Tax Writer Taxwriter Ltd
Columnist
Share this content

MTD: 12 technical questions

6th Apr 2017
Tax Writer Taxwriter Ltd
Columnist
Share this content
questions
iStock_asiseeit_questions

MTD for business (MTDfB) is being developed in an agile manner, which allows technical issues to be addressed as and when they arise. However, this means the entire MTD project has not been thought through from end-to-end.

Rationale

HMRC now says its main reason to drive through MTDfB, is to collect more tax from small businesses, particularly those who are trading below the VAT registration threshold. The additional tax revenue will apparently be generated by businesses recording their transactions on a more timely basis, and as a result their accounts will be more accurate, leading to more tax becoming payable. We don’t have to agree with this logic to understand it.

The other justification HMRC offers for MTDfB is that it will help small businesses understand how much tax they need to pay. Using this information, they will be able to make regular voluntarily tax payments throughout the year, which will ease the nasty surprise of the big tax bill which becomes due months after the year end.

Remember, MTDfB is just part of the full MTD project, which will ultimately remove the need for individuals to complete an annual tax return. All the information received by HMRC from third parties will be reflected in the individual’s personal digital tax account, which the individual can access at any time and approve as a correct statement at the appropriate time. 

Mechanics

In summary, these are the seven steps of the MTDfB process:

  1. The business keeps its records in a digital format, on a timely basis
  2. Quarterly update: The business reports to HMRC summaries of income and expenses (in prescribed categories), primarily to prove it has done step one
  3. Reflection: HMRC computer takes the reported results and updates the taxpayer’s digital tax account with the expected tax position. There is no human intervention by HMRC at this stage
  4. Understanding: The business owner accesses their digital tax account which indicates how much tax they will have to pay on profits
  5. End of period statement: The business owner reports to HMRC the final figures for the accounting period including any accounting adjustments. This statement must be made by the earlier of 10 months after the year end, and 31 January after the year end
  6. Figures from step five are reflected in digital tax account and business has final figure of tax due for the trade, but not necessarily for the whole tax year
  7. Final declaration: This is the new name for the SA tax return, which must be filed (as now) by the later of 31 January following end of the tax year, or three months after HMRC sends a notice to the taxpayer to make a return

Questions

1. Partnerships are responsible for keeping the accounting records and making the update report at step two, but that update doesn’t include a partnership share statement. Thus steps three and four do not occur for a partner in a partnership. The partner will only have his digital tax account updated with the tax he has to pay after the partnership has completed step five.

How does MTDfB help a partner understand the tax he has to pay?

2. Unincorporated businesses will be required to start complying with MTDfB from the beginning of the first accounting period that starts on or after 6 April 2018 (if turnover for the last complete accounting period is £83,000 or more), or 6 April 2019, if turnover is less than £83,000 but more than £10,000.

Will there be legislation to prevent businesses from changing their year-end to 31 March, in order to delay falling into to MTD?

3. The quarterly updates must be transmitted using accounting software, including an add-on to a spreadsheet. HMRC will make regulations to define the standards this updated data will be required to meet. HMRC does not expect accountants to intervene at this stage and review each update for accuracy and disallowable items.

If an accountant submits the update on behalf of his client knowing that it contains inaccuracies, is the accountant breaking the professional standards code: Professional Conduct in Relation to Taxation?

4. A business with a 30 April year-end will have to make its end of period statement (step five above) by the earlier of 10 months after the year end or 31 January following the year of assessment. However, the profits for an accounting period: 1 May 2018 to 30 April 2019, will form part of the self assessment for 2019/20, but will have to be reported within that tax year: by 3 January 2020. This is before the end of the tax year (2019/20) for which the profits will be assessed.

How can the tax be calculated for this 30 April accounting period at the time of the end of period statement?  

5. All VAT registered businesses will be required to join MTD from a period start after 1 April 2019 (date not confirmed), in order to make MTD update reports of data which is currently reported on the VAT return.

Will the business have to submit an MTD update alongside the VAT return, or will the VAT return and the MTD update be one and the same process?

6. There have been a number problems which have exposed errors in the standards set for tax return software by HMRC. It is clear that standards which all software producers are obliged to comply with to submit tax returns on line are not in line with tax law in every respect.

Which independent body will audit the MTD software standards set for tax computations, and certify that those standards are compliant with tax law?

7. If the MTD software produces an incorrect calculation of tax liability, so it is impossible to submit the final declaration without creating an error in the tax due, how will the taxpayer submit his final declaration?

Will there be a paper alternative in such cases where the software fails?

8. How will companies report to HMRC each individual dividend they pay to shareholders?

How will HMRC ensure that dividend information ends up on the correct taxpayer’s personal digital tax account? 

9. Trusts will also have to comply with MTDfB if the trust has trading income or rental income in excess of £10,000 for the year. Does a trust have a personal digital tax account?

If the trust doesn’t have such an account how will a trust get a reflection back from HMRC of the tax it should pay?

10. How will banks and companies correctly identify the recipients of interest when reporting to HMRC those interest payments?

How will HMRC allocate the savings income to taxpayer’s personal digital tax accounts?

11. How will a bank know that interest paid to a trustee is paid for the benefit of the trust and not for the trustee personally?

Will the interest end up on the trustee’s personal digital tax account?

12. Individuals who receive rental, partnership, or investment income from abroad often don’t have access to the underlying expenses and receipts.

Will such individuals be required to report such income under MTDfB?

There are a growing number of technical questions about MTD. These are my top dozen. Please add your own questions below and we will endeavour to obtain answers from HMRC or from the tax professional bodies as appropriate.

Replies (103)

Please login or register to join the discussion.

avatar
By leon0001
10th Apr 2017 11:24

Some more questions:
How does the holder of a Lasting Power of Attorney for an incapacitated individual get access to that person's personal digital tax account?
Will traders registered for annual VAT accounting have to go onto quarterly digital reporting?
Is there any published guidance for trustees of trusts?
Is there any guidance for estates of deceased individuals, particularly before grant of representation?
When will we get some hard information?

Thanks (3)
avatar
By North East Accountant
10th Apr 2017 11:29

Are the Tories not supposed to be on the side of small business?

The increase in NIC is nothing compared to MTD, which could well be the next poll tax.

Be warned Theresa May, look what happened to Maggie.

Thanks (3)
avatar
By johnjenkins
10th Apr 2017 11:31

Great article, Rebecca.
I have just one question.
There isn't one Accountant or business that agrees with MTD in it's present form so why aren't our bodies shouting from the highest cliff tops?

Thanks (12)
Replying to johnjenkins:
avatar
By Terry Hyman
10th Apr 2017 12:26

They all have vested interests and in the end they are more interested in looking after number 1 than protecting their members from Government and HMRC bullying.

I have said before that we need to lobby Parliament and I would like to think that somehow we could arrange for a demonstration on Parliament Green attended by accountants from up and down the land. If we invite the media to attend this may be the best way to bring the MTD issue to the public's attention. Then perhaps people will understand that the NI fiasco (or deliberate ruse, as I see it) will pale into insignificance. I can't quite see MTD riots resulting but it might bring the powers that be to their senses.

Thanks (2)
Replying to johnjenkins:
By Charlie Carne
10th Apr 2017 20:07

I attended a session on MTD at the ICAEW last year at which HMRC sent a senior representative to talk to more than 100 chartered accountants in the room and asked us (sitting at tables of 8-10) to provide feedback to a series of questions. After his initial speech, he didn't bother to wait for the rest of the short session to listen to what key members of the profession had to say. Instead, he left some members of his team to feed back the information second-hand to him.

If the "man from HMRC" cannot be bothered to listen to members of the profession when they have all taken time out of their busy days to attend a session designed to give feedback for his benefit, then it suggests a complete lack of respect by HMRC for the profession and does not bode well for successful implementation of MTD.

Even the Man from DelMonte bothered to stay for the day to see if what was being supplied was up to scratch!

Thanks (5)
Replying to charliecarne:
avatar
By johnjenkins
11th Apr 2017 10:14

Hu buggered off because he knew what the feedback would be.

Thanks (2)
avatar
By GW
10th Apr 2017 11:44

Why do HMRC take the view that the reason businesses exist and therefore their priorities should be, in this order:

1) to pay tax.
2) to keep records
3) to generate an income

Thanks (4)
avatar
By P&G
10th Apr 2017 11:49

So at last HMRC have now officially said what we suspected all along: - it's all about the money!! And where are ICAEW/ACCA et al in making this a matter of public knowledge? Snoozing after their cosy lunches with HMRC bigwigs no doubt.

MTDfB has received hardly any press airing at all, and yet I'm sure the moment the Supreme Court lays down their ruling on the Rangers tax avoidance case the press will be all over it and if HMRC win, the likes of Michael Izza will again be quick to tell the world how wrong tax avoidance is showing they are clearly in HMRC's pocket.

Even accepting HMRC's arrogance and "we are above the law" approach, how can they possibly expect compliance when they don't issue a clear set of rules for everyone to follow? Or is it just another means of raising revenue?

Hardly a day goes by when our office raises another unanswerable question on the topic. And we are supposed to be getting the message out to our clients? Not a chance! Hence with our clients they know it only as Tax Made Difficult!

Thanks (5)
Tornado
By Tornado
10th Apr 2017 11:59

CLOUD SOFTWARE ACCOUNTING PERIODS

As we maintain accounting records for many clients in my own excellent spreadsheet based 'software' with some clients keeping their own records and sending the file to us on a monthly basis for checking and return, there has never been any necessity for me to consider using cloud based accounting software.

My 'software' is adapted to suit the business of the user, costs them nothing in the way of licence fees and also has the ability to have a year end of ANY day although 5th April is usual.

At the moment it would be easy to extract quarterly summaries from this 'software' at little or no additional cost to anyone but if the Government do make it mandatory to use approved software then there will, of course, be a number of expensive problems to sort out.

Whilst I am still looking around for MTD software that might have a chance of working properly, I have been a little alarmed by some contributors to AWEB who suggest that commercial software cannot deal with year ends that are not at the end of a month. This implies that all 5th April year ends will have to be 31st March in which case it would actually delay MTD compliance for tens of thousands of people by a year.

To put me straight, therefore, is there any cloud based accounting software that cannot handle a year end of 5th April?

Thanks (2)
avatar
By sammerchant
10th Apr 2017 12:05

And all this at an extra cost to the taxpayer of £280!
Cloud cuckoo land?
Are the taxpayers (our clients) aware? If so, why are they not curious how HMRC arrived at that figure?

Thanks (1)
avatar
By Mike Day
10th Apr 2017 12:09

If a business base period is 1/01/17 to 31/12/17 what will their first quarterly report be.

Also what about other income they may have which may be dividends or even salary form employed work.

Thanks (0)
avatar
By Angie Tax
10th Apr 2017 12:20

At what point do we determine whether turnover is over £10K or £85K, for the purpose of ascertaining if/when a taxpayer should be filing quarterly updates?

Could this create a problem with needing to know this info very quickly after 5 April 2018, to check if a client will be within MTD from April 18 for the over £85K category?

Thanks (4)
Replying to Angie Tax:
avatar
By 97mwill
10th Apr 2017 18:51

Agreed, haven't seen anything yet that states what year/period the turnover criteria will be based on.
Not a problem for those well within the various brackets but we have a couple clients who are borderline at both £10k and £85k.

Thanks (1)
avatar
By Char
10th Apr 2017 12:22

Further to my Linkedin article (https://www.linkedin.com/pulse/making-tax-digital-charlotte-ready) my main concerns are the fact anomalies exist in all of the software packages currently on the market and how do HMRC propose they will to address these with the API reporting (i.e. what will be submitted)? That, and what about the issue of storage of data by these software companies? Majority have servers in the US meaning it is suspictible to their laws without protection from our own. A massive issue and one not touched on to date.

Thanks (2)
Replying to Char:
Tornado
By Tornado
11th Apr 2017 13:40

"Majority have servers in the US meaning it is suspictible to their laws without protection from our own. A massive issue and one not touched on to date."

The question of security has been raised a long time ago by AWEB members and the Government seem to be addressing the general situation by allocating some £2 billion to improving digital security but as you say, with a number of MTD cloud software providers being based abroad or multinational, where on earth is our clients' data held?

There is also the rather unpatriotic approach to MTD that actively forces us to spend £millions (and probably eventually £billions) with foreign companies so that there is no benefit to this country.

The whole MTD project stinks like a rotten fish.

Thanks (2)
avatar
By SAYMA
10th Apr 2017 12:35

Hi Rebecca

I have never joined a discussion before so apologies if I get the protocol wrong.

Mine is a technical issue: a client owns 2 properties outright and the combined income is in excess of £10K. He also co-owns a third property with his non-resident and non uk domiciled son on a 75/25 (son) basis. The rental income for this 3rd property is below £10K. The income from the joint owned property goes into a bank account in the client's sole name but the interest received is split 75/25 and declared on both the client and son's tax returns at present. How will HMRC know to split the income?
How will the transactions on the joint property be split in the right proportions when being submitted quarterly?. Because the client's total rental income is over £10k the details of this 3rd property will also presumably have to be sent in quarterly?

Utterlyconfused

Thanks (0)
Replying to SAYMA:
Tornado
By Tornado
10th Apr 2017 12:53

This sort of situation is fairly straightforward to work out and arrive at the correct answer under Self-Assessment but at this stage with MTD .... who knows, or in some cases, who cares?

I think you will just have to monitor the situation and see how it pans out. My own view is that the MTD project does not have a hope in hell of getting going under the present plans and there will be massive back-peddling, so we wait and see.

Thanks (2)
By tonyaustin
10th Apr 2017 13:05

There are businesses who
1 Employ a bookkeeper / accountant.
2 Contract the work on a monthly or quarterly basis to a professional bookkeeper / accountant
3 Do it themselves and let their accountant sort out the mess after the year end.
MTD will not work for category 3 who do not know, for example, the difference between revenue and capital and so charge capital expenses to P&L, think entertaining is allowable if called marketing and so claim it, cannot distinguish between personal and business expenses, especially travel and subsistence. MTD will simply show how wrong a person can be when the final figures are produced. And some will still forget to record their cash takings!

Thanks (4)
avatar
By BryanS1958
10th Apr 2017 13:23

Why are we discussing how it is going to work? The professional bodies and business support organisations should just be saying NO NO NO!!! IT'S AN IDIOTIC AND UNNECESSARY BURDEN!!! If we were French we'd all be out on strike (apologies to any French who may take offence at this comment - at least they are willing to take action. As usual our representatives are doing nothing worthwhile, spending their time on important matters like redesigning our logo to make it look like the Queen using chopsticks).

Thanks (3)
Replying to BryanS1958:
Tornado
By Tornado
10th Apr 2017 14:18

"Why are we discussing how it is going to work?"

Most of the discussions on AWEB are more about how MTD will NOT work but your comments are both accurate and amusing especially -

"redesigning our logo to make it look like the Queen using chopsticks."

Thanks (1)
Replying to Tornado:
avatar
By nickja
10th Apr 2017 16:59

Chopsticks from dipsticks.

Thanks (0)
Replying to Tornado:
avatar
By nickja
10th Apr 2017 17:00

Chopsticks from dipsticks.

Thanks (0)
Replying to Tornado:
avatar
By nickja
10th Apr 2017 17:00

Chopsticks from dipsticks.

Thanks (0)
avatar
By richardterhorst
10th Apr 2017 13:40

We should get the Hubble telescope to search for the planet HMRC lives on.

Thanks (4)
avatar
By GREENHORN
10th Apr 2017 16:39

Does HMRC expect retail business large or small to carry out 4 stocktakes a year which obviously would be necessary in order to correctly identify cost of purchases.

Thanks (1)
avatar
By frankdavid
10th Apr 2017 16:53

regarding CIS Subcontractors, HMRC already receive details of their earnings through the CIS reporting system so will it be expected that they only file details of their expenses through MTD ? could be fun with non cash expenses such as mileage.I was going to retire this year but I may stay on longer to monitor this fiasco

Thanks (1)
Replying to frankdavid:
avatar
By 0705736
10th Apr 2017 18:15

I'll be 65 this summer but was thinking of carrying on for a year or three. Now, in view of MTDfb and other issues, I think I'll definitely get rid of my practice this year and watch from the (AWEB) sidelines.

Although I might be available for a bit of part-time data processing from time to time to help you youngsters out of a jam!

Thanks (1)
Replying to 0705736:
avatar
By leon0001
11th Apr 2017 11:15

Are you aware that accountancy practice prices have plummeted over the last few months? ( < 0.75 x GRF ) You might be in for a very nasty surprise.

Thanks (0)
Replying to leon0001:
Jonathan@Aiteo
By [email protected]
11th Apr 2017 12:36

That can't possibly be right, because I went to a cloud accounting presentation last year which said that practices were going to be selling on 3x GRF. ;-)

Thanks (0)
Replying to [email protected]:
avatar
By frankdavid
11th Apr 2017 12:48

Jonathan-AT-Aiteo wrote:

That can't possibly be right, because I went to a cloud accounting presentation last year which said that practices were going to be selling on 3x GRF. ;-)

Cloud Accounting or Cloud Cuckoo Land Accounting

Thanks (0)
Replying to leon0001:
avatar
By 0705736
11th Apr 2017 14:28

To be honest, given what's happening in the accountancy world, I'm almost prepared to pay someone to take it off my hands!

Thanks (1)
Morph
By kevinringer
11th Apr 2017 12:31

Thanks Rebecca on such a helpful article. I've 2 questions:
1. Are 31 March 2018 year ends not caught by MTD until 2019-20? If so can I change my 5 April year ends now?
2. HMRC keep telling me that the digitally excluded will be "supported" by HMRC without telling me who HMRC accept as being digitally excluded and what form that support will take. I have many elderly clients who have never owned a PC or smartphone and have no idea how to work either. When HMRC made online VAT returns compulsory I applied for exemption for some of these clients. HMRC refused exemption on the grounds that my client could access a computer in the local library. But my clients wouldn't know where to start. Who is going to teach them? And even if they did use a computer in the library, they wouldn't want to have their confidential documents on display to the user of the PC sitting next to them. We have got around this problem by letting our clients continue to maintain paper VAT records and phone us quarterly with the VAT return totals, we log into HMRC and input the figures. This solution works for VAT but not MTD.

Thanks (1)
avatar
By Stargazer42
11th Apr 2017 13:30

Will the income that Foster Carers receive have to be reported under MTD? If it does will it be the full amount received or only any amounts in access of the exemption?

Thanks (1)
Morph
By kevinringer
11th Apr 2017 13:53

Will MPs have to comply with MTD?

Thanks (0)
avatar
By Arbitrary
11th Apr 2017 14:23

What about income from investments held in bare trust? Banks will not allow any accounts to be held formally in this way. Will this not result in incorrect data being sent to HMRC by companies and banks?

Thanks (1)
Morph
By kevinringer
11th Apr 2017 14:49

Do you realise that we now spend more time complaining about MTD compared to AW's website? I'm sure HMRC hope Brexit will do the same to MTD.

Thanks (0)
avatar
By Mr J Andrews
11th Apr 2017 16:34

Self Assessment ; CY basis . Great idea; it worked , 10 out of 10.
Working Together ; good idea ; hmmm ; 5 out of 10
M.T.D. Unworkable ; dumb idea ; might succeed in a certain brainwashed eastern Asian country ; 0 out of 10.

From the record number of responses to Rebecca's article , the jury's decision is that the so called consultations to M.T.D. were no more than a pack of lies regarding helping our nation's small businesses to making life easier as far as their tax affairs are concerned.
The black economy will flourish on a far greater scale than currently exists . Far more mistakes will be made than are already made - by unrepresented taxpayers , by some agents too I daresay , and not least of all by the remaining HMRC staff left to cope with the fiasco.
And the idea behind this Government's pack of lies - to get some money in the coffers more quickly - will not materialise.
Why spend £1.3 billion on dodgy dressed up documents deliberately used to deceive when a few lines summary would have sufficed :-
'' This Government believes every business is on the fiddle''
''This Government is going to put administrative pressure on businesses to cough up more money''.
''We don't have the gumption, resources nor stomach to tackle the big boys''
Here's betting that the results for the imminent ''Pilot Scheme'' are already in place.
Looks like I'll have to go along with whatever legislation brings but I'm afraid me and the Revenue ' Working Together ' have had it owing to this deceitful , shambolic mess. I'll comply but will formally complain at any shortcoming from HMRC and will follow COP 1 to the letter where I or my clients are not similarly treated with total accuracy in a timeous manner. I suggest they now consider upping their varying stress level compensation payments { currently between £25 and £500 } for their errors and mistakes.

Thanks (1)
avatar
By Tobby
11th Apr 2017 18:05

CTAAS
Given 6 'returns' will required to cover each self employment, and assuming each taxpayer has 1 rental business, and assuming a small accounting practice employs say 2-3 people currently and has say 75 such clients am I right in thinking that instead of 75 tax returns and 150 accounts preparation assignments to deal with the practice will have to deal with possibly 900 assignments (75x5x2 plus 75x1x2) each year.
If my rudimentary maths is anything near this practice will need to recruit at least another 10 people to service their client needs on a timely and professional basis. Where is this practice going to find this resource at such short notice and are the 75 clients going to be prepared to finance the costs of these 10 additional members of staff (£20k x 10 x 1/75 =£2.7k before profit) Is £20k a realistic salary cost and are there suitable qualified staff available.
Once we are let into the real secret of what is really required quarterly maybe we can become more optimistic.
Anyone else had similar thoughts and why are the accounting and tax bodies with their clout not saying to HMRC there are insufficient resources out there to deliver this project. At a recent meeting with HMRC I was told ‘We’ make the rules it up the public to deliver or else! Middle England is surely being held to ransom yet again and what HMRC are yet to realise is that most small and medium sized businesses do not have and trained and experienced accounts departments to deal with this issue.

Thanks (2)
Replying to Tobby:
Morph
By kevinringer
12th Apr 2017 06:09

And for the year of transition you're still going to have the normal SA work as well as MTD and the extra workload of teaching your client how to use the MTD software. So for the year of transition you will have 3 major tasks whereas previously just the SA kept us working flat out.

Thanks (1)
Morph
By kevinringer
12th Apr 2017 06:15

I received a phone call from a distressed client on Monday. Her payroll software MoneySoft had failed to download the update reporting a URL error. It had taken her 2 hours on the phone before she could speak to someone at MoneySoft. They told her to download the update from their website. The client is not confident at IT so had to be talked through every step. When finally downloaded it would not run because it was blocked by McAfee. MoneySoft told her to phone McAfee. She tried but got nowhere. She phoned me. This was 100% IT problem but because it was payroll and I do the accounts she figured maybe I could help. I did - I put the update in her dropbox folder my end and which was then run her end - took me less than 1 minute. When MTD arrives I envisage we will spend as much time fixing pure IT problems as we will doing accountancy. It is time HMRC realise how much support will end up giving taxpayers to make MTD work.

Thanks (1)
Replying to kevinringer:
avatar
By Matrix
12th Apr 2017 07:04

This is a valid point. I have quite a few clients whose bank feeds have not been working so I may need to enter all the transactions manually into the cloud software. Clients have real difficulties sorting this out - they are more likely to call us than the help desk.

What did you send her out of interest? My moneysoft updates are very easy but I dread something going wrong.

Thanks (1)
Replying to Matrix:
Morph
By kevinringer
12th Apr 2017 10:46

@Matrix, I downloaded the update from MoneySoft's website and put it into her Dropbox folder. She could run it direct from her Dropbox folder whereas her McAfee would not let her run the copy she had downloaded.
We have licences for MoneySoft Payroll Manager installed on half a dozen PCs and have experienced this URL problem on 3 of them within the last week. I recon it is something to do with MoneySoft's new website. Have you tried running an update within the last week?

Thanks (0)
Replying to kevinringer:
avatar
By Matrix
12th Apr 2017 10:58

I need to do the April update. What do I need to do to get it to work, thanks for any tips in advance?

Thanks (0)
Replying to Matrix:
Morph
By kevinringer
12th Apr 2017 11:18

If the update doesn't work from within Payroll Manager go to https://moneysoft.co.uk/downloads/ and hit LATEST UPDATE. You'll be prompted to save it first. Some anti-virus won't let you run it after download in which case when prompted to save select "save as" and save it somewhere else. I find there can still be problems if saved to desktop so try saving it in documents. You can delete it once it has run.

Thanks (0)
Morph
By kevinringer
12th Apr 2017 06:18

Rebecca, 31 March sole trader - starts to comply with MTD 01/04/19? What happens if the sole trader is below the VAT limit? Do they get a further 12 months deferral to 01/04/20? What happens if they are below the VAT limit but are registered for VAT? Is it the start of their first VAT quarter after 01/04/19 or is it 05/04/19? Does that mean they have to comply with MTD for VAT but still do SA for income tax? Rebecca, it would be really useful if you could put together a table of cases or maybe a flowchart.

Thanks (0)
avatar
By richardterhorst
12th Apr 2017 15:11

The taxpayer is Joe the plumber. He works for himself and keeps all his slips neatly in a shoe box. He gives a receipt/invoice when asked for it but being an honest person he keeps a book for all cash receipts. He makes about £30,000 a year. Some years up a bit, some years down a bit. He knows that he has to pay tax of around 20% on £19,000 and puts something away each month to cover it.

He has a mobile phone but uses it for phone calls, emails and at times to Google. He is not interested in financial apps, free (build in purchases) or paid ones.
At the end of the year he takes his shoe box to the accountant, tears out his cash takens pages and spends an hour with the accountant explaining peculiarities. Accountant likes him and has acted for him for 10 years. A few weeks later he gets a draft tax return, calculation on the family laptop which he approves. He gets invoiced about £700.

MTD arrives. He now has 2 shoe boxes. One at the accountant and one he uses. He pops in to the accountant 4 times now so his invoicing drops in those months as it takes away work time. The accountant has no time to talk as he has 100 other clients coming in 4 times a year. At year-end (or the 5th return) the accountant who is close to a nervous breakdown tries to make head or tail out of corrections/YE stuff. He has no time to see Joe so phones him instead. He figures it out with the extra staff he had to hire.

Joe the plumber now gets a bill for £2,000.

So who benefits?:
Joe the plumber? – No he has a massive bill and is no wiser than in previous years and loses time running to the accountant so his income drops.

The accountant? – No, he is stressed out sorting it all out 5 times a year, has expensive software and extra staff. He wants out.

HMRC? – Unlikely because they will have a mass of data which they will not/cannot use and probably has lots of garbage in it. So extra cloud storage (which probably will get hacked), have expensive systems to keep track of it all, get less tax because accountants expenses and time lost to invoice reduces the taxable income of Joe the plumber. But wait…… they can recover all this spend! Penalties. Lots of them. At £3k a pop very lucrative and with the garbage they receive easy to claim poor record keeping.

Sound familiar to you all?

Thanks (4)
Replying to richardterhorst:
avatar
By Ammie
12th Apr 2017 16:55

Richard, my sentiments exactly.
We all know this will be a very common scenario and I have a hunch HMRC will shift their MTD stance significantly for this type of taxpayer.
If they don't there will be a stream of estimations being used and deal with the challenges, if any, later.
Curiously, I wonder how much time the government are likely to dedicate to giving closer attention to MTD with Brexit on their minds.
The breaking point in society is much closer than our deluded, out of touch, governors realise.

Thanks (0)
avatar
By richardterhorst
12th Apr 2017 16:10

Client just phoned with the latest Sage software prices. Gone up 43% (£1,700 Sage 50). Now why do I think that is because of MTD?

Thanks (0)
Replying to richardterhorst:
Morph
By kevinringer
12th Apr 2017 16:26

43% is cheap. My clients used to buy Sage Instant for £85 from Amazon. It now costs £20/month = 182% increase. Most clients would use the same software for 5 years before upgrading so cost has increased from £85 for 5 years to £1200 (£20 x 12 x 5) = 1311% increase. You're right - it's all because of MTD.

Thanks (0)
Replying to kevinringer:
Tornado
By Tornado
12th Apr 2017 17:01

It was clear from the start that the Software Developers were going to make a killing from the millions of business people who are going to be forced to use MTD compliant software.

I don't particularly blame them as this has been handed to them on a plate by the Government, but as this fiasco continues to evolve, the stink is becoming overpowering.

I dare not say exactly what I think, but the truth will out in the end.

Thanks (1)

Pages