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Reconciliation challenge in MTD ITSA software journey
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Spreadsheet accounts at risk in MTD ITSA plans

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HMRC’s iterative approach to Making Tax Digital for income tax software specifications is raising concerns within the profession that key principles and legal conditions - including the use of spreadsheet accounts - are being left behind.

17th Mar 2022
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The rumble of software previews from developers working on Making Tax Digital for income tax (MTD ITSA) products is posing more questions than answers this spring.

Xero and QuickBooks both announced their plans earlier this month, but when AccountingWEB checked HMRC’s MTD ITSA software page to review progress across the wider industry, four previously “Available now” products had dropped down to the “In development” section.

As Xero tax compliance manager Stuart Miller told AccountingWEB, HMRC had “decoupled” its production requirements, so that developers could get credentials for a single step, or the entire MTD process from quarterly updates through to the end of year submission (EOPS) and the finalisation state, where adjustments and allowances are applied to generate a tax computation from HMRC.

Change of tack

When HMRC changed tack in December, however, its developers also retired a number of the application programming interfaces (APIs) on which pioneering ITSA developers had built their products. 

One of the names missing from the “Available now” list is IRIS. Jenny Strudwick, tax product director at IRIS Software Group explained: “We did have all functions available in 2018 and had customers who successfully tested all the processes. During the past four years, HMRC has learned and made slight changes across all the APIs involved.”

As a result, developers had to test their latest MTD ITSA code against new APIs. 

Now they’ve seen a lot of that work undone, MTD software suppliers are a little cannier about their product development plans and are encouraging HMRC to take a more agile approach to the project.

The web-oriented agile approach takes on large and complicated projects in short bursts and then tests and refines the end product as the project evolves. It’s rapid and flexible, for sure, but the ultimate project objectives and governing principles can sometimes get lost. The “suck it and see” philosophy is also creating a vacuum for the definitive guidance that tax advisers rely on. 

Updating quarterly statements

The HMRC MTD ITSA software list isn’t the only anomaly to emerge in recent conversations. Xero’s approach, for example, is based on correcting omissions and errors in quarterly submissions and writing them back into the Xero ledger. As Miller acknowledged, the EOPS software journey document Xero’s programmers followed includes the instructions: “If the information the customer has previously provided relating to that source of business income is not correct or complete… then the EOPS declaration is rejected, and error messages are returned. The changes must be made to any relevant periodic or annual summaries and then follow the existing process of submitting updates and triggering the calculation before attempting the declaration again.”

After completing their EOPS declaration, if taxpayers need to revise anything on their business income records, “Then they must make the change to the relevant periodic or annual summaries,” the guide explains.

But the software documentation is at odds with the current legislation, Statutory Instrument 1076 on omissions and corrections.  

The law on this point is surprisingly clear: “[If] a quarterly update is provided to HMRC which contains incorrect or incomplete information; and an end of period statement has not been provided for the relevant period to which the quarterly update applies, the relevant person must provide the correct or complete information in the next quarterly update or end of period statement.”

Xero chose its path to satisfy the software tests, but a poll of other developers revealed a broad range of responses to the situation.

BTCSoftware director Rob Ellis offered this interpretation: “When they first released the MTD ITSA end-points [the target and source of any API calls], there was no ability to amend, so they always had to be corrected in the following period. The end-points now do allow in-quarter amendments.”

Although there is a disconnect between the statutory instrument and the APIs, Ellis said, “If the API supports something, then we will use it.” While BTCSoftware can write back to some accounting ledgers, he continued: “Not all agents have all their clients on one platform. As we do with VAT, we support a variety of digital links into our MTD products including CSV imports and a spreadsheet option for those who don’t use a bookkeeping solution.
“As long as the spreadsheet is designed in the right way, you can amend the data and resubmit it to HMRC as a retrospective update. It’s not an issue, it’s just one submission you’re repeating.”

At QuickBooks, UK lead product manager for tax and accounting Tom Menzies recognised that HMRC needed up-to-date income and expense data from taxpayers to feed an accurate tax calculation back down to the filing software. “If information changes after submission, you can go back – it’s not like VAT. This is an annual journey - you can update HMRC when new information comes in - and you can also update/correct at the next submission,” he said.

Spreadsheets at stake? 

HMRC’s promise to accept spreadsheets as digital records was made in February 2017, before the MTD project switched its focus to VAT. As a result, many within the profession, including TaxCalc’s Dean Shepherd, are convinced that spreadsheets will continue to be supported within the ITSA roll-out.

But the ability to reconcile and write back adjustments to the original accounting records would challenge many informal spreadsheet bookkeeping systems, their users and the tax agents involved in the process. As North East Accountant commented on the Xero MTD ITSA article: “This has huge ramifications. If it's the first one then never mind four quarterly updates, there could be tons… for every income source.”

Kevin Ringer added: “HMRC failed to consider how clients operate in the real world. Joe the Plumber might actually use QBO for his plumbing business, but he’s also in partnership with his brother in another business which uses Xero. And he has a rental property in joint names with his wife and she uses a spreadsheet and bridging software. How is all this software going to work together so that Joe files a tax return is beyond me.” 

Tom Menzies at QuickBooks remained confident that the current definition of digital records would be valid under MTD for VAT and ITSA. “MTD is a programme of providing digital records… I can’t see why that definition would not hold and why an Excel system would be ineligible.” Looking at the scenario described by Kevin Ringer, Menzies commented: “They’re going to want to keep all these [separate] records outside of the books and not muddy the waters.”

How to handle multiple sources of income within the end of period statement and align the finalisation statements to original records are complex questions that don’t have any answers yet.

Like BTCSoftware and QuickBooks, IRIS MTD ITSA software will support both in-quarter and subsequent amendments, with write-backs to the original records. Cirrostratus, Forbes Computer and tax lecturer Rebecca Benneyworth, meanwhile, are sticking to what’s written in SI1076 and relying on amendments submitted in the next period.

And here lies the curse of agile development. By allowing a wide degree of flexibility to market-driven solutions, HMRC has delegated a lot of responsibility for MTD processes to software developers who are interpreting the guidance in their own way.

Dean Shepherd at TaxCalc voiced concern that the way the regulations were written could “inadvertently” affect the rules and undermine the role of spreadsheets. “Along with Rebecca Benneyworth, I’m confident that common sense will prevail,” he said.

“I still think there’s a place for spreadsheets in MTD for the right clients. Property clients are the greatest risk for getting ready for MTD and spreadsheets will be the path of least resistance to get them ready.”

HMRC guidance due

This confusion is not helping accountants and businesses who are making plans for MTD ITSA and trying to decide on appropriate solutions to meet their needs - including digital record-keeping systems. All the while, the clock is ticking towards April 2024 and cutting down the time that developers, agents and taxpayers have to implement, test and refine their process for the new filing mechanism.

HMRC response

AccountingWEB approached HMRC with the following questions relating to issues raised in this article:

Following the logic of the software journey documentation and how it's been implemented by some developers, will HMRC require quarterly updates and EOPS to be reconciled?

No. EOPs is a declaration against a summary total of all the information sent over the year. It is not a separate submission.

Are any changes being planned to update the secondary regulations on this point?

We believe there is no requirement to update the secondary regulations on this point. The guidance provided to developers is consistent with the regulations.

Will the principle of digital links be the same for MTD ITSA as for VAT, or are the requirements changing as the software spec develops?

Yes. The exact detail will follow in the ITSA Notices, which will be published this summer. We will consult with stakeholders before publishing.   

Replies (61)

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By Duggimon
17th Mar 2022 09:51

As has ever been the case, there is no way to know what we will be required to do and I don't expect to find out until 6-8 weeks prior to the system becoming mandatory.

My only real choice here is to worry about it or not worry about it, there's nothing useful to be done other than help those clients who can and want to use digital bookkeeping systems to get set up. Those others who keep records as spreadsheets or on paper will have to wait until we know what's going to be delivered before we can make a plan.

HMRC gets what, six years so far, plus another two to decide what they're doing and we won't know for sure until a couple of months beforehand what that is, what's required and how best to address it.

If HMRC were a commercial organisation with competitors, their shambolic approach to everything would have seen them out competed years ago, this is no way to run a project, no way to deliver software and is completely unreasonable.

This is also shaping up to be the exact same process we went through with VAT though I suppose at least this time we know how it's likely to go; HMRC will announce in advance all the myriad things businesses will have to do to comply, then scale back and scale back what's actually deliverable and then the system will be reduced to filing a small list of numbers through a slightly new web portal and the rest will be pushed back until half past never.

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Replying to Duggimon:
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By Southwestbeancounter
17th Mar 2022 10:07

Couldn’t agree more Duggimon!

It especially irritates me when I cannot see any gain either financially (other than for software companies), or in regards to accuracy or time consumption.

To me it’s a complete unnecessary farce!

MTDv wasn’t as bad as those clients were larger and had good accounting systems, including excel spreadsheets in some cases, but having to get a taxi driver, for instance, computerised is going to be a total waste of time, effort and money for no gain as far as I can see.

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By Ammie
17th Mar 2022 10:32

Agreed. Thank you for saving me from typing a response!

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Replying to Duggimon:
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By cereus77
17th Mar 2022 10:39

Quite right - it’s almost as though HMRC are completely unaccountable to anyone . . .

On the VAT - yes what a joke! I worried about it for ages and deferred signing up until they started talking about penalties. Now I enter the four VAT figures from my Excel on a third party website which submits them to HMRC thus satisfying the much vaunted “digital link” requirement. An unbelievable palaver for zero benefit as far as I can see. Can’t wait for the Income and Corporation Tax rollouts!!!

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Replying to Duggimon:
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By Hugo Fair
17th Mar 2022 11:38

Thank you John for finally joining the same choir (i.e. singing from the same hymn book), although you've not sufficiently focussed on the two key 'errors':

1. Development plans (for software and/or processes) only ever work when the whole journey has been specified in advance ... it is unbelievable that we (and apparently HMRC) still have no overall specification; and
2. Agile is a term best reserved for a cat on a hot tin roof, as it is solely concerned with immediate short-term 'wins' without a strategic bone in its body.

FWIW 'agile' is my bête noire in that it's been purloined by those extracting cash by the lorryful from HMRC, who don't understand its applicability to disposable (short shelf-life) apps doesn't translate to infrastructure (long-term) system architecture.

The best (lack of) insight I've heard into the weakness of agile as a concept was when I asked one of those big consultancies the following:
"If I asked you to design the optimum method for me to get from London to Edinburgh, would you expect me me to be happy if your answer was ...
... First we'll design a procedure for putting one foot in front of the other without falling over?"
"Well it's a reasonable initial response - and it's quick to do & test"
"So you might characterise that as 'agile' development?"
"Yes, indeed"
"But I forgot to mention that I meant London, Ontario ... so how does that help?"
"Well because it was quick & cheap to develop there's not much wasted is there!"

Me ... "But we've still not actually started the journey ..." (blank looks all round)!

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Replying to Hugo Fair:
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By cereus77
18th Mar 2022 11:41

I feel compelled to observe that there is no aspect of HMRC’s cumbersome and poorly thought out MTD project which could possibly merit the adjective “agile” - and indeed least of all the organisation itself!

Its use of the methodology is also questionable as I find so many large companies use the terminology but with very little adherence to the principles.

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Replying to Hugo Fair:
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By adjadj
15th Apr 2022 08:21

I fully agree with your statement " Development plans (for software and/or processes) only ever work when the whole journey has been specified in advance ... it is unbelievable that we (and apparently HMRC) still have no overall specification"

However I beg to differ when it come to the use of Agile which I have used extensively in my last years of work before retiring

If done within an overall business architecture, project scope and overall plan it is an excellent way of focusing on key benefits and delivering them early.

The big issue with MTD ITSA as I see it is the total lack of clarity of the end of year processing something that should have been sorted out ages ago.

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Replying to Duggimon:
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By Paul Crowley
17th Mar 2022 13:56

Well Done

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VitalTax
By VitalTax
17th Mar 2022 09:53

The information in this article is very confusing and misleading. Spreadsheets are entirely acceptable for digital record keeping, and bridging solutions are very welcome by HMRC. Please read here if you need a summary of the Making Tax Digital for Income Tax process: https://vitaltax.uk/income-tax/. If you have any questions, we are happy to help.

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Replying to VitalTax:
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By adjadj
15th Apr 2022 08:31

The vitaltax link contains the statement: "Final Declaration (Crystallisation): Once all the necessary quarterly and annual information for all income sources is submitted and all EOPSs are provided, taxpayers will need to finalise their overall tax position for the tax year by providing a Final Declaration."

The SA tax return comprises 30 sections of which 90% is not related to Self Employment or Property Income. Some are complex such as CGT and Child Benefit for higher rate taxpayers. Some are inter-related to other sections e.g Date of Birth affects the NIC parts of Self employment and Partnership. Most filed have associated help text some which has to be modified each year to reflect the financial values appropriate for the current tax year

What is vitaltaxes' solution to submitting information not related to Self Employment or Property Income?

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Replying to adjadj:
VitalTax
By VitalTax
15th Apr 2022 09:00

You will be able to provide data for all income sources using VitalTax. These include employment income, bank and building society interest, dividends, capital gains, etc. You will be able to configure your VitalTax account to include any non-business income sources that you want to declare.

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Replying to VitalTax:
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By adjadj
15th Apr 2022 12:09

Thank you for the quick response

Will the complex end of year processing provided by VitalTax also run alongside bridging software so enabling clients to maintain their existing spreadsheets?

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By snickersinatwix
17th Mar 2022 10:01

Why do my clients need full blown double entry bookkeeping software for their little rental property from which they receive £850 rent per month and no "business bank account". They have been very happy to let us sort annually (accounts prepared in spreadsheets) up until now????

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Replying to snickersinatwix:
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By Open all hours
17th Mar 2022 17:03

Because someone who doesn’t know you or them thinks they know best. (Apparently).

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Replying to snickersinatwix:
By kenny achampong
17th Mar 2022 21:00

Especially when the only/biggest expense is mortgage interest, when they only get one statement pa in September. And good luck to HMRC explaining to them why the profit ignores the interest (which they have probably overstated by entering the total repayments anyway) because we certainly won't have time to check and file the figures and also attempt to explain restricted mortgage relief to them all. And presumably HMRC will still be operating 'telephony shuttering'.

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Tornado
By Tornado
17th Mar 2022 10:28

It is the sole responsibility of HMRC to make MTD work, not ours or even the Software Developers.

A very good article John, and you have highlighted once again just how farcical this project is.

As far as I am concerned, I am thoroughly fed up with the whole thing and will only take it seriously when HMRC have developed and tested the complete MTD Systems and all we have to do is join up our clients and go.

In the meantime, my clients have far more important matters to cope with than MTD and I will be concentrating on helping them with these first.

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Replying to Tornado:
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By MCV71
17th Mar 2022 10:35

I wasted enough time on the George Osborne project. Dread to think how many wasted hours. Won't be bothering until last minute now, as you can be sure the 2024 deadline will be pushed back or watered down a considerable amount.

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By Duggimon
17th Mar 2022 10:13

Just to be clear, the process for delivering large projects involving multiple software systems talking to each other is, broadly:

Define your API - this defines exactly what information and in what format can be passed between the different software systems, and what functions one can request the other performs. This is a set of immutable rules sitting between systems so that the different designers involved don't need to know the intricacies of each other's systems.

Then, and only then, design your separate software systems with this API in mind, knowing what is available and what restrictions are in place.

HMRC have set the date for when businesses are legally mandated to use this new system, but have not yet completed the first step. It is currently impossible for anyone to design a system that will comply with the new procedures from April 2024 because they haven't decided on them. The software companies involved do not yet have a set of specifications to work from.

It is no wonder there are no bridging solutions in place, bridging solutions are simpler to design and implement and it would be a waste of time and effort to design one now to comply with what HMRC think the system might do but they haven't decided yet.

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Replying to Duggimon:
VitalTax
By VitalTax
17th Mar 2022 11:19

Duggimon wrote:

It is no wonder there are no bridging solutions in place, bridging solutions are simpler to design and implement and it would be a waste of time and effort to design one now to comply with what HMRC think the system might do but they haven't decided yet.


We have already built a spreadsheet bridging product available for you to use if you sign up for the HMRC MTD for Income Tax pilot. We are working on the demo version, so you will be able to try it before committing to the pilot.
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Replying to VitalTax:
Tornado
By Tornado
17th Mar 2022 11:33

Who in their right mind would want to sign up for the MTD for ITSA Pilot???

Apparently only 9 people have signed up and stayed in the Pilot and it seems they were all associated with software developers

https://www.accountingweb.co.uk/any-answers/only-9-people-are-in-the-mtd...

This is a lost cause

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Replying to Tornado:
VitalTax
By VitalTax
17th Mar 2022 11:45

We have many customers who showed interest to sign up for the pilot. The difficult part is very strict HMRC eligibility criteria for who can join the pilot. Unfortunately, many taxpayers and agents are waiting when they will be eligible. The eligibility criteria should be significantly widened next April, and we expect many customers will be joining the pilot scheme.

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Replying to VitalTax:
Tornado
By Tornado
17th Mar 2022 11:53

To get meaningful results you would need at least 100,000 in the Pilot covering all conceivable scenarios. That is a long, long, way from just 9 at this stage.

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Replying to Tornado:
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By MCV71
17th Mar 2022 12:45

It beggars belief that they can expect such a big project to launch in 2024 when there's only NINE taxpayers involved in the beta

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Replying to Tornado:
Tornado
By Tornado
18th Mar 2022 14:15

Just looking back at some of my past posts, I see that 4 years ago HMRC were expecting 400,000 people to sign up for the Pilot!

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Replying to Tornado:
Morph
By kevinringer
24th Mar 2022 22:01

I attended a HMRC MTD meeting in 2016 when HMRC said they expected several hundred thousand (I thought it was 800,000) to volunteer for the pilot. They now have a mere 0.001% of their anticipated numbers in the pilot. Even HMRC must realise that is not meaningful. And to think in the early days HMRC even argued MTD would be cheaper for businesses than their existing record keeping systems. If that had been true then they'd have had millions in the pilot.

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Replying to Duggimon:
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By adjadj
15th Apr 2022 08:35

Designing the APIs is important but needs to be done in the context of an overall business architecture and set of overall business rules. I have yet to find a statement where these have been defined

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Replying to adjadj:
VitalTax
By VitalTax
15th Apr 2022 09:08

You can find the HMRC business service guide with a detailed description of how each API will be used here: https://developer.service.hmrc.gov.uk/guides/income-tax-mtd-end-to-end-s...

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Replying to VitalTax:
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By adjadj
15th Apr 2022 12:18

I have read these APIs in detail. They do not define how things work only what data flows between systems.

The end of year processing, if it replicates everything already in the current system, is probably 80% or more of the build and 90% of the user training effort but nobody really know how the end of year processing is going to work

This work started 5 years ago and there are two years to go; we have used up 75% of the time.

I have worked on many large business system changes and have never been on a project where is has been so difficult to find how things work from a business perspective.

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Replying to adjadj:
Morph
By kevinringer
15th Apr 2022 09:47

The APIs merely deal with the transfer of data between the software and HMRC. As this is the only aspect of the software that directly impacts HMRC, the APIs are the only aspect that HMRC are interested in. From a user's perspective, the APIs are irrelevant. The user is more interested in the interface and functionality of the software itself: how easy is it to use, how robust is it, does it have the prompts and nudges HMRC said it should, is it intelligent enough to avoid mistakes (in other words, is it "idiot proof"). All these points will dictate how accurate the data is so in my opinion are crucial to making MTD a success or failure. HMRC says all this is not their concern, yet they should be concerned because none of the software I have used has any intelligence at all. For example, software will let you reclaim VAT on outgoing that never have VAT on them such as wages, drawings, even the VAT payment itself. HMRC expect the software to be used by the likes of Joe the Plumber with no training and no bookkeeping knowledge. How can Joe achieve accuracy if there is no intelligence. The APIs are irrelevant for all this.

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By MCV71
17th Mar 2022 10:29

I'm sorry, but that is an out and out clickbait title. There's nowhere where it says spreadsheets are at risk. Even a software supplier says so further above my post!!

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By ireallyshouldknowthisbut
17th Mar 2022 11:11

I think this underlines how far away we are from it become mandatory.

The key question on updating prior quarterly returns is "why?" . Given the quarterly junk numbers coming out of client bookkeeping has no relation at all to the real year end figures on the tax return, how is anyone going to know if something has changed in the middle? Are HMRC really going to audit this? If so for what purpose? They would be quickly bogged down in accounting adjustments as well as bookkeeping ones. And even if they find differences, so what? There is no underlying purpose for HMRC for the quarterly filings, nor the tax payer other than the anticipated quarterly tax payments which again wont work in practice other than high level "payments on account", which is all that is likely to happen unless the entire tax system is made 3 monthly and not annual. I dont think even HMRC are that mad.

HMRC abandoned trying to check the rather basic question of turnover in VAT returns to turnover in accounts or SA returns some years ago as it was a lot of effort for them, and didn't seem to be any point, not least as the staff (even back 10 year ago) couldn't get their head around basic accounting adjustments such as accruals and prepayments. This was before they have been further deskilled. So where is this army of staff to check the much more divergent data?

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By GHarr497688
17th Mar 2022 11:28

I am rather old school. I believe that if you have a manual system with use of software as appropriate and that system has been in use for 20 years or more why should HMRC wish to risk the chance of errors within the Accounting records which Taxpayers are going to be forced to use. Whilst I realise Exemption might be a route out of this nightmare scenario , the process is time consuming and long winded. If a spread sheet was used to keep Accounts and then complete year end calculation surely many would fall at the first hurdle of they had little or no knowledge. If a product such as Sage or Xero was used then a key happy novice would most likely make errors. Further errors would be made. I noticed one of my former clients who used the Government free SA tool has included a £12500 bounce back loan as "other trading receipts". This is just one example of hundreds I could list. Since the 1980's Sage has been around so why has it taken 40 years for HMRC to decide on this next step and why is a system not in place to deal with MTDITSA that works now and not in a few years. MTD4VAT isn't proved to work and is completely different to MTDITSA which is more complicated. HMRC please listen before its too late.

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Replying to GHarr497688:
Tornado
By Tornado
17th Mar 2022 11:37

Your thinking is not particularly old school, it is just common sense that even my 5 year old granddaughter could work out.

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Replying to GHarr497688:
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By MCV71
17th Mar 2022 12:02

This happens to me all the time. Clients who kept excellent records on spreadsheets got suckered in by THOSE adverts and I get a pile of cr*p at the year-end

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Replying to MCV71:
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By Southwestbeancounter
17th Mar 2022 14:58

MCV71 wrote:

This happens to me all the time. Clients who kept excellent records on spreadsheets got suckered in by THOSE adverts and I get a pile of cr*p at the year-end


My blood boils every time I see THOSE adverts!
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Replying to Southwestbeancounter:
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By MCV71
17th Mar 2022 15:05

“Take a photo, bish bash bosh, job’s a good-un”

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Replying to MCV71:
Tornado
By Tornado
17th Mar 2022 15:22

MCV71 wrote:

“Take a photo, bish bash bosh, job’s a good-un”

Brilliant .... now was that -

* Sales Income
* Sales Credit
* A Grant
* A Bounce Back Loan
* A loan from your Auntie
* Tax Refund
* Rental Income
* Someone paid you in error
* Purchase Credit
* Repayment of a loan you made to your Son
* A Birthday present from your Great Aunt
* VAT Refund
* Refund of Bank Charges
* An insurance premium refund
* An insurance claim (excluding the excess but including VAT)
* Sale of a car or van
* Sale of Equipment
* Lottery Win

Still it is nice to know that the software will be able to allocate any of these receipts correctly all by itself just from the photo. Isn't this modern software just wonderful

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Replying to Tornado:
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By MCV71
17th Mar 2022 16:42

Some of the cloud product users had amazing profits last year when the BBL was added to income......they totally BOSSED it (c) Sage. That's a politer version than what I called it.

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Replying to Southwestbeancounter:
paddle steamer
By DJKL
21st Mar 2022 11:43

I shout at the screen, usually expletive driven insults. It somewhat alarms my other half but at least it stops my anger building up unreleased. I expect the next stage will be to hurl objects at the screen but I have not yet quite reached that stage.

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By indomitable
17th Mar 2022 14:39

'We are a nation of lions led by donkeys!' - famous first world war quote.

Where do HMRC get these 'silly' ideas from. Everything and I mean everything they bring in that is new is NOT FIT FOR PURPOSE.

Trying to report at the moment sale of a UK residential property owned by non-resident individuals, who incidentally we are authorised as agents. But no they have to set up a NEW HMRC account before we can actually get authorised to file anything. HMRC could have just attached it in some way to an existing agent account - THAT WOULD HAVE BEEN TOO EASY, LETS COMPLICATE EVERYTHING. Because the clients live abroad they cannot set up an new online account for some reason, so is there a manual form you can download-NO you have to call HMRC to get them to send you one! Spend another 20- 30 mins just trying to get through! Another 2 weeks before the form arrives which has to be sent to client for signature then manually posted to HMRC.

Aaargh not fit for purpose HMRC needs major reform

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Replying to indomitable:
Tornado
By Tornado
17th Mar 2022 14:37

That may be the case but push the lions too far and the Donkeys are annihilated.

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By Paul Crowley
17th Mar 2022 16:54

Glad I am not a software supplier
Currently only three left in the system per HMRC website

https://www.gov.uk/guidance/find-software-thats-compatible-with-making-t...

As always on this HMRC shifting the goalposts

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Replying to Paul Crowley:
Tornado
By Tornado
17th Mar 2022 17:20

Reminds me of the days of vapourware when every software developer was promising revolutionary programmes in development and very few of them actually appeared.

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123 Sheets
By 123Sheets
17th Mar 2022 18:35

The article above includes a paraphrased interpretation of SI1076 s.17, it is not a direct quote.

SI1076 s.17 does not say: the error must be included in the next quarterly filing submission.

The law is not absolutely clear, which is why some have interpreted SA1076 to have a different meaning that one might expect, when considering the MTD APIs that HMRC have available.

In the round, taking HMRC's API guidance into consideration, I propose the following as the most practical interpretation of the law, until such times as the ambiguity in the law is removed, or HMRC radically changes its APIs and the meaning of an EPOS:

The law says the "...person must provide the correct or complete information to HMRC when the person next provides:
(a) a quarterly update; or
(b) an EPOS"

"next provides" does not mean "as part of the next filing submission". Indeed, option (b)"an EPOS" doesn't include the filing of any financial data at all, it is just a declaration that the data already submitted for the year is now full and correct. It is the submission of an "Adjustment Business Summary" that provides annual adjustments to quarterly submissions, not an End of Period Statement. Therefore the law cannot be interpreted in the way it has, unless HMRC change what an EPOS is in its APIs. If an EPOS has to be changed by HMRC to mean the filing of new data, the law would have to be changed in any case, as it would no longer be a just a "statement" (The "S" in EPOS), but rather an "Adjustment" or similar.

Instead, I read the legislation (admittedly with the hindsight of HMRC's API guidance) that the person is expected to send in updated information on the erroneous quarter at the time they next do a filing, by doing the following:

Firstly, they send in an amended quarterly submission for the incorrect period, as HMRCs MTD API allows.

Secondly, they file either their next quarterly submission, or the EPOS, which ever is the next filing.

I think the law shouldn't be interpreted in such as way as to include the data from an old period, onto a different filing obligation. ITSA is about Income Tax, not VAT.

A VAT Return can have correction data put on the next return, as there is no such thing as filing an amended VAT Return. However, Income Tax has always allowed the filing of an amended return, as data from one tax year should never be just slotted into the next tax year - the same is true for quarterly Income Tax Filings I believe.

Therefore, if a mistake has been made on a quarterly spreadsheet, the user just uploads the corrected original spreadsheet to the quarterly period already filed - as an amended submission, as the API allows. The user doesn't have to start fiddling with errors across different quarterly spreadsheets. In any case, that is what a user would have to do with VAT now, and Spreadsheets are already allowed for VAT.

We need to recall the purpose of MTD ITSA: HMRC want quarterly data to be able to estimate someone's tax liability. This becomes difficult if they are only sent totals for the quarter which include data from a different period. HMRC will perceive that someone's income or expenses are hap-hazard and not predictable, which means they won't be able to estimate taxes if period adjustments are slapped onto the next return. This is why HMRC want corrected individual quarterly filings, not differences stuffed into the next filing.

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Replying to 123Sheets:
boxfile
By spilly
17th Mar 2022 19:10

As per your final paragraph, many of my clients do have ‘haphazard and unpredictable’ income so it wouldn’t be possible to estimate their taxes on a quarterly basis anyway.
I for one am deeply unhappy with the thought that we could be constantly filing amendments to a previous quarter’s return. Of course, as HMRC don’t ever lose any paperwork (cough), they have no concept of a tradesman forgetting to empty their glove compartment for a year, and then finding a veritable treasure trove of fuel and supplier receipts in it.

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Replying to spilly:
123 Sheets
By 123Sheets
17th Mar 2022 21:59

Well, re-filing quarterly returns isn't your only answer. Instead, as my post suggested, there is the option to file a single annual adjustment.

Here is what you could do:

1 Do all the quarterly filings, with the information you have;

2. After the tax year has ended, but before 31 Jan the following year, you obtain all missed information from your client and file a single annual adjustment, the "Adjustment Business Summary".

You are likely to make such an adjustment after the tax year in any case, when you did an annual review of the data, before filing an end of period statement.

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Replying to 123Sheets:
Tornado
By Tornado
17th Mar 2022 23:21

I can see that you are bravely trying to justify the unjustifiable but it is clear to many people that the most logical way to assess a persons/business income and tax liability for any tax year is on an annual basis and very much along the lines of the superbly apt Self Assessment system that we already have at the moment.

There is nothing particularly wrong with Self-Assessment and this MTD quarterly filing nonsense is completely unnecessary and has no beneficial purpose for anyone. In fact I go as far to say that it is completely unworkable anyway.

MTD should be killed off today and resources diverted to improving Self Assessment and retaining this most logical system of assessing income over a single one year period, once a year.

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Replying to spilly:
123 Sheets
By 123Sheets
18th Mar 2022 09:11

I've pondered a little more your problem of having to otherwise file previously submitted quarters as well as new returns. I am sure that HMRC will allow the filing of late data on the next return, as it would be impractical otherwise, as you have pointed out. Imagine: you have your last quarter to file, and your client gives you data also fitting into the last three quarters. You'd then have to re-file the prior three quarters and the new quarter as well -which is quite ridiculous. Legally, you aren't meant to rely on the annual adjustment filing according to the law for in year adjustments, though practically you could. Therefore, we shall accordingly allow both quarterly amendments, and additionally the flow of transactions missed off a prior quarterly filing in the next return on the spreadsheets we are developing.

Thanks (0)
Replying to 123Sheets:
Tornado
By Tornado
18th Mar 2022 09:34

"Therefore, we shall accordingly allow both quarterly amendments, and additionally the flow of transactions missed off a prior quarterly filing in the next return on the spreadsheets we are developing."

Thank you, that is a very kind gesture.

(Apologies for my rather sarcastic comment but many of us are not the slightest bit interested in technicalities that have not been determined yet and would rather see the end to MTD altogether, or at least until HMRC can present us with a fully tested and ready to go out-of-the-box system. In addition, a two or three year period would then be required to bring clients into the system but excluding those with turnovers of under £85,000. This is a practical solution to a farcical situation)

Thanks (3)
Replying to 123Sheets:
boxfile
By spilly
18th Mar 2022 13:25

I’d quite like HMRC to try to take taxpayers to court for illegally including prior period omissions within the annual adjustment filing. There could end up being so many that the legal system would be jammed up for years.
I appreciate that you are working towards a practical solution. However, in the end it just comes down to giving HMRC a load more information that they won’t know what to do with, and is of no benefit to the taxpayer submitting it.
I would far rather the budget for this was spent on sorting out the current mish-mash of systems for various taxes.

Thanks (3)

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