MTD phase 2 is closer than you think
John Stokdyk explains what needs to change for taxpayers coming into MTD for VAT in April 2022.
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I nearly bit my tongue, John, but then you said ...
"Experience from the first wave confirmed that capturing transactions via smartphone snaps and bank feeds into cloud accounting software is the most scalable and economic way to bring clients into MTD."
Where is this 'experience' cited? And how was it quantified? By which types of taxpayer?
I've presented about 5 MTD-related webinars in the past few months and talked to 20+ practitioners during that time about these and related issues.
Is that number a typo?
20+ practictioners is the number of accountants in a decent sized town. Considering that you also ended up speaking to them at MTD-related webinars and you have one of the most unrepresentative samples it is possible to devise.
I also cannot help noticing that a software vendor is literally sponsoring you to write these pro-MTD articles. You can hardly claim to be presenting an impartial view when being paid by a business that would benefit from a particular view being promulgated.
John, I was replying to a comment made by a poster and in no way do I think you or AccountingWeb is sleazy, in fact I enjoy AccountingWeb's community spirit. The poster was asking about money being received for certain services. I was merely pointing out that the MEDIA use of the word sleaze could be directed anywhere. Perhaps my wording wasn't sufficient enough to point that out and for that I apologise. There is no intention of denigrating you or anybody else in my posts. It is the post that I always comment on not who is making it.
I get that there are significant issues with MTD for ITSA (not least the ludicrously low threshold), but it's hard to argue with John's point "that capturing transactions via smartphone snaps and bank feeds into cloud accounting software is the most scalable and economic way to bring clients into MTD." Unless the business owner truly does not own a smart phone or a scanner, this is a good place to start.
If their business is so small that records can be kept manually, then they will be kept easily in a very simple cloud accounting system (or even just by using an MTD-compatible bank account, like Countingup or Starling). For me, that is the biggest hurdle for my smaller, sole trader clients: getting them to stop using their personal bank accounts for business, and opening a separate bank account that can be tracked online. Once that hurdle is passed, the rest is very much easier.
I'm not suggesting that we stop complaining about MTD, just that we complain about those elements that are particularly egregious and which have a chance of being changed. We ain't gonna stop the train, but there may still be time to alter the direction of the tracks.
I have been saying this and will go on saying it till the cows come home. There are many business that will cope with no problems at all but there will be just as many that wouldn't know what scanning is all about and some even that wouldn't want to know. I'm pretty sure that our beef against what HMRC is trying to do is that a lot of business (especially the one man band) won't be able to cope and why should they be forced into not coping. This problem with high techies and low techies will not go away. In fact I see the gap getting wider and wider. Once HMRC wake, because they will have to, we might get somewhere.
Hugo
This is a one way street
Dissent will not be tolerated
Did you not see the HMRC at The House of Lords? HMRC have yet to find anyone who does not agree their opinion. And they have interacted with lots of pilot volunteers, so they should know.
Hugo, this independent thinking has to stop. Orders must be obeyed. (No matter how ridiculous). Come the revolution I fear for you just as I fear for myself. Till then, we will continue to write without editorial sponsorship, without fear and without favour.
I used to have enough of a problem getting clients to keep receipts/bank statements etc without 'educating' them in a process that was and is rubbish (MTD for VAT shows that).
As for governments having 'vision' - the last 20 months have shown that is laughable.
Thankfully, that is now in the past.
"The message coming from Sage and other leaders within the profession is unanimous on this point: your first priority as a practitioner should be to educate clients on their new compliance obligations from April 2022. "
Happily, I've retired, but from experience, I'd have thought that for many practitioners, their focus at the moment would be meeting existing filing deadlines and getting the 2021 returns done.
Should HMRC not be publicising the new compliance obligations? Not all taxpayers are represented so HMRC should not be relying on the profession, but doing this work themselves. Accountants are not unpaid publicists for HMRC.
So far I have only spoken to one client who had heard of MTD before I advised client that the storm was coming.
As far as the average tax payer is concerned, MTD is practically a state secret
I am referring above to MTD ITSA
No idea if the voluntary VAT trader is now getting notifications
Those few clients are a February job for me
Our huge plan here is to............carry on using excel bridging.
Clients are blissfully unaware of the fairly trivial change in our interface to HMRC apart form the fact we cant now deal with DD's which is a pain and means more clients are now late with filing for those who's DD's have gone "poof" for one of many reasons and cant get them back without setting up a business tax account.
The sh*tstorm is going to start when MP's and journalists realise that they are going to have to pay their accountants to file their returns quarterly.
Correct me if I'm wrong, but I thought MPs were exempt from MTD ITSA. I understand it is because MPs are unable to file online and have to submit SA Tax Returns on paper and this would be continuing when MTD ITSA starts. If this is indeed true, it means MPs will never know the true burden of MTD and so will be quite happy to vote it to apply to Joe the Plumber.
Correct me if I'm wrong, but I thought MPs were exempt from MTD ITSA. I understand it is because MPs are unable to file online and have to submit SA Tax Returns on paper and this would be continuing when MTD ITSA starts. If this is indeed true, it means MPs will never know the true burden of MTD and so will be quite happy to vote it to apply to Joe the Plumber.
@Kevin, I have forgotten that, that will be PD1 paper forms I assume. I imagine there is a specialist firm somewhere that just does MP's and their amazing rules of "life is tax deductible"
Wait until this hits the masses.....it'll make the poll tax protests look like a kids tea party.
Dear John,
You do not live on my planet.
For example
Q1
What about those thousands of s/contractors who are on the contractors' self billing system?
the y do not raise "invoices"
q2)
Yeah, if you enjoy reliable broadband, otherwise??
Q3)
60 panels, workshops, etc, etc to do with MTD!!!
How does this square with HMRC's risible estimated cost of implementation? Or are we supposed to donate these working hours out of the milk of human kindness?
Q4
How much is Sage proposing to charge a straightforward self-employed taxpayer for software capable of dealing with this MTD? Honest answer please
The message coming from Sage and other leaders within the profession is unanimous on this point: your first priority as a practitioner should be to educate clients on their new compliance obligations from April 2022.
My first priority is not to sell software to support an ill conceived and pointless project. My first priority is to assist my clients in complying with the law. If Sage etc. want to sell their wares, do it on their own time and at their own expense.
My MTD policy has been very effective to date: do nothing until I have to because the MTD can has been kicked down the road so many times. I know of one practice on first hearing of MTD put all their clients on QuickBooks Online. The staff had a lot of grief trying to teach clients only to discover MTD was postponed and they could use spreadsheets. Since then almost all those clients have thrown in the QBO towel and are back to manual records. As far as the April 2022 MTD VAT change is concerned, most of my sub £85k VAT registered businesses are small scale farmers: many over pension age and live in remote parts of Wales. I will wait until March 2022 then apply for exemption on the grounds of digital exclusion. To date HMRC has accepted all but one of my MTD exemption applications so I expect HMRC to accept most of these too.
As far as MTD ITSA is concerned: will it happen? Prior to MTD VAT all my Sage clients had bought a one-off perpetual licence for less than £100 and used that software for typically 10 years before upgrading. Sage could already cope with online VAT return filing, just not MTD VAT filing. Sage made sure the MTD VAT module was only available to subscribers so all my Sage clients had to switch to subscription. We negotiated a discount with Sage which resulted in my clients paying £12/month. That's £1200 over 10 years which is a huge increase on the £100 my clients were paying previously. And yet Sage needed relatively little change to cope with MTD VAT. Since then Sage has put the prices up and my clients are now paying £30/month = £3600 over 10 years. That's a massive increase. Whilst very little change was required to make Sage MTD VAT compliant, a huge amount of change is required to make it MTD ITSA compliant. The cost to Sage will be significant. How will Sage recover this? Put the subscription up? It can't: it has already lost some of our clients with the previous price increases. So Sage is going to have to keep the price the same or risk losing far more customers. If Sage keeps the price the same, what's the incentive to make the software MTD ITSA compliant? There isn't one. HMRC decided on the latest MTD ITSA postponement after the software industry announced it was not ready. As there is no longer a financial incentive for MTD ITSA, I reckon the software industry won't be ready in a couple of years either. The software industry has already had half a dozen years to get ready.
I would fully accept that larger small businesses and above must use proper software and can’t really manage their business if they are dealing with Excel cash books etc.
However, what I do not accept them is that simply because MTD is coming our way that we must ditch Excel cash books, used in association with bridging software, and all move to the cloud.
I have been an accountant at the coal face for over 36 years. I think that makes me highly experienced and in the position to give a balanced opinion. I have clients of all ages. I run my own very successful accountancy business.
Clients choose to use Excel cash books because they are simple, mostly free and are extremely adaptable. Clients don’t need to be trained how to use complicated software, whether that be cloud or desktop.
I have absolutely no issues with a client choosing to use proper software, cloud or desktop. But please, can we stop banging on about that we must use cloud would software, which is not always simple to use or flexible.
There must be a good reason to change, and I’m sorry, lots of clients like Excel as it follows a logical, simple and highly adaptable solution.
Cloud software isn't a MTD ITSA mandation: we are permitted to use spreadsheets and bridging software as we are for MTD VAT. The difference is the complexity. I've developed a simple VAT spreadsheet that I've supplied to my clients free of charge for them to their VAT and either use bridging software to file, or email it to me and I'll use bridging software. VAT is a transactional tax and lends itself to spreadsheet listing. ITSA is far more complex and whilst I've tried to develop a ITSA spreadsheet, it's too complex for clients to use, so I've abandoned it. So though spreadsheets/bridging software are permitted for MTD ITSA, I can't see their use being as extensive as with MTD VAT. That's just my opinion and you might have developed a more client-friendly ITSA spreadsheet than I had.
The problem with my clients is they don't choose Excel either. They choose nothing because they don't see the need for records. They are their business and at any point know who owes them what and who they owe money too and have a good idea how their business is doing just from experience. They're interested in the future, not the past. Recording historic transactions has no interest to them because it won't alter the future.
Assuming that you can get clients on to Excel, they do need to use some simple digital software, bridging software will be ideal, or you obtain csv from bank software. Clients cannot be so idle so maintain no records!! If they are they need educating.
All you then have to do is map the column heading to around 8 boxes (per the usual Self Employed I&E boxes on the Tax Return)
Nothing fancier than that!
I'm in Wales and most of my clients are farmers. Many don't have computers. Most don't have internet (landline is too far from the exchange and they live in a mobile phone not-spots, the terrain is too hilly for good 4G mobile signals). I've even got one client with no mains electricity. The average age of a farmer in the UK is 60, so even if they did have broadband etc, they're from a generation that was not taught computers in school. Spreadsheet are alien to them.
Most expenses from agricultural merchants need sub analysing between different categories eg feed, chemicals, repairs, personal, tools etc. Most basic spreadsheets aren't designed for sub analysis of expenses.
Then we've got the complications of farmhouse expenses: most of my clients have more than one farmhouse on the farm, each with different business/private elements.
And then we've got herd basis, farmers' 2-year averaging, farmers' 5-year averaging.
Most farmers also have a let property: all goes through the one bank account. So the spreadsheet will need to be able to handle that and send it through the Land and Property pages.
And 95% of my clients are partnerships so the spreadsheet would need to be able to report for each partner.
Oh, and because the farm is owned by just mum and dad (whereas son is also in the farming business), the rental income is just on mum and dad's tax return and not part of the partnership.
I'd need quite a spreadsheet to handle all that. And that is my typical client.