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Landlords loom large in second phase of MTD

The challenge Making Tax Digital will pose for the nation’s landlords was raised during Rebecca Benneyworth’s webinar discussion with HMRC deputy director for Making Tax Digital Lee Farrington last week.

1st Sep 2020
Editor in Chief (interim) AccountingWEB
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Landlords will pose a challenge for HMRC and agents within MTD
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Under the plans published in July to roll out Making Tax Digital, self-employed businesses and unincorporated landlords will be required to keep digital records and report their quarterly income and expenses totals to HMRC using MTD software from April 2023.

Individual landlords have so far have not been required to join the MTD regime if they are not VAT registered. Letting residential property is exempt from VAT unless it is holiday accommodation. But the clock is now ticking for when they will have to join the MTD regime for income tax from 2023 onwards, or from April 2022 if they are currently voluntarily VAT registered.

In the MTD consultation paper in 2016 it was suggested that HMRC would require landlords to report income and expenses property by property, rather than submitting the total figures for the whole property business, as they do now.

In 2016, AccountingWEB member Ian McTernan complained that the property tax regime for MTD had been shaped by larger landlords. “As anyone who deals with a landlord with multiple properties will know, all their expenses and income go into one or several accounts and credit cards and these are then pulled off into a spreadsheet without generally assigning them to a particular property - especially for those with small portfolios.

“Once they reach a certain size they will start using either their own spreadsheets or a commercial package but even then, there is a huge swathe of expenses that aren't incurred on one property but relate to several or all- and are apportioned at the end of the year. Now we have to sort this out apparently every quarter, but it won't cost any more,” he argued.

Those points have still not been resolved and were echoed by several comments in the webinar commentary. And how digital links will work for such spreadsheet-based property accounting systems needs to be clarified well ahead of the 2023 rollout.

Unrepresented landlords

“Landlords are quite interesting, particularly unrepresented landlords because there was probably a lot of very inaccurate information going on tax returns,” said Rebecca Benneyworth in response to one of the questions raised. 

This could include putting all their mortgage payments rather than just the interest through, or other nuances that unrepresented landlords don’t understand, she added.

On behalf of HMRC, Farrington answered: “We don’t underestimate the challenge in recognising a different type of client base that hasn’t engaged with MTD previously, so we know there’s going to be a huge amount of work with them.”

In his role as customer and agent liaison to find out the sticking points around the digital tax regime, Farrington has been meeting with civil servants in other departments and representative bodies from the property sector, including lettings agents.

“If people are letting through an agent, I expect them to be part of it,” said Benneyworth. “I wouldn’t be surprised if some clever letting agents jump on the MTD wagon and say to landlords, ‘Don't worry, we'll handle all of the MTD for you, so you don't need to worry about it… and we're going to charge you a bit more money for it.’”

The role and costs of automation

In a recurring theme from both Benneyworth and the HMRC representative, automation will play a big role in helping with compliance, with HMRC continuing to anticipate that commercial software developers will step forward, as they did with MTD for VAT, with compliance tools to support smaller landlords and taxpayers.

But Farrington also took on the recurring point about the cost burden on business taxpayers. HMRC has done research into what the transitional and recurring costs will be for MTD. “These aren't huge numbers, but [we] appreciate the impacts on what can be relatively small businesses,” he said.

“The word ‘costs’ can’t capture the benefits to people and we have a lot of evidence about the kind of productivity gains that people see – including cost savings on administration. The thing that needs to be wrapped up as part of the conversation about costs… is that this is a cost that brings benefits to your business.”

To find out about all the other points discussed with HMRC during the Great Debate with Rebecca Benneyworth, watch the full webinar on demand.

Replies (26)

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By Ian McTernan CTA
01st Sep 2020 16:16

Thanks for the mention.

HMRC still seem to think landlords will welcome yet more administration and intrusions into their lives and that any cost will be outweighed by some pie in the sky 'benefit' that HMRC seem cluelessly to harp on about.

HMRC's estimates for the costs of MTD so far have been massively off the mark, so I don't expect them to be any closer this time around.

As for the old 'some landlords might include the total payment' argument when doing annual returns, this is much MORE likely when they are pulling figures off a bank statement in a rush to file quarterly figures that they neither want nor need, rather than taking the interest figure off the annual mortgage statement after the year end.

And the other point that HMRC and others always seem to miss: MTD for VAT was not so bad, as at least people were used to reporting quarterly anyway and had sufficiently large businesses to warrant being registered for VAT, whereas MTD for landlords and others is imposing a whole new system on a whole bunch of people that literally have zero interest and will not want to pay the big additional costs and amounts of time it will take to comply with HMRC's fantasy.

Thanks (22)
Replying to Ian McTernan CTA:
By cfield
02nd Sep 2020 10:42

Agree 100% with this but we might as well talk to a wall of jelly for all the notice HMRC are going to take. They are deliberately under-stating the costs, ignoring the sheer hassle and soft-soapedly over-stating the so-called benefits. In reality, there is no added value to this whatsoever otherwise landlords and their accountants would be doing quarterly accounts already.

I suppose the saving on admin costs means dismissing the accountant, thus removing the only effective way of policing landlord tax returns, given that HMRC can't do it themselves. Errors and omissions will go up, not down. It is fanciful to imagine that MTD software will screen them all out.

Clearly MTD is just a way of facilitating an eventual move to quarterly tax returns, otherwise there's no point even for them.

I'd really hoped that when Osborne, Hammond and Gauke left the Government, all this nonsense would be kicked into the long grass, but it seems the seed they planted has grown strong enough to thrive without them. HMRC really have the bit between their teeth now and are driving it forward relentlessly. Nobody at the Treasury has the will, the balls or the common sense to intervene.

I wonder whether a new online petition might give them pause for thought. At least force them to hold a parliamentary debate. The last one didn't do much good. Gauke just sat at the back for 3 hours and then said "Thanks everyone, I'll take your views on board". Perhaps lobbying our MPs might help. Try to spark a backbench rebellion. Maybe even the House of Lords. They seem to be the only ones in Parliament now with any common sense.

When this does come in, we'll just have to minimise the cost, time and effort by estimating the figures. Try to make it a 5 minute job. After all, that's what they keep telling us, that it's no hassle, shouldn't take long. A piece of cake with modern technology.

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By andrewhe
02nd Sep 2020 09:49

I'm a landlord with 12 small properties, well below the VAT threshold and I have absolutely no idea what the benefits would be. More work and more chances to get fined is all I can see. I have created my own database and will be able to produce the figures, but it will take me at least three whole days to set it up, not being a computer whizz. Lots of well-paid jobs for people in HMRC to 'manage' MTD but nothing for me - just like GDRP.

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Replying to andrewhe:
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By farrcorfe
02nd Sep 2020 10:44

Yes, you have it correctly. Absolutely no benefit to the taxpayer and additional costs and administration. The totalitarian state marches on regardless

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By johnjenkins
02nd Sep 2020 10:11

"Costs with benefits" Is that the difference between "friends with benefits" which we have now and "paying for a prostitution service" which MTD will impose.

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By Homeworker
02nd Sep 2020 10:15

This will be an absolute nightmare for small accountants and agents in 2023/24. We will be trying to prepare the accounts and tax returns for 2022/23 at the same time as dealing with quarterly returns on the new basis for many clients who have never done this before and will undoubtedly need a lot of hand-holding. The cost is an issue but I am more concerned about the time it will all take and it is hard enough to get information once a year, let alone five times (including the end of year reconciliations)...and are the mortgage lenders going to be willing to provide interest certificates quarterly? Or will estimates have to be used. Not everyone is on interest only basis.
I for one have decided I must call it a day by April 2023. This is just one burden too many and fortunately I don't need to keep working.

Thanks (8)
Replying to Homeworker:
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By DMBAcc
02nd Sep 2020 10:44

Yes. I am warning my 60 clients to prepare for the worst. I will close my business after I have completed their 2022-23 tax returns. They will need someone to train them in the new ways of HMRC. I have told them all to lobby their local MPs but we have 6 tories in Cornwall and they will not be rocking the Gov't boat. I suspect some of my smaller clients will go "off radar". I also own one property grossing about £7k between my wife and I. Because of other income and the ridiculous threshold of £10,000 some £2,500 BELOW the tax threshold I will need a system to submit my tax return using MTD - BENEFITS !!!!!! WHAT BENEFITS !!!!!!! Thank you tory Gov't for ruining my small business that used to net HMRC £2,000 in tax each year for them. It will leave 60 clients not knowing who to turn to and knowing they will be paying at least double what I charge. Perhaps Cornwall will look to secede from the UK. Am I pi££ed off - you bet. HMRC and this Gov't have NO IDEA how small businesses work to survive. Guess what, they will blame it on Brexit and Covid but NEVER on the incompetence of the HMRC and their REFUSAL to engage with the small business community.

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Replying to Homeworker:
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By farrcorfe
03rd Sep 2020 12:36

We all knew that MTD for VAT was the thin end of the wedge with a minor concession for those under the threshold. What with 40 hours CPD p.a. monitoring visits by the Institute checking every nut and bolt of one's practice, GDPR and all the rest of that sort of rubbish I called it a day earlier in the year. I may be a lot of money worse off but at least I can now only stress about things that really matter. The trouble is, my clients probably won't get the personal and individual service they have received for the past many years and their costs and admin time will rocket.

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By chancewind
02nd Sep 2020 11:02

So how will this work if all tax advisors must be qualified. This is the sort of work picked up by the homeworkers. I was an ATT and AAT member for many years and as my business ran down I left and kept working from home. I have prof. indemnity insurance regulated by hmrc for money laundering. I deal with only small traders. Most are older and keep records by hand. Why do hmrc think they will get better records with software. If clients do not record cash now do they think they will in the future, they go out and buy small items, loose the receipt! Please start a petition, I will join!

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By kevin503
02nd Sep 2020 11:19

If HMRC are so determined to push ahead with MTD, they should produce free basic software which does the job properly. Having seen a few MTD vat implementations; Sage (annual cost, arm and a leg please) to modest middleware, (clunky and more work than logging into HMRC the old way), there is a large cost overhead for smaller companies. At the moment MTD is a tax on businesses in order to tax them. MTD is currently the TicketMaster and Ryan Air of tax systems, being charged a fee in order to make a payment.

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By 0098087
02nd Sep 2020 11:21

This insane idea is forcing me to consider another line of work. I love how they think everyone will use online bookkeeping software..really..we have about 150 clients and about half a dozen use cloud software..and the others don't want to know..

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By petestar1969
02nd Sep 2020 11:28

This is all a load of boll***s! April 2023 is when I get out of this accounting game, if not before.

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Replying to petestar1969:
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By memyself-eye
02nd Sep 2020 12:55

April 2021 for me!

Can't wait.

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By tedbuck
02nd Sep 2020 12:35

I absolutely agree - we need a huge petition to shake HMRC to its foundations. Their mentality is about on a par with a communist state and adherence to unthought out rules is more important than anything else.
They don't provide a service, they are pretty incompetent when it comes to computer systems and have absoliutely no idea of the time wasted on their silly systems which achieve nothing.
The only way I have managed to get replies to problems is to register a complaint and that often only works second time around.
It's about time the profession got stroppy and called HMRC to account. No use waiting for the accounting bodies to do it as they are too busy creating new rules to hide behind.
The mentality of HMRC is mindblowing - they think that if it comes from a computer it must be right. They obviously haven't heard of GIGO. My experience of clients operating programmes like Xero is that they make far more mistakes than they used to before they changed largely because of the automated processes within the system. But would HMRC appreciate this? No they think computers are little short of divine so if it comes digitally it must be right. I wish!
They also seem to think everyone is computer literate which simply isn't true. Many landlords are in their 60s/70s and computer literacy isn't high on their list of achievements and can anybody work with HMRC's own programmes anyway? And probably more to the point are their programs correct?
I submitted a client's return manually last year because of a CEG and HMRC processed it through their system. Incorrectly you will be surprised to hear - sending the client a bill for about £1000.00 when there was no tax owing. I did create a bit of a fuss and in the end they corrected it, apologised to her and sent her £100 as compensation. But what a shambles when all their 'trained' staff had to do was process a paper form and they couldn't even get that right! And it isn't a unique experience they don't understand what they are doing half the time - but they are good at the rule book!
So yes let's have a petition with all accountants/tax advisors signing it.

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Morph
By kevinringer
02nd Sep 2020 13:13

It doesn't help that Rebecca has changed sides. She is convinced digitisation is the way forward. I've digitised 100% of my client tax returns since 1998 because there was (and is) a benefit to me and my clients. But digitising transactions is another ball game altogether. I've trialled this with several clients and the time (and therefore costs) have gone through the roof: more than doubled in most cases.

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Replying to kevinringer:
By cfield
02nd Sep 2020 14:48

It's not the digitisation itself that's the problem. It's the coercion. Digitisation is fine for the vast majority of SMEs. That's why they've already done it. For micro businesses it is less of a necessity. Traditional accounting methods are often more practical and cost-effective, not to mention their own personal choice.

Forcing it on people like landlords, subbies, gardeners, cleaners and tradesmen is very wrong. It's a one-size fits all policy that outrageously interferes in the right to run your business as you see fit. It's not the sort of thing we should be seeing in a liberal democracy.

Worse than that is the quarterly reporting requirement. This serves no useful purpose whatsoever, other than to show that we're all being good little boys and girls and doing what we're told. Tax will be based on the final submission for the year, so what is the point of the quarterly ones?

Contrast MTD with PAYE Online when that came in about 20 years ago. They didn't make that mandatory. In fact, they bribed businesses to use it by offering them £825 over 5 years. Fools! All they had to do was make it compulsory, but attitudes were a bit different in those days.

Of course, PAYE Online was a no-brainer as it was clearly a huge time-saver over doing the year end returns manually. So was VAT Online to a lesser extent, with the extra 7 days. That's why most small businesses were quick to adopt them, not for the £825. MTD, on the other hand, has no added value whatsoever. That's why they've made it compulsory! They know full well nobody would do it otherwise.

The rot set in with corporation tax, in particular the iXBRL format which made it necessary to enter every line in the accounts. It was stupidly made compulsory for every tiny company. No turnover threshold. From that point on, small business owners could no longer do their own CT600 returns. I still get them coming to me to this day, having to hire an accountant for a job that used to take them about 10 minutes and cost the price of a stamp.

Somewhere along the line, they got it all wrong. New technology is supposed to make our lives easier, not more difficult.

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Replying to cfield:
Morph
By kevinringer
02nd Sep 2020 14:26

Spot on cfield - well said.

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Replying to kevinringer:
Chris M
By mr. mischief
02nd Sep 2020 14:45

I will be offering a cost-effective solution to all clients for MTD quarterly reporting using my MTU methodology - Making Tax Up. No way will their stupid database pick up on my strategic adjustments! Bring it on!

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Replying to mr. mischief:
By ireallyshouldknowthisbut
03rd Sep 2020 17:25

MTU is the only commercial method.

Given all we have to do is "get through the gate" in terms of filing 'something', then "something" will be filed.

The quality of the data is completely irrelevant as its not used for any purpose.

All you need to do is build is a "poo fling" system to lob low quality data at HMRC and sort it out at the year end, and update this annually once you get 'actual' data.

Given the 30 day window for sales, all your client needs to do is tell you when they buy/sell a property ro you can wind up/down your stream of poo.

I can probably poo sling for £50/year per client vs what at least £500/annum to do it properly for a landlord.

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RLI
By lionofludesch
03rd Sep 2020 06:13

I'm out once I've done the 2020 returns. After that, I'll run a few payrolls to April and I'll leave it to the rest of you.

There's plenty of work in this, but it's not the sort of work I want to do.

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Replying to lionofludesch:
By cfield
03rd Sep 2020 08:20

Hey Lion, can I have your landlords? I'm going to run my own MTU system for the quarterly returns. In terms of pounds per minute, landlords are my most lucrative clients, so I wouldn't want to give them up. I'm going to make this work somehow or other. I'm not letting these idiots destroy my business. The trick is to minimise the time and effort involved.

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Replying to cfield:
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By matchmade
03rd Sep 2020 10:48

An MTU approach reminds me of the ludicrous micro-management now expected of school teachers, with the requirements that they create individualised lesson plans for every pupil and grade them in 1-2 point bands between 0 and 100 (in practice 40-85 for most subjects). Teachers still think of their pupils in grades A to F, and B+ or B- at a pinch, so once they've learnt the verbiage required to distinguish between each 1-2 point band, they don't sit there thinking hard about "what has little Johnny achieved between this lesson and the last one?": they just lob something approximate down. No one checks.

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Replying to matchmade:
RLI
By lionofludesch
03rd Sep 2020 11:08

matchmade wrote:

An MTU approach reminds me of the ludicrous micro-management now expected of school teachers, with the requirements that they create individualised lesson plans for every pupil and grade them in 1-2 point bands between 0 and 100 (in practice 40-85 for most subjects). Teachers still think of their pupils in grades A to F, and B+ or B- at a pinch, so once they've learnt the verbiage required to distinguish between each 1-2 point band, they don't sit there thinking hard about "what has little Johnny achieved between this lesson and the last one?": they just lob something approximate down. No one checks.

Checks what ? You mean "gives an alternative opinion" ?

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By tedbuck
03rd Sep 2020 10:40

I really like the idea of MTU - what a labour saving device! Then if we were feeling really co-operative to HMRC - reflecting their attitude to us (ha-ha) we might consider putting the correct figures on the annual SAR. I suppose we'd have to do that to protect the client.

The difficulty here is HMRC's mindset ( along with that of the ICAEW and CIOT) who all seem to think that the real world is au fait with computers and therefore this stuff is a doddle.

It simply isn't true - we have an ageing population who haven't been brought up on computers and really don't want to waste their time doing more than is necessary - partly due to the cost.

Just imagine Mrs Smith at 70+ having to go out and buy a computer, invest in the software and learn how to use it whilst in Covid isolation - or, alternatively, having to stagger to their accountants office with the paper bag 4/5 times a year rather than once at a much greater cost. It just isn't on and is really unfair to the taxpayer just because some pi***ck in HMRC wants to show how computer literate he/she is and they want to cut the number of staff because they cannot train them to cope with the laws they create.
And to cap it all this bunch of incompetents want to make all tax advisers etc have to be qualified so that they have even less to do. They are so incompetent that it has taken them 10 years plus to get to grips with the Footie Players loan schemes. How on earth could they be so useless?
I feel like signing this ...
Disgusted
Tunbridge Wells
(No offense meant to TW)

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By moneymanager
03rd Sep 2020 15:51

This year is displaying the absurdity of quarterly tax writ large, before Christmas we were fully let and expected to be so for the whole of 20/21, by mid November we are set to lose our last tenant and are already burning cash.

We are VAT registered voluntarilly and did qualify for partial exemption, did again last year and so already account to ourselves on virtually a real time basis but it's still all manually updated, that though is a huge way from actually paying out cash for a profit that is very much here today and gone tomorrow.

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By moneymanager
03rd Sep 2020 15:51

This year is displaying the absurdity of quarterly tax writ large, before Christmas we were fully let and expected to be so for the whole of 20/21, by mid November we are set to lose our last tenant and are already burning cash.

We are VAT registered voluntarilly and did qualify for partial exemption, did again last year and so already account to ourselves on virtually a real time basis but it's still all manually updated, that though is a huge way from actually paying out cash for a profit that is very much here today and gone tomorrow.

Thanks (0)