress on an already creaking disparate collection of HMRC computer systems . Not to mention the added stress on advisors.

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Replying to taxinfo:
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By NewACA
10th Jun 2021 10:47

I don't think that is correct. A lot of tax receipts are never paid, as some never get around to paying them at all, acrrucing large balances to HMRC that have no prospect of being paid - ever. This happens because taxes due some time later, have already been spent. Then, either the company is wound up and the government gets nothing, or the tax payer skips the country, or goes bankrupt. In all such cases HMRC simply doesn't get paid - you'd be suprised how much of this there is. That cycle of underpayment of taxes and large unpayable debts can be avoided and poorly run businesses shut down much more earlier if tax payments are made much earlier.

Imagine if PAYE or CIS was only paid once a year at the end, do you think HMRC will get the same amount, albeit later? Absolutely no way!

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By Ian Narbeth
10th Jun 2021 09:52

HMRC makes tens of millions from the £100 late filing penalties for income tax and SDLT returns. I suspect that the calculation has been that the more tax returns taxpayers have to make every year the more scope there is for penalties.

Furthermore, as the author notes, more mistakes will be made and, with time on their hands and massively greater resources, HMRC will be able to extract plenty of penalties and interest from small and medium sized businesses. Be ye perfect (with your tax filing) as your Heavenly Father is perfect sadly doesn't work for most businesses. 15% tax may be the most they expect to get from Apple, Amazon, facebook and Google. The rest of us will have to pay more.

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By lordburnside
10th Jun 2021 10:00

I have enough trouble getting the VAT in on time for March and April quarters.
If I am preparing accurate accounts too its going to be difficult.
I think we need more time to submit these.
I suggest 6 monthly accounting would be better.
I am nearing retirement thankfully.

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By lordburnside
10th Jun 2021 10:00

I have enough trouble getting the VAT in on time for March and April quarters.
If I am preparing accurate accounts too its going to be difficult.
I think we need more time to submit these.
I suggest 6 monthly accounting would be better.
I am nearing retirement thankfully.

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By Ammie
10th Jun 2021 10:14

The arising balancing adjustments and reallocations will be nothing short of a nightmare. It is often extremely hard work unravelling existing mess and trying to speak to HMRC for clarity is becoming a worthless exercise.

Welcome to the fully digital world, or should I say dangerously over digitalised world.

Some business are far too small and basic to warrant messing about with accounting software.

As already suggested, the alternatives for accelerating tax receipts are far more practical, but practicality seems to be far from the thoughts of HMRC.

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By BarryHWhite
10th Jun 2021 10:18

When the Government attempts to build massive online systems the result has been disaster. Remember the NHI online records for all surgeries which cost £12 billions before being abandoned.
To imagine the a system holding every invoice for so many taxpayers will work - no chance.
I do note that you need not submit every Petty Cash Voucher but can summarize - great!
Right now, HMRC online systems are full of bugs and inconsistencies, with different systems not talking to each other, which they are trying to amalgamate. But even if you use their contact setup to point out errors, they do not even acknowledge the message let alone fix bugs.
The idea that they are going to catch more fraud ignores the fact that cash receiving taxpayers are no more likely to include all their cash takings on the new setup than they are to report them to the accountants who do their books now. Ans without accountants to make sense of their (quarterly) figures, I predict the biggest and costliest disaster so far!

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By execprac
10th Jun 2021 10:27

Most Accountants/Tax Agents have been "working their socks off" supporting clients through the pandemic to provide understanding, guidance & support to clients helping businesses in crisis gain support through the GOV.com HMRC- CJRS, SEISS schemes. Software agencies particularly those providing Payroll have also been stepping up with their support.

MTD IT makes no sense to the majority of Self Employed Tax Payers, they see no benefit in producing quarterly Tax returns and making quarterly payments. Most Accountants/Tax Agents keep their clients aware of their potential tax liabilities (it's all part of the service). The points made regarding seasonal trading variations run through most businesses and its a nonsense to think that tax can be calculated on anything less than a yearly basis given the UK tax legislation that currently exists. As many others have commented, the existing system of paying IT on account in Jan and July is more than adequate, if cash flow is the issue then quarterly payments could be considered. MTD IT is a paper exercise which is of no value to anyone!

MTD has increased in many cases improved business focus on using digital systems for invoicing & book-keeping, improved record management which is a good thing for everyone and in many cases has brought commercial benefits. It has improved record management for tax returns VAT, IT and CT, but there is absolutely no need to "lumber" IT or CT tax-payers with unnecessary additional MTD bureaucracy that MTD IT proposes, when it is totally unnecessary!

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By North East Accountant
10th Jun 2021 10:32

I don't recall the number of unrepresented self employed taxpayers who submit their own accounts and tax returns.....but it's a lot, approx a 1/3 I recall.

I would say that at a guess 95% of these unrepresented self employed taxpayers will be making errors on these submissions and what do HMRC do about it...... nothing.

Now let's apply that to MTD.

HMRC are building a system that will receive a load of tosh through every quarter and what are they going to do to stop this......nothing that will work.

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Replying to North East Accountant:
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By Ian Narbeth
10th Jun 2021 10:59

Just wait and see. £100 fines almost every quarter from hundreds of thousands or tax payers will be a "nice little earner" for HMRC.

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By Rgab1947
10th Jun 2021 10:58

31 interviewees and that is the sample base what their analysis is based upon?

Come now, are they that stupid? To give any reliance on an analysis the sample size is critical and 31 just does not cut it in this instance.

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Replying to Rgab1947:
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By BryanS1958
10th Jun 2021 11:06

I think you'll find they are that stupid.

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Replying to BryanS1958:
By Nick Graves
10th Jun 2021 11:28

BryanS1958 wrote:

I think you'll find they are that stupid.

Either stupid or malevolent - depends which side of Occam's Razor it ultimately falls.

I'm increasingly suspicious that there are some malevolent forces within actively working towards a collapse of the tax system - along with the collapse of everything else.

Not everyone can have groupthunk themselves into such an absurd position, without realising its shortcomings. Perhaps they have realised and are afraid to speak out.

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By Barkster
10th Jun 2021 11:53

Exactly what are our various professional bodies, to whom we pay small fortunes, doing about conveying all of these very relevant concerns to HMRC in an effort to avoid the upcoming train smash ?
The software companies are just rubbing their hands with glee with their mostly-flawed offerings, everyone is hooked up on analysing bank accounts, forgetting that a great number of people have no wish to do online banking, and legitimately do not bank all of their takings on a daily basis anyway (market traders, window cleaners, gardeners et al) and then use some of the cash for their expenditure. Then there are those who don't have the ability to operate the tech nor any wish to do so after a hard day's grafting.

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By sammerchant
10th Jun 2021 11:55

Where was the OTS when this form of MTD for SA and Property Income was being proposed? 5 separate submissions for SA, 5 for Property Income (note that dates will not coincide), possible CGT on residential property - another two separate submissions.

Office of Tax SIMPLIFICATION? Don't make me laugh!!

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By sammerchant
10th Jun 2021 11:55

Where was the OTS when this form of MTD for SA and Property Income was being proposed? 5 separate submissions for SA, 5 for Property Income (note that dates will not coincide), possible CGT on residential property - another two separate submissions.

Office of Tax SIMPLIFICATION? Don't make me laugh!!

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By unclejoe
10th Jun 2021 12:01

The 31 sample businesses will be technology literate early adopters, and won’t include those who are dreading it or may not even have heard of it. How will MTD affect Andy who is a retired woodwork teacher, and brilliant at furniture restoration. He is supplementing his pension with a small antiques restoration business. Average turnover £5-10k/year, but in some years could be nil, or may be £20k. He is hopeless with computers or figures, His sales invoices are handwritten in a duplicate carbon book, and his purchase invoices, of which there are few, accumulate in a shoebox. He does not use an accountant, but once a year he sits down with a computer literate friend and they go through his chits and compile accounts for his tax return.
My guess is that he will just conclude that it all is not worth the bother, and give up his part time business. The economy will be that tiny bit smaller and HMRC will lose the little bit of tax his activity would generate. Or, perhaps more likely, he will scale back his business and just do jobs for friends on a cash basis – in effect being forced into the black economy.
I think we underestimate the number of small traders like this that there are out there. Many have had their business destroyed by COVID, like my musician friends, who have seen no work for nearly 18 months and have largely fallen outside the government help schemes. And now they are hit with this! Appalling. Just appalling.

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Replying to unclejoe:
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By execprac
10th Jun 2021 12:58

Yes, as always it's the good people that care and want to contribute to society that will suffer. Those that never bothered in the first place will never be part of the system and will disappear from view.

Why on earth has the threshold been set so low! It's time for Tax reform for the low paid and it should start with MTD IT

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Replying to execprac:
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By bluebaron
10th Jun 2021 13:39

Yes, exactly, the threshold is crazy, and not even at the level of the personal allowance..!!

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By bluebaron
10th Jun 2021 12:46

MTD = Making Tax Disastrous! The sample size of just 31 beggars belief. I will avoid anything to do with MTD as long as I can, which means offloading a chunk of clients over the next year or so. Can you imagine a client with say £15K of income, and maybe an accountancy fee of £200 to £400, having to bring their records in every quarter or even every month..?!! The accountancy fee would have to increase massively to justify the hassle of all those extra submissions. It's just madness, and what makes it more annoying is that the government never seem to listen to accountants, whereas if it was the teachers, doctors or lawyers, then they'd probably back down.

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By rfandaltd
10th Jun 2021 13:00

Interesting article. Absolutely correct, but sadly as one commentator said, no one in Government or HMRC is listening. No one in HMRC /Gov has a clue about the real world or wants to listen or learn about life in the real world.

Being a small business accountant I guessed why HMRC/Gov was so enamoured of this MTD project and fintech's rapaciousness at a gold rush when MTD was announced several years ago. I foresaw a distant train trash and decided to get off before it happened.

This will be a disaster because most clients were honest and dilligent businesspeople, good at what they did, but virtually all had negligible interest in bookkeeping and accounting over knowing how much was in the bank, who owed them money and who they owed money to. Most had a pretty good idea of this having done it successfully for years with a variety of spreadsheets, paper ledgers and stand alone bookkeeping packages.
Absolutely none had any interest in cloud accounting, scanning receipts on mobile phones and very few provided final information good enough to prepare accounts and tax liabilities without review and adjustment by me- a qualified accountant. Absolutely none wanted to pay more for enforced bookkeeping software subscriptions that provided no more useful information about the day to day running of their busineses than the allegedly (according to HMRC and fintech anyway) useless and outdated paper, spreadsheets and stand alone bookkeeping software told them already.

They paid the correct tax on time, it was none of HMRC's or anyone elses business how they kept records. Quite a few actively hated enforced online activity and had problems with anything other than the most basic computer technology.

These businesspeople have not miraculously disappeared or been converted to the 'joys' of the cloud over the last five or so years. I bet if you ask most small businesspeople, even now despite the ridiculous TV adverts proclaiming cloud accounting to be simple, beneficial and laughably even 'fun' what they know about MTD and what is about to hit them the answer will be incomprehension or distain at a huge waste of their time and money.

I feel sorry for the pain those still in the profession are going to experience over the next few years. Particularly as they will on their own, buffeted from all sides by hostile forces. (I wouldn't expect the governing bodies to do anything useful for the large fees they charge members annually)
But I am quite looking forward to the backlash and chaos once the full implications, inconvenience and cost of MTD fully hits the UK's five or six million small businesses in earnest.
The only regret is the morons in HMRC/Gov will by then all have got their gongs, compensation packages or been instrustmental in creating the next fiasco, the fintech vampires will have made £billions for their owners, the chinless wonder HMRC/Gov consultants and advisors will be relaxing in their Cotswold second homes bought with the consultancy contract proceeds while us 'ordinary people' carry the can for the next f up.

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Replying to rfandaltd:
By ireallyshouldknowthisbut
10th Jun 2021 13:50

rfandaltd wrote:

They paid the correct tax on time, it was none of HMRC's or anyone elses business how they kept records.

That is one the points I made the House of Lords select committee a couple of years about MTDfVAT

Its massive overreach for government to dictate HOW the books are kept. Thats our concern. Their only interest ought to be that the right amount of tax is paid, and there are comprehensive records to back that up.

had HMRC dictated how books were kept in the 1990's SAGE would not have existed. Had they dictated how books were kept in the early 00's, cloud computing would be a strange novelty with the data then pushed through 'approved' methods of 20 years earlier. All this does is tie everything down to the 2020's methods, and in 20 years time innovation will be stifled.

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By Husbandofstinky
10th Jun 2021 13:11

Covid and now this emperor's new clothes change to the system, I can understand why many good professionals have left or will leave the profession.

Wishing my life away here, but if only I was a bit older and more financially secure.

The system as it currently stands is far from fit for purpose. As each year passes, its failings appear both more apparent and numerous to boot.

Keep it simple and just increase the frequency of POA's (as already mentioned at the start), that is all you want HM Govt, so just get on with it. The system cannot cope.

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By Barkster
10th Jun 2021 13:12

Surely someone here better qualified than me could put up an online petition for both accountants and clients alike with all the great points being raised here.
100,000 votes and they have to properly debate it.

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Replying to Barkster:
RLI
By lionofludesch
11th Jun 2021 07:13

Barkster wrote:

Surely someone here better qualified than me could put up an online petition for both accountants and clients alike with all the great points being raised here.
100,000 votes and they have to properly debate it.

They'd have a sham debate and decide to carry on with the original plan. Don't kid yourself.

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By HarryB
10th Jun 2021 13:56

Thanks for the article Andrew - but a lot of this is old news.

In 2015 (along with about 10 other accountants from the SW area) I accepted an offer to meet with HMRC reps to discuss the Making Tax Easy (or whatever they called it then) project. 3 hours of travelling and 4 hours listening to HMRC reps who had no real idea of how businesses work.

It was explained (by ALL attendees) that the proposals were unnecessarily complicated - if HMRC wanted to accelerate tax payments, then just change the rules so that taxpayers paid quarterly or monthly ("like your electricity bill" as the HMRC guy said at the time). Simple. And that suggestion is still being made now.

Also - just to correct your article - the Kanter report is dated March 2021, but the research (such that is was) was done in Feb/March 2020. As noted in the report the respondents were the simple 'MTD for VAT' taxpayers. The later 'more complex' VAT businesses joined in October 2020 and were not asked for their views (per the Kanter report). Hardly representative from that standpoint.

Notably, of course, the vast majority of these businesses were already effectively reporting monthly
- so they were not being asked to submit any more returns than they were before - just a different methodology!!

And as for a sample size of 30 odd businesses representing the views of the 13 million people who will be affected by MTD Proper - what a joke!

HMRC would get a much better idea of the view of the average person using the HMRC online software for one Tax Return per year that if it was explained that:
1. They won't be able to use the HMRC system once MTD gets going - it will HAVE to be third party software.
2. They might have to do quarterly returns/final recs for different sources of income. Eg someone with ordinary rental, FHL and self-employment now prepares ONE Tax Return after 5 April. Under MTD that person would do a quarterly MTD return for EACH of those sources if combined T/o was > £10k. So that's 12 quarterlies per year, plus a further 3 end of year reports - 15 effective Tax Returns. Instead of one. Moronic.
3. They will be penalised for missing any of the submission deadlines each year - all 15 of them!

THAT is the real issue with MTD.

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Replying to HarryB:
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By Geoff56
10th Jun 2021 16:13

Yes, I went to one of these consultations with HMRC in 2015 and it was truly one of the most dispiriting afternoons of my professional life. With one exception, all of the HMRC representatives kept parroting the party line and quoting how many £x billion per year was being lost through book-keeping errors and MTD would sort it all out, blah, blah, blah.

Usually I find it hard to be particularly vocal in such settings, but steam was almost coming out of my ears and I did have a fair amount to say, which earned much supportive noise from my peers. The HMRC bods began to look a bit shifty and uncomfortable.

On the way out at the end, one HMRC lady to her credit, pulled three of us aside and genuinely wanted to hear more about our concerns. Overall however, the lack of comprehension on the part of her colleagues and their closed minds, was depressing beyond description.

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By Pozzer6
10th Jun 2021 14:28

Most of my clients are fine with the amount of income they have made. Its the expenses they struggle with and forget. MTD will encourage them to claim more of those expenses that they have forgotten about by the time they give me their figures! So less tax take not more!

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By Mr J Andrews
10th Jun 2021 16:27

Sadly the powers that be within HMRC have their heads too far down the proverbial cistern to do a U turn on MTD.
By the time the #### really hits the fan , these honchos will be tucking into their fat pensions leaving their successors to cover their backsides. Meanwhile , of course accountants , Joe Public and HMRC front line will need to shovel the stinking mess as best they can.
Come on Sunak . You seem a reasonable bloke with an unprecedented understanding of your taxpaying customers . It's not too late . Don't let Osbourne's whim become your Thatcher Poll Tax nemesis.

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By taxinfohub
10th Jun 2021 22:59

I think it is important to clarify a couple of points which could be misleading in this article;

1. The article is suggesting that MTD means quarterly payments of tax. Nothing to date has been published indicating that this is the case, either in legislation or in HMRC guidance. We can of course speculate that this may be the future end point but in the foreseeable future there are no planned changes to tax payment dates. The quarterly updates required by MTD are summary totals based on the transactions for the quarter, which will have been recorded in the client's digital records. It is possible that HMRC may provide the taxpayer with tax estimates based on the quarterly submissions but there is no requirement to pay tax any more frequently.

2. The article makes a number of references to accounting profits and required adjustments. The quarterly updates do not require any accounting adjustment to be made, the requirement is to send digital records (i.e. transactional data) for the quarter. Accounting and tax adjustments will be made in the final declaration which is really no different to the current process of preparing final accounts and tax returns, although the software used may be different as the final declaration will need to be made through MTD compatible software.

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Replying to taxinfohub:
By jon_griffey
14th Jun 2021 11:12

taxinfohub wrote:

I think it is important to clarify a couple of points which could be misleading in this article;

2. The article makes a number of references to accounting profits and required adjustments. The quarterly updates do not require any accounting adjustment to be made, the requirement is to send digital records (i.e. transactional data) for the quarter. Accounting and tax adjustments will be made in the final declaration which is really no different to the current process of preparing final accounts and tax returns, although the software used may be different as the final declaration will need to be made through MTD compatible software.

It seems to me that the transactional data still needs to be correct. Looking at the Iris offering, when submitting there is a declaration along the lines that "the information is correct to the best of my knowledge". This to me makes it a tax return and so under PCRT the client needs to approve the submission - and it takes time and effort to chase client approvals and we must not allow our names to be associated with rubbish. The submission requires a certain amount of review before we file it and we simply do not have time to do this for every client.

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Chris M
By mr. mischief
11th Jun 2021 07:18

We've not really mentioned HMRC resourcing yet in this. Currently:

1. 10 months to process simple corporation tax refunds which should take a month.

2. On 2 clients which they have set up wrongly for VAT MTD, I am filing by paper. These date back to October 2019 and early 2020 respectively. No-one at HMRC is interested in fixing these.

3. Routinely taking over 3 months to reply to even the simplest letters. I never bother phoning them, it's a waste of time.

4. Off the record, their staff admit that MTD for VAT has lots of problems the top brass pretend don't exist, and that being such a useless set of tossers they've totally failed to manage Covid 19 response properly. So totally at breaking point.

Then the fools who run HMRC come along and say, "I know let's just press ahead with a massive IT project with minimal benefits just to see how many of our staff sign off sick with breakdowns."

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By Pam Moreland
11th Jun 2021 17:46

I cannot see why HMRC can't keep the current system and divide the payments on account by four instead of two and set four payment dates instead of two. I work in small practice. Our clients haven't a hope in hell in doing quarterly MTD submissions and will have to bear considerable costs to do something which is utterly worthless. We struggle to get their stuff in for January let alone four times a year. Who is even going to look at the submissions. This is form 42 all over again when we reckoned there was a hangar full of paper forms gathering dust.
Jobsworths with no idea what the real world is lie.

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By Pam Moreland
11th Jun 2021 17:46

I cannot see why HMRC can't keep the current system and divide the payments on account by four instead of two and set four payment dates instead of two. I work in small practice. Our clients haven't a hope in hell in doing quarterly MTD submissions and will have to bear considerable costs to do something which is utterly worthless. We struggle to get their stuff in for January let alone four times a year. Who is even going to look at the submissions. This is form 42 all over again when we reckoned there was a hangar full of paper forms gathering dust.
Jobsworths with no idea what the real world is lie.

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By psessex
14th Jun 2021 14:01

I'm a small practitioner in North Essex with a modest portfolio of mostly small businesses. my planned approach is to get anyone subject to MTD onto online accounting software (Quickbooks is my preference) link to their bank and get them submitting to AutoEntry or Dext. Generally after that I don't let them near the actual bookkeeping other than in some cases raising sales invoices. None of them have a big credit control problem which would take more management. I have, perhaps naively, been looking forward to the extra discipline that MTD would impose rather than all the queries being pushed to the year end exercise other than for the ones who are Vat registered. There will be some fee impact - I'm guessing of no more than 25%.

As regards overpayments, I rather assumed that MTD would be cumulative through the year so self adjusting. If that's not the case then there really are going to be issues.

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