Client hurdles add weight to MTD delay calls

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The ability of small businesses to get their records up to scratch is likely to be the biggest stumbling block to Making Tax Digital, according to a poll of 1,000 accountants.

The results of the survey conducted by Thomson Reuters and AccountingWEB were revealed during AccountingWEB’s recent Practice Excellence Live MTD webcast.

Now that the initial consultation process has closed, the next big event in the MTD calendar will be Chancellor Philip Hammond’s Autumn Statement on 23 November. A current of “will he, won’t he?” speculation has been building during the past week around the possibility that the Chancellor might relax the MTD timetable in view of the impracticalities highlighted by professional bodies in their consultation responses.

The AccountingWEB/Thomson Reuters MTD survey adds weight to their calls, with detailed insights about the key issues facing accountants and their small business clients as the tax department readies its new online tax regime to go live from April 2018:

MTD survey: Practitioner responses (n=1,041)

69% Concerned about reliability of HMRC systems and data
60% Have clients who do not have electronic systems in place
57% Have clients who do not use computers or are digitally excluded
57% Think MTD timetable is not realistic
54% “My clients are not ready for digital reporting”
54% Compliance work will be more time-consuming
49% The onus will be on me to keep clients compliant
42% I will not be able to charge for the additional work
42% Estimate first year MTD costs to be more than £250
(47% unable to quantify costs yet)
 

Thomson Reuters tax product manager Mark Purdue noted that 45% of practitioners could see some benefits of MTD with the end of the 31 January bottleneck and improvements to client records. “Forty-four per cent think clients will keep more timely records,” he told the Practice Excellence Live audience.

“Clients may not have good records and this is an opportunity to straighten them up.”

But the overall picture presented by the survey challenged some of the government’s assertions that MTD would relieve administrative burdens on small business. “There are big concerns out there about how this is going to work,” Purdue added.

Practice Excellence Live panellist Rebecca Benneyworth acknowledged the scale of the problem. “Record-keeping is the big one,” she said. “As an accountant I can see that once you’ve got those digital records, then you’ve cracked it. You press a button for quarterly updates and so on.

“It’s like driving the car that’s going to run the race, but first you have to learn to run the car. And most of my clients are still using the horse and cart. That is a big jump.”

While the biggest obstacle identified by practitioners lay in the bookkeeping abilities of their small business clients, the survey identified worries that practitioners would end up carrying the can.

“The perception is that the onus is on the agent. If clients can’t cope, agents will have to pick up the slack,” Purdue said.

The survey showed that a significant number of practitioners fear HMRC’s digital tax initiative will impose new workloads for which they will not be able to recoup fees: 54% anticipated that compliance work would be more time-consuming, but 42% also responded that they would not be able to charge for the extra work.

In a challenge to claims of potential savings in the order of £85m-£250m for small businesses, 42% of the survey respondents estimated that the transition costs of moving to MTD would be more than £250 per business.

Software costs (1,037 responses)

48% Can’t say yet - details are still too sketchy
22% £250-500 in the first year
19% More than £500
8% Up to £250 in the first year
2% Not known - don’t have many of these clients
1% Negligible - they are already using systems that should cope

 

Practitioners also flagged continuing concerns about the accuracy of HMRC data (69%), and 57% felt the current timetable to launch quarterly reporting in the 2018-19 tax year is “unrealistic”.

Question 36 in the full MTD consultation asked whether the smallest unincorporated businesses that are not exempted from the regime get an extra year to prepare. Practitioner Jon Cooper addressed this point in the second “impact on practice” MTD webinar on 24 October, and urged HMRC to align the exemption with the VAT threshold.

Mark Purdue backed this stance with a huge majority of customer responses along the same lines: “Our recent surveys show there is real concern that clients will not be ready for quarterly updates – 80% of those surveyed supported deferring quarterly updates for those businesses below the VAT threshold. 

“This would allow the focus of the first year to be on those businesses that should already have up to date records, allowing agents and HMRC insight into how the processes will actually work with a minimum of impact, before trying to introduce the trickier, smaller businesses into the regime.”

With such major changes on the table for accountants and their small business clients, Purdue warned practitioners not to be complacent. Polls have been showing that so far few practitioners have bothered to read the background documents.

“Our survey showed a reluctance to talk to clients without better information (47%), but accountants can’t just sit back and complain if they haven’t engaged with MTD,” Purdue said.

For an introduction to the key issues, tune into AccountingWEB’s MTD: What you need to know now session and download the accompanying PDF guide.

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Contributions from the AccountingWEB.co.uk editorial team.

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17th Nov 2016 11:42

Why can't HMRC systems be amended to add the three months' PAYE information to the VAT submission data, so HMRC gets the information it needs for all VAT registered businesses? Then HMRC could roll out a VAT equivalent simple quarterly submission for those not registered, initially on a voluntary basis.

HMRC could still spend its IT budget (getting its systems to talk to each other) and make life simpler for all.

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By Briar
to dmmarler
17th Nov 2016 15:33

What about those who are on Flat Rate VAT Schemes? Your proposal doesn't work for them. I recall that the FRS was brought in to relieve businesses from bureaucracy and make matters simpler for them

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to Briar
18th Nov 2016 16:06

It is not much to include all the expenditure information as well as the standard sales data on the flat rate vat submission. The taxpayer still has to keep the record anyway, so the only extra admin is calculating and putting in one figure every three months. Much easier than MTD.

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By Briar
to dmmarler
21st Nov 2016 09:04

No. The taxpayer on FRS only has to process (account for) his expenditure once a year. The quarterly FRS VAT Return is quick and easy - x% of total receipts. Listing expenditure and analysing it takes much longer (and many do not want to do it every quarter). Many small businesses are too busy making money (rather than book-keeping). The information they need is their bank balance, and amounts owing to and from them, and future orders - that's it. No need for quarterly accounts.

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17th Nov 2016 11:49

The results of a survey will , of course , depend upon the questions within the survey. Need I say more ?

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By Ammie
17th Nov 2016 12:10

Why the surprise?

Did it really need a survey or is this an exercise to "big up" organisations who have an interest?

Statistics, investigations, consultations and reports are the realm of the 21st century.

What would have made more sense is professional liaison at all levels on the matter before the endless hours and costs were spent in the first place.

Brexit seems to be very similarly handled, clueless all around.

Just keeping people busy and in work.

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17th Nov 2016 12:11

I love the first reason for stopping MTD i.e. 'Concerned about reliability of HMRC systems and data'.

I'm sure that I speak for nearly 100% of accountants with smaller business clients and for the clients themselves, in that most smaller business (micro-business) that 'employ' hundreds of thousands of taxpayers, operate quite sufficiently with Excel spreadsheets. I'd say that around 95% of my clients fall into this category. It will cost them hundred of pounds a year to change over to digital compliant software.

Just an little example of how stupid HMRC and their staff are. Here is another example showing our concern about reliability of HMRC systems.

Client includes pension contributions onto Tax Return, as personal pension contribution, that were already deducted from gross pay and so had tax relief at source.

Amendment made to Tax Return and client repays the overpaid tax therefore due.

Two weeks later, H M Revenue & Customs repays the payment back to the client.

I ring HMRC to ascertain why they’d repaid. We do not know was their reply.

HMRC say that it may be that the revised Tax Return that I submitted on 25 October was not processed until 28 October. As we made the payment on 26 October ………. they appear to have made the decision (quickly) to refund it, but only actually (slowly) repaid it on 15 November.

And for the punch line…….. I was rather annoyed at the impertinence of the HMRC lady on the phone, who said that if we had got the Tax Return right in the first place that this issue would not have arisen! Secondly, she said that the tax was not due until 31 January 2017, so maybe we should wait until that date to pay the tax owed!

I would love H M Revenue & Customs to get things write in the first place. As I’m sure many accountants have done, I’ve spent hours with them on the phone and then weeks writing to them to get simple matters resolved.

I’m suggesting that my client now attempts to repay the tax due. If this happens again I shall be writing to HMRC and making an official complain for waste of client’s and my own time and distress. We should get at least £50 in compensation.

What a sets of idiots!

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17th Nov 2016 13:07

I have no real problem with the concept of MTD. However I have 2 major reservations.
Like many contributors I can report that many of my clients have only just managed to record information on Excel. For HMRC to offer no means of using this is a major flaw and will result in substantial additional costs and inconvenience for my clients. Without wishing to offend any of them I fail to see how this process will enhance the accuracy of information provided. Along with many others I feel that this burden will fall on me.

My second point is that I appear to have missed completely the HMRC publicity campaign telling ordinary self employed people of the fundamental changes proposed. This has been left to me as I see each client. So far not one of my clients has heard of MTD. It is embarrassing and does my professional image no good to have to tell people that I cannot, at present, tell them how to proceed. This is because HMRC have not yet got their act together on software and the required API.
I suspect that this lack of publicity is deliberate because they fear the backlash that would ensue.

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17th Nov 2016 14:30

Just step back from the big decisions ahead, sole traders are making payments on account in advance anyway, if the chancellor ultimately wants tax receipts in advance why not make Limited Companies do the same.

All this MTD is garbage, George Osborn should have been thrown down a mine-shaft, along with this proposed legalisation, the Tories on the side of business mmmm me thinks not.

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17th Nov 2016 15:52

Will most small business clients bring in their records and expect us to put them on our computer systems to comply with MTD? We won't say to them we are not going to process your records because they are not in the right format, otherwise they will go to the accountant down the road. This MTD is going to cost small businesses (and farmers and builders of my clients in particular) a lot more in accountancy fees or a lot more in computer software to comply, and this is why there has been no advertising by the Revenue of this todate.

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17th Nov 2016 20:56

Here's an idea HMRC. Get the tax credits information on the same database as the rest of the tax system. Even go the whole hog and do it for the Student loans stuff too.

This would cost miles less than 1.3 billion and actually BE A GENUINE saving for millions of small business "customers" who have to fill in this stuff 3 times and put up with the same silly questions and screw-ups 3 times over.

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