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Uncertainty surrounds spreadsheet's role in MTD ITSA
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Tim Good: Spreadsheets are not at risk in MTD ITSA

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Absolute Software founder Tim Good takes AccountingWEB to task for unnecessarily fuelling market uncertainty around the status of spreadsheets within the evolving Making Tax Ditigal regime for income tax (MTD ITSA).

30th Mar 2022
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I was alarmed to see the recent AccountingWEB headline “Spreadsheet accounts at risk in MTD ITSA plans”.

Although the text and many of the comments make it absolutely clear that HMRC will definitely not be proscribing Excel bridging software, the headline feeds into a growing pool of misinformation that accounting software sales reps are peddling in an attempt to increase sales of their bookkeeping packages.

The following instances have come across my desk this month:

  • At the beginning of the month, a “practice success manager” from a leading tax and practice software supplier sent out an email that stated, “Bear in mind bridging software won’t work with MTD for ITSA. A critical part is understanding which clients are going to be impacted. Landlords, sole traders – anyone over £10,000. [We have] a solution which in my opinion will be phenomenal for you as a practice.”
  • The next day, a customer emailed us a query following an AAT webinar where a  representative from the same software supplier argued that spreadsheets will be a thing of the past. “Will the self assessment software be the same as the VAT software that you provide where I can upload a spreadsheet? Will I still be able to use spreadsheets? Will the clients need any software?” the customer asked.
  • One of our bridging software users mailed us a week later after being told by another leading bookkeeping software supplier that from 2024 HMRC will no longer accept bridging software as the department wants to be able to see all the backing transactions. 
  • AccountingWEB’s Rebecca Cave also discussed this topic in a recent IFA webinar in which a customer of ours reported her as implying that HMRC had not agreed the long term use of bridging software for ITSA.

Rebecca Cave has since clarified that the filing procedure for MTD for VAT was not the same as for MTD for ITSA and that her concern is that accountants are assuming that it will be.

While we respect her technical integrity on this point, the questions she raised and AccountingWEB’s tabloid-style headline are feeding into a fog of uncertainty that is being exploited by software suppliers to make agents and/or end-users buy unnecessary and expensive accounting software, rather than simpler, low cost bridging software.

HMRC position on bridging tools

HMRC has categorically stated it does not have any plans to stop the use of spreadsheets with MTD bridging software and it would have to go through Parliament to achieve that end.

The latest version of the HMRC stakeholder pack (18 March 2022) says: “You do not need to keep any additional business records because of MTD. However, business records must be kept digitally to be compliant. If you use spreadsheets, the spreadsheets must be able to submit the required data to HMRC digitally, for example, by using MTD-compatible bridging software.

“Bridging software allows relevant data to be digitally exchanged from the spreadsheet or other source where the digital records are kept, directly to HMRC. The summary information must not be physically re-typed into another software package.”

In fact HMRC are working closely with Absolute Accounting Software to fast track the development of our MTD for ITSA bridging software. Our ITSA bridging tool will enable sole traders and landlords to use spreadsheets to log their financial information and use bridging software to file their quarterly MTD returns direct to HMRC’s MTD platform.

Please be assured that bridging software is here to stay for both MTD for VAT and MTD for ITSA and don’t believe the misinformation that is being put about at the moment.

Replies (29)

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By Paul Crowley
30th Mar 2022 12:16

Much appreciated, this and the Any Answers videos
Spreadsheets are also so much quicker to scan read with confidence

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Replying to Paul Crowley:
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By Hugo Fair
01st Apr 2022 16:12

Wholeheartedly agree regarding the use of spreadsheets (for data collection and analysis and, as you say, for rapid reviewing or even quick exception reporting), ... but:
"HMRC has categorically stated it does not have any plans to stop the use of spreadsheets with MTD bridging software" doesn't increase my confidence over the direction of travel by a single jot.

If your horizon is only 2 or so years (which it is for many software developers and, dispiritingly, seems increasingly to be the mode of a myopic HMRC), then that might provide sufficient motivation to keep going (for now).
But "does not have any plans" - what about 'intentions' or 'research projects' or 'policy reviews' or even good old-fashioned 'considerations'?

I can assure you from conversations with the backroom staff (and evidenced if you carefully read their relevant reports) that the current MTD is seen as a Trojan horse to open the way for a whole host of other (mostly fantastical) facets - or opportunities as they think of them.

Many won't happen (or will be attempted before being abandoned), but they all have one thing in common ... which is, heaven help us, that Tim's nemesis (the competitor software salespeople) are right - even if for obviously selfish reasons (and good old FUD) they've accelerated the timescales to increase sales pressure!

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By ireallyshouldknowthisbut
30th Mar 2022 12:30

Bang on Tim, I am sick of the misinformation peddled on MTD ITSA in an effort to sell software.

Moreover the other important point which seems to be lost is the Q reporting is just "snapshot" bookkeeping data so HMRC can see you are keeping your records at least quarterly and is completely unconnected to the tax return.

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Tornado
By Tornado
30th Mar 2022 14:32

Thank you Tim for this article.

Yes indeed, salespersons will say anything to get you to buy their products.

The main problem as I see it is getting the information into a digital format in the first place and as I have experienced myself for many years, this is something way beyond the skills of many people. Whilst we may be able to deal with digital accounting records without even thinking about it, it is an impossibility for many, particularly those that cannot use a computer and perhaps don't understand double entry book-keeping either.

The choice I have is to do the work for them and make a charge, apply for exemptions or tell them to go elsewhere.

With regard to additional charges, I remember reading a Government article about MTD and the author justified the changes as an opportunity for Accountants to make more money. I don't want to make more money from people that are hard pressed in the first place and this crass remark is no justification at all for making small businesses and landlords with small incomes pay relatively large amounts just to satisfy the ridiculous and useless requirement to submit quarterly Returns.

I will probably make applications for exemptions for most of my smaller clients as that seems to be the fairest way for the Government to deal with this, or the Government could just be pragmatic about the situation and increase the limit to £85,000 annual turnover and remove the requirement to make quarterly returns until such time as those Returns have a practical purpose.

Thanks (5)
Replying to Tornado:
paddle steamer
By DJKL
30th Mar 2022 16:07

Yes, getting it all correctly completed will be the issue.

I am sure I could write up sheets for clients to use, say a bank account ,that subtotaled quarterly and each set of subtotal figures posted into a column in a new style ETB and the bridging software then gets mapped to each column re quarterly submission, but would I trust clients to complete this, would they get it correct?

And would I have to bespoke write for each client, ensure the excel was robust, protected, can I ensure I freeze quarters once they pass these to me and I correct them so they do not change a quarter post lodging, will clients use the correct saved version as when I did write spreadsheets for my clients to use and send to me quarterly re vat they often updated the wrong version not the one I had corrected the previous quarter and returned to them, so I was then either having to correct it, cut and paste their prime entries into the correct version or ask them to redo (never did this as was faster to sort myself).

Whilst really simple landlord accounts will be possible to write my worry would still be ensuring clients did not backward corrections post submission, the key with excel will be making it client proof.

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By carnmores
30th Mar 2022 15:44

frankly, i use Absolute and spreadsheets for about 70% of MTD submissions. But really it does not increase the validity of the information we provide. if it is going to work long term we should use integrated software otherwise the whole exercise is NONSENSE. I would scrap the lot . HMRC updated VAT portal is lovely but useless it doesn't bring forward amounts owed from the old system nor can you access old vat returns it's a SHAMBLES

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By CJaneH
30th Mar 2022 16:22

Nice to know that Spreadsheets can remain for some time, but the problem is the quarterly reporting. With my client base very few if any could be eductated/trained to produce accurate quarterly schedules. I believe I would have to offer quarterly bookkeeping. As a sole practioner with no staff I do not want to take on that resposibility. Retirement for me!

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Replying to CJaneH:
By Charlie Carne
01st Apr 2022 13:27

The quarterly submissions for MTD for ITSA do not need to be accurate, as no tax is assessed on them. HMRC's chief exec confirmed that to me in person in December. Sure, you may ask, what then is the point of these submissions? It is, as I understand it, to encourage a digital economy. Many on this forum may not see the value in such an ambition, but that is the stated purpose of MTD (at least in its initial phase).

I plan to ensure that all my clients are using MTD compliant software (which includes spreadsheet solutions such as provided by Absolute or VT), link bank accounts (where the software allows that) and simply check that they are posting the data but, unless the rules change before launch day, I will not be checking its accuracy in-year. After the end of the year, I will do a similar piece of work to what I already do, by reviewing the data in detail to check for accuracy before filing the EOP report on which the tax is based.

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Replying to charliecarne:
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By North East Accountant
01st Apr 2022 15:04

Per HMRC on a recent webinar.

NEA: What if there are errors in the quarterly updates?

HMRC: An amended quarterly update will need to be submitted to correct the original transaction error. As the QU provides a tax estimate the only way to alter the tax is to amend the QU which has the error.

Per HMRC the EOPS is just for stock/WIP, depreciation, prepayments/Accruals, other adjustments etc and will not amend the underlying records which are built up each quarter.

So I reckon for every case;

Per Income Source
Original QU X4
Amended QU X4
EOPS X1

Per taxpayer
Final Declaration X1

A sole trader with sole property income will go from one submission per annum to nineteen submissions per annum.

And HMRC also confirmed they were "seeking to understand" how joint properties would work.....aka they haven't got a clue how to deal with these.

MTD for ITSA as it stands is madness.

Thanks (2)
Replying to North East Accountant:
By ireallyshouldknowthisbut
01st Apr 2022 16:48

@NEA, I sure as hell wont be looking for any errors. The whole thing will be riddled with them as its cash based, pre accounting adjustments. The tax 'estimates' will be complete bobbins, even if the underlying data is not horse manure due to the simple fact of quarterly figures and annual tax do not mix unless your business is incredibly smooth and all the quarters have the same income and outgoings. Nope I don't have any of those either. Its probably best not to engage in adjustments and just keep your eyes firmly shut, and do all your adjustments at year end in bulk. Ie Real numbers - garbage = adjustment.

Just of course as you do on MTD now for VAT in the "adjustments" column in cloud software like erm, Xero. You can literally just key in an any adjustment you like.

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By Crouchy
30th Mar 2022 17:23

spreadsheets are without doubt a good option, but what they lack is consistency, how many clients have their own version of a cashbook that they think is amazing, but isnt anything like what you would set up for them.....as an example we have an excel cashbook that we give to clients who don't want to use software - basically its an electronic verison of an old paper cashbook - should be simple to use, but how many client actually use this, not many because there is still work involved, instead they create their own spreadsheet - quicker and easier for them, but unltimately not as useful and worthwhile

will these types of spreadsheets be MTD compliant, that is the issue. I suspect a lot won't be or will need a serious amount of manipulation by accountants to make them fit MTD

the main problem with MTD, is client skill in record keeping, it doesnt matter if this is on software or a spreadsheet, if the client doesn't have the skill, knowledge or inclination to do it properly, it will be a dogs dinner

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Replying to Crouchy:
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By carnmores
30th Mar 2022 17:33

more like a banquet

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By Catherine Newman
30th Mar 2022 18:48

I know of several clients as of today and contacts (my cleaner included) now have Covid. If it continues, I will definitely not be meeting with them and turning their records into quarterly reporting, whether through a spreadsheet or cloud software.

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Replying to Catherine Newman:
Tornado
By Tornado
31st Mar 2022 08:17

We and our clients should not be put into this position. The government will have to do something about this or face a rebellion.

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By North East Accountant
01st Apr 2022 09:11

Never mind what HMRC say they want at the start of MTD ITSA.

What is HMRC's end goal?

Full transactional data.......or as the HMRC consultation document in August 2016 called it...."supplementary data".

So to not scare people HMRC current line is...."of course spreadsheets are fine. Yes of course you can use these and bridging software".

Notice the word "current".

All it takes in future is for HMRC to decide, you know what, let's have full transactional data, fully iXBRL tagged and data submitted monthly or in real time.

Beyond the realms of possibility............who would have thought that the Chancellor would pop up one day and align Employees NIC with the Personal Allowance....but only do it from 06/07/22 to make a total mess for 2022/23.

So yes spreadsheets will work from day one.......until they don't.....and then you have to make another huge change getting clients on accounting software.

Thanks (1)
David Ross
By davidross
01st Apr 2022 09:55

I started using spreadsheets on 1 November 1984, longer than most here. It was the early vision of Excel which came with my brand new Mac, and I ADORE working with it.

But, seriously? The vocal minority here will seize any opportunity to push back, but you have to consider your own efficiency. Handling five times the number of submissions per annum will force us to automate, not semi-automate. It is the point of the exercise (and in my view, A Good Thing)

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By Ben Alligin
01st Apr 2022 10:15

Thank Goodness for Tim Good.

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By Richard Williams
01st Apr 2022 20:07

Well done Tim!

For years HMRC itself has done little to protect the taxpayer by not monitoring/challenging false claims by software houses in the ITSA era ... e.g. "We do Self Assessment" - when a bookkeeping [***] accounting package did not actually complete ITSA Tax Returns (the common understanding of "do Self Assessment").

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Morph
By kevinringer
02nd Apr 2022 10:42

VAT is a transactional tax so lends itself to listing in spreadsheets and filing using bridging software. We use Absolute for more than 90% of our clients and have built a VAT spreadsheet template which we supply to our clients free of charge who buy their own copies of Absolute.

ITSA is an annual tax. It is far more complex than VAT. It requires actions that are not necessary for VAT. For example, classifying the transaction as capital or revenue. Such information is not on the invoice. The user has to make a judgement which is not required for VAT. The user will need some level of financial knowledge to make that judgement: knowledge that is not required to successfully operate MTD VAT. I act for a lot of farmers. They often need expenses apportioned between different categories. That step is not required for VAT. The result is the simple spreadsheet we use for VAT isn't anywhere near sophisticated enough for ITSA. And what about other issues relevant to farmers: averaging (2 and 5 year), herd basis etc. We've given up on developing a spreadsheet because it would be so complex our clients would not be able to use it. So that means using software. Not that any of the current mainstream software (QuickBooks, Sage, Xero etc) can handle farmers averaging or herd basis either. None of the mainstream software can automate VAT retail schemes, margin schemes, partial exemption etc despite MTD VAT having been mandated for 3 years so I doubt any of the mainstream software will automate herd basis or averaging either.

My opinion is that whilst spreadsheets will be permitted for MTD ITSA, if they are capable of handling everything that is required for ITSA, they're likely to be too complex for the average client to use.

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Replying to kevinringer:
Tornado
By Tornado
02nd Apr 2022 11:27

Everything you say is correct.

I don't know the answer to this other than repeat what I have said before. It is the responsibility of HMRC to make MTD for anything work correctly, not ours, so if we and out clients are presented with rules that are impossible to comply with, then that is not really our problem. It is up to HMRC to make it possible for the rules to work otherwise it is a certainty that they will not be complied with.

I do not yet know the actual figures yet, but based on recent figures quoted by HMRC, I am guessing that there are still hundreds of thousands of VAT registered traders who have not signed up for MTD for VAT and probably many who have signed up but still have no clue about keeping records digitally. We need to wait for a report on this or I might make a Freedom of Information enquiry, but if as I suspect that HMRC have made it impossible for some people to comply with the rules, then the rules should be changed.

This does not mean to say that digital record keeping is too complex for everyone, I have been using Accounts Production Software for over 40 years but only my larger clients with dedicated Accounts Departments and personnel have been using accounting software regularly as that is appropriate for them.

We keep coming back the major problem with MTD and that the turnover limit is far too low at £10,000 and it would be far more acceptable and pragmatic to set this at £85,000 and save all those smaller businesses the task of trying to comply with rules that are impossible for them to comply with.

Why is so difficult for the Government to understand this?

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Replying to Tornado:
Morph
By kevinringer
02nd Apr 2022 12:05

I agree with everything you say Tornado. Like you, my larger clients use accounting software. But that's for commercial reasons and nothing to do with MTD. I don't see any point forcing my smaller clients onto software just because HMRC have this misguided notion that it would be "better". I am aware of plenty of businesses that were mandated to start MTD VAT in 2019 but are still keeping manual records and all HMRC do is send the business a letter. If HMRC do nothing to enforce MTD VAT after 3 years, that means MTD ITSA might not get going until 2027 or later.

HMRC has let to experience what happens when they extend MTD to all VAT registered businesses. It won't go well but HMRC movers-and-shakers are so far removed from reality they won't have the foggiest what is going on (or not going on as the case will be). I agree that HMRC would have been much better having a higher threshold. I would have set it at £1 million initially (because businesses of that size are more likely to already have digitised) and reduce it gradually to £100,000. But then again, I would not have made it mandatory at all.

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Replying to Tornado:
Morph
By kevinringer
02nd Apr 2022 12:11

Tornado wrote:

Why is so difficult for the Government to understand this?


Because the people driving this in HMRC are not tax people but IT people. I have spoken to them in the past and they freely admit they know nothing about businesses, records or tax. And being IT people they don't struggle with IT. They think that anyone with a smart device can handle MTD. They don't realise there's a world of difference between posting on Facebook and accounting for ITSA.

There is a solution to this: give HMRC's MTD people a set of records and access to software/spreadsheets, and get them to pilot it. And let's make it like most of our clients work: give them only half of what is needed and loads of stuff that is irrelevant. It's only when HMRC's people try to do what they want Joe the Plumber to do will HMRC realise that it isn't the breeze they think it is.

HMRC won't let their own staff lose until they've been trained, so why does HMRC think that QuickBooks will turn Joe the Plumber into his own accountant?

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Replying to kevinringer:
Tornado
By Tornado
02nd Apr 2022 12:30

One of the problems with MTD is that it is ONLY concerned with tax, any tax will do, and to hell with Accounting Standards and all of the other reasons why Accounts are prepared. The default situation of accounting for Rents and other income on a Cash Basis, for example, is just absurd as it gives no real indication of the income of a person or business and, of course, is easily manipulated to produce deceiving figures without actually breaking the law.

As you suggest, Kevin, the MTD Project has been masterminded by ignorant people, ignorant because they have no significant knowledge about tax, accounting and all associated matters that experienced Accounts and others working in the Financial Services Sector, do.

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Replying to Tornado:
Morph
By kevinringer
02nd Apr 2022 12:55

HMRC have lost sight of MTD being a tax system and appear to think of it as an IT system which is why it is being led by their IT people. Letting HMRC's IT people design MTD is the equivalent of HMRC letting their printers design SA in 1996.

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Replying to kevinringer:
Tornado
By Tornado
02nd Apr 2022 13:37

I had a great experience yesterday when, fed up with waiting for HMRC to deal with several letters I had written, I phoned the Agent Helpline to ask for tax payments one of my clients had made to be re-allocated to the correct tax years. After telling me that tax payments are always allocated to the oldest outstanding period and her repeated attempts to read me the guidelines on this and my reply that the evidence on her screen showed otherwise, she did use her own initiative in the end and said that I needed to speak to Debt Management, and I agreed.

Expecting the usual 'I will send an email to them and someone will contact you within the next week', I was astonished and delighted that she transferred me straight away to Debt Management where I found myself speaking to a very helpful man who pretty soon understood the problem and said that he would sort it out and ring me back. A couple of hours later he DID ring me back and he HAD sorted out the problem brilliantly and the next day this was all reflected in my Client's Tax Account.

Full marks to HMRC for a brilliant service.

Those of you who can remember the days when HMRC did provide an excellent service, will have spotted that it was well trained HMRC staff with executive responsibilities who sorted this problem out quickly and efficiently which highlights the false impressions that are peddled to us all the time that IT will solve everything. The truth is that people are far more efficient than computers, especially when those people are well trained and have real responsibilities for the work they do and can work WITH well designed IT systems rather than FOR them.

One final twist in the HMRC IT disaster is that all letters go to one address, are scanned on arrival and put into a central pool for someone to deal with. Although I had sent several letters on this matter, the last one I sent in October 2021 could not be found on the system. As the Agent Helpline Operator could see my other letters she stopped short in implying that I had not sent a letter, and said that it may have been routed elsewhere, which is a lame excuse for the letter being lost or deleted.

So the point of this story is that MTD & HMRC IT in general will never work properly as it is designed for only those that understand IT whereas the the process of Tax Administration would work so much better if there were more interaction between Human Beings and IT was just there to work FOR us and not Vice Versa as it seems today.

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By JD
03rd Apr 2022 19:42

Perhaps Absolute can produce an Excel add in that would connect/support bank feeds. The Americans have such products and in an mtd world it would i suspect be a very popular solution indeed.

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Replying to JD:
Morph
By kevinringer
04th Apr 2022 07:09

A bank feed would reduce the data to input but it would not solve the issues that are fundamental to MTD ITSA which are absent from MTD VAT eg the client has to make judgements such as capital v revenue, what expense category, apportionment of expenses between different categories. And the spreadsheet has to be whole lot more sophisticated because unlike VAT which is a transactional tax, ITSA is an annual tax. Somehow the spreadsheet will have to join together the 4 quarters so that the annual tax can be calculated, and handle losses, and non-trading such as savings income, pensions etc. And if you're like me with farming clients it will need to handle 2-year averaging, 5-year averaging, herd basis etc.

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By Evilc Sivad
07th Apr 2022 15:57

CJaneH says she will retire. Most micro self-employed businesses only have their accounts prepared once a year. As the QUs don't have to be accurate the solution is to file zero returns for the first three quarters and use quarter 4 for the annual (rough) data and then finalise with the EOPS? Views on this please. I think my smallest clients will simply stop trading or go illegal. The hassle factor for micro businesses is simple not worth the candle! The whole thing is likely to be an own goal for HMRC and the U.K. economy.

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Morph
By kevinringer
07th Apr 2022 19:27

Like most accountants, we use third party tax software. We use PTP (not to be confused with PTP Training) which requires manual input of annual totals for turnover, cost of sales etc. There is connectivity with a limited range of accounting software. MTD requires the digitisation of transactions. And that's the problem with existing tax return software: it is not transactional. So we're going to need transactional software. That means QuickBooks, Xero, Sage, spreadsheets etc. A lot of the transactional software suppliers are developing ITSA functionality. So we'd use them for the lot. In which case, what role will the existing tax return software suppliers play? Maybe they will be used for the the annual final submission. But will they be able to link with the spreadsheets or whatever we have used for the 4 quarters? It seems to be a rather convoluted process compared to the existing Self Assessment regime.

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