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Harra plays down MTD fears

11th Nov 2016
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Jim Harra, tax assurance commissioner at HMRC, has been making soothing noises about Making Tax Digital (MTD) while the tax department digests responses to the consultation documents.

In a letter to the Financial Times coinciding with the end of the MTD consultation period, Harra said HMRC will not be asking anyone to file accounts five times a year, nor introducing in-year quarterly payments.

“Businesses will simply send in-year updates to HMRC using information collated automatically by the same software used to record day-to-day transactions,” he said.

On the costs issue flagged up across by the profession, Harra said that businesses already keeping records digitally should see no additional costs at all.

He added: “Free software will be there for businesses with the most straightforward affairs, and we are looking at additional assistance with transitional costs.”

However, many of the professional bodies specifically highlighted costs as a major stumbling block in their responses.

The CIOT said in its MTD con doc response: “Whilst MTD will bring benefits to HMRC, the likely impact on most businesses and taxpayers will be an increased workload and/or increased costs. It is not at all clear that there will be commercial benefits to offset such costs, particularly for smaller businesses.”

Despite detailed feedback on the MTD timetable and the impracticalities of meeting the deadlines in the coming months, Harra added in his letter that HMRC recognises MTD as a significant change for businesses, “which is why we’re introducing it gradually as well as exempting some of our smallest businesses”, he wrote.

The LITRG said in its response that the proposed level of turnover of £10,000 or less to qualify for complete exemption from MTD was far too low: “We recommend that businesses with a turnover of up to an amount equivalent to the current VAT registration limit, as determined by the figures on the previous year’s tax return, be exempt from complying with MTD,” it said.

All eyes now turn to the Autumn Statement on 23 November for an update on the digitisation project and whether or not the Chancellor will pay heed to concerns across the profession.

There has been a groundswell growing behind calls from professional bodies for a delay to the proposed timetable.

In its MTD con doc response the ATT said: “We believe that much more can be achieved if the taxpaying public is led progressively and systematically through these changes rather than being forced into such radical changes in a very tight time-scale.”

Along with ICAS, ACCA and the ICAEW, the CIOT echoed this call in its response: “The timetable for mandation of MTD is far too optimistic and must be pushed back.”

There are also concerns across the profession about the use and availability of software for MTD.

The OTS said in its response: “A key challenge with software is simply convincing businesses and landlords that appropriate digital tools will be available and won’t require wholesale re-engineering of their business processes.”

The ICAEW added that the government should decouple the digitalisation of record-keeping from any quarterly reporting requirement.

“While the two functions could ultimately be made to work with the right software and skills, a more gradual implementation will be easier to achieve, especially for those whose business administration skills would not easily adapt to embrace an end to end mobile phone app or IT system,” it said. “In addition, digital exclusion must be appropriately addressed.”

During the consultation phase AccountingWEB and Thomson Reuters carried out a detailed survey of more than 1,000 accountants. Along with concerns about timelines, the survey revealed a high percentage of people who were not digitally confident.

Six out of 10 respondents felt their clients didn’t actually have software systems or digital recordkeeping in place yet. In addition 44% of practitioners are expecting extra workloads around MTD and another 41% are concerned about how they’re going to be able charge for the extra work.

More than two thirds were also very concerned about the quality of the information submitted by clients and held by HMRC.

Who do you think the new Chancellor is going to listen to? What are your other Autumn Statement predictions?

Replies (30)

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By AndyC555
11th Nov 2016 11:27

Oh, well, that's all right then.

Businesses are being asked to do something they don't currently do but it won't create any extra work or cost. Why? 'Cause Jim has said so.

I don't know why they bother with consultation periods.

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By mrme89
11th Nov 2016 11:53

Harra is an arrogant fool.

Again, it's small businesses that are going to suffer.

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PJ
By paulgrca.net
11th Nov 2016 12:48

Hopeless.

Just another example that HMRC are not listening to what they are being told by the profession!

Sunny Jim says it does not mean accounts 5 times a year just an update - fair enough I will just tell all my clients to send an email stating ''we are doing fine thanks now leave us alone''.

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Replying to paulgrca.net:
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By vinylnobbynobbs
16th Nov 2016 10:06

paulgrca.net wrote:

Hopeless.

Just another example that HMRC are not listening to what they are being told by the profession!

Sunny Jim says it does not mean accounts 5 times a year just an update - fair enough I will just tell all my clients to send an email stating ''we are doing fine thanks now leave us alone''.

Or an email - same as last quarter

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By RobertD
11th Nov 2016 13:01

They just keep trotting out the same lines. If you say it enough times it must be true.
So pages of consultation documents and "we're in listening mode" sound bytes later out comes the same old drivel.

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By cstwragby
11th Nov 2016 13:08

For a short letter, there's a lot wrong with it.

"Businesses will simply send in-year updates to HMRC using information collated automatically by the same software used to record day-to-day transactions"

The smaller businesses don't currently use a type of software which records day to day transactions.

"we’re introducing it gradually"
17 months time with no firm news yet is not gradual from where I'm sitting

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Tornado
By Tornado
11th Nov 2016 13:15

Whatever Jim thinks in his little delusional world, MTD simply is not going to happen the way he envisages and the sooner he accepts that the better chance we all have of creating a plan that will work.

Everyone is telling him that there is an iceberg in the way but Captain JIm thinks it will all be OK, all he has to do is close his eyes and make a wish and the iceberg will disappear.

I have got my lifejacket on already so I will be OK.

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By gordo
11th Nov 2016 13:13

Never mind.
At least they are not back dating it and sending out penalty notices for failure to comply with a law that didn't actually exist when you acted.

Which is exactly what they are proposing to do with the so called Disguised Remuneration consultation.

but it's okay they are analysing the feedback
https://www.gov.uk/government/consultations/tackling-disguised-remunerat...

I'm sure they will be in listening mode.

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Jonathan@Aiteo
By [email protected]
11th Nov 2016 13:38

“Businesses will simply send in-year updates to HMRC using information collated automatically by the same software used to record day-to-day transactions,” he said.

This comment suggests little attention has been paid to the vast amount of intelligent feedback that has been submitted (and widely trailed) during the consultation process.

* Information is never collated 'automatically'.

* In around 3 million businesses, by the HMRC's own estimate, software is not currently used to record day-to-day transactions.

So it won't be simple.

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Chris M
By mr. mischief
11th Nov 2016 13:50

I now revise my earlier post. As I suspected all along, Captain Smith is very firmly at the helm of the RMS Making Tax Digital. "Full steam ahead engine room, those accountancy prats in the crow's nest rabbiting on about a big ice field ahead are just a bunch of tossers. This ship ain't gonna hit no iceberg!"

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By gordo
11th Nov 2016 14:17

There appears to be an online method of giving consultation feedback and it is apparently hosted by HMRC staff.

Perhaps they would like to know your views?

HMRC Consultation Dialogue: here
https://hmrc.dialogue-app.com/

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By hedglen
11th Nov 2016 15:24

Doesn't this go against what Andrew Tyrie (chair of the Treasury Committee) wrote to Hammond at the end of October?

http://www.parliament.uk/documents/commons-committees/treasury/Correspon...

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By Charlie Carne
12th Nov 2016 14:52

Harra says: “Businesses will simply send in-year updates to HMRC using information collated automatically by the same software used to record day-to-day transactions.”

But what if they don't currently use software? Harra's response: "Free software will be there for businesses with the most straightforward affairs."

This implies that the only obstacle to using software is cost and that 'free' will overcome that issue. But that is not the problem for many small businesses who have no interest in maintaining an accounting system. They "simply" (to use Harra's word) keep what they need to run their business on a daily basis. Many of them only need to keep two piles of paper throughout the year: one pile contains the paid bills and sales invoices, whilst the other pile is unpaid. Once a year this gets handed to the accountant, who turns that into a set of accounts, tracking all sales and purchases, as well as the year-end debtors and creditors.

If this needs doing four times a year, it will cost the business four times as much. Most of the time taken is not determined by the quantity of bills (which can be added up very quickly, especially if the accountant uses software like Receipt Bank to auto-analyse it) but by turning the raw data into a set of accounts. Even if HMRC don't require provisions to be made each quarter, there is still a lot of work to be done on a quarterly basis that previously only needed doing once a year.

So does Harra acknowledge the problem for small businesses? He thinks he does: "We fully recognise that this is a significant change for some businesses, which is why we’re introducing it gradually as well as exempting some of our smallest businesses."

But his idea of gradual is a steep incline. This proposal is not only a problem for the "smallest businesses". Any business not registered for VAT need not keep any in-year accounting system and can leave it all until the year-end. This encompasses any business turning over up to £83,000 pa. That is surely not what Harra means by "our smallest businesses". Indeed, even a larger business can limit their in-year records if they are on the cash-based, flat-rate VAT scheme, as the only information required to be reviewed in-year is the quarterly total bankings figure obtained by a quick calculation on a single column of figures downloaded from the bank. This covers businesses turning over up to £230,000 pa (if they joined the FRS when they had t/o below £150k). Are businesses of that size also to be exempted?

Jim Harra needs to visit an accountancy practice and see how these processes work in the real world, rather than in the idealised situation that he and his colleagues envisage. MTD is a laudable proposal but the current plans for implementation are grotesquely short-sighted and will create a huge increase in costs for those small businesses that government likes to champion.

Source: Jim Harra's letter to FT 10/11/16

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By NH
13th Nov 2016 07:57

"44% of practitioners are expecting extra workloads around MTD"
So then, when it comes down to it, the majority of us do not expect extra workloads, why the fuss?

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Replying to NH:
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By RobertD
13th Nov 2016 10:20

NH wrote:

"44% of practitioners are expecting extra workloads around MTD"
So then, when it comes down to it, the majority of us do not expect extra workloads, why the fuss?

Maybe that 44% relates to rural accountants which would suggest that businesses outside large towns and cities are being discriminated against as they are less digitally enabled.

I really don't get this "I'm in favour of MTD so the rest of you better get used to it" attitude. If 44% of 5.3 million businesses struggle that is bad for the economy. Which is bad for the remaining 56%.
This whole attitude is shared by Harra, Gauke et al and quite frankly won't help the issue.

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By the_Poacher
14th Nov 2016 07:27

What Ministers want Ministers get and the civil servants have to try and justify it. Does anyone in HMRC really want it? They can't cope with the work they already get

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By barrym2004
14th Nov 2016 10:41

I wonder if HMRC have asked sub-contractors in the building trade their opinions on in-year submissions? Many struggle just to keep their basic records straight - monthly CIS reports and any expenses incurred.

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By david wilks
14th Nov 2016 11:28

As I have said before, I invite Harra and all of those pushing ahead with this stupid idea of MTD in the time frame mooted to come to my office for a month to see what life is really about. They can contact me through Accounting Web (who has my permission to pass on my details to Harra).
I really do dare you!

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By Peter-S
14th Nov 2016 11:38

So his comments just confirm, once again, what most of us realise that he has no general understanding of his 'customers'. I bet not many of these 'customers' try to run their own businesses with that level of disregard.

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By johnkcound
14th Nov 2016 12:04

They still don't get it.
Spread the slogan "Can't do it, won't do it"

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Morph
By kevinringer
14th Nov 2016 13:12

"HMRC will not be asking anyone to file accounts five times a year" is a bit like RTI abolished the end of year return and replacing it with 52 in-year returns. HMRC may call it a "submission" instead of a "return" - but they're the same.

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Replying to kevinringer:
By Charlie Carne
14th Nov 2016 16:41

@ kevinringer - HMRC's argument is that, for those businesses already using a cloud-based accounting system throughout the year, there will be little additional work, as the software will submit a pre-defined report to HMRC at the push of a button each quarter. HMRC recognise that this report will ignore adjustments for (eg) stock and other provisions, which is why they are not (at least initially) introducing in-year quarterly payments, as the interim reports will not represent a correct view of the taxable profit (and HMRC are not expecting them to). The year-end submission will remain the only one that is used as the basis of the true tax calculation. It is hard to argue against that point and we will get nowhere if that is the focus of our objection.

The problem is that many small businesses are not currently using any software and the act of forcing them to do so is onerously prescriptive and will not be acceptable to many taxpayers. If those businesses, therefore, have to submit records to an accountant each quarter, their costs will increase proportionally for the reasons I stated in my earlier post above.

The focus of our objection must be that the costs will be hugely increased for those businesses that do not maintain in-year records and currently only need to use the services of an accountant annually.

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By Mr J Andrews
14th Nov 2016 13:27

This is the same Jim Harra who appeared before the influential Public Accounts Committee earlier this year to explain the Google deal in which just £130 million covered a 10 year back settlement , for which 'taxpayer confidentiality' has been cited as a reason not to disclose more details of the agreement. The same Harra who triggered outrage when he suggested it was unrealistic to expect multinational firms to pay as much as other businesses.
It took 5 years and 21 meetings to reach this 'sweetheart' deal which has been suggested as recouping a paltry 3% of the corporation tax bill . The Government MTD investment is £1.3 billion [ for which I'm still awaiting an analysis , Jim ] with imminent proposal dates and not one meeting with Joe Public , the plumber , carpenter - any 'other business' to which Harra alludes.
The point remains ; Harra won't see common sense that MTD will impose additional burdens on small businesses . His attitude to those small businesses who don't need to file quarterly reports is simply that they will be provided with free software. He knows what's good for you and tough if you don't want to spend more time on unnecessary administration He can't turn back and admit his shortcomings ; the humiliation of egg on his face would be too much.
I previously suggested that Harra should take the MTD team to the cinema and see Ken Loach's ' I Daniel Blake '.
He should precede this by reading Hans Christian Anderson's ' The Emporer's New Clothes'.
For Christ's sake Jim , show some practical understanding and set the VAT limit as the starting point for MTD.

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Jennifer Adams
By Jennifer Adams
14th Nov 2016 17:34

I'll try not to put a spanner in the works but we all know that MTD should have been stopped ages ago. I remember at the last Exeter Working together meeting (remember them?) the attendees made our views known and the poor HMRC lady didnt know what to say.
I've said it once - I'll say it again... its too late now. It will go ahead in one form or another. HMRC just think accountants are wingers anyway.
Now the deadline date has passed other organisations who have an interest are loading their responses online. Some make very interesting reading.
This one you have got to read: from the Building Societies Association - Responding to the document about 3rd party information providers. It doesnt pull any punches starting with:
We question why such a monumental change is required at all for building societies when HMT/ HMRC designed the personal savings allowance to take out 95% of taxpayers of savings tax irrespective of future interest rate changes.
https://www.bsa.org.uk/information/industry-responses/our-response-to-hm...

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Replying to Jennifer Adams:
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By AndyC555
14th Nov 2016 17:45

JAADAMS wrote:

HMRC just think accountants are wingers anyway.

Outrageous!! I played in the front row.

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Replying to Jennifer Adams:
Tornado
By Tornado
15th Nov 2016 09:13

Have some faith Jennifer.

MTD in its present proposed form is a non-starter. As an Accountant all you need to do is carefully look at all the debits and credits and you can see that this does not balance. HMRC may continue to tell themselves that this is going ahead as they propose, but this is a complete overhaul of the Tax Administration system and is hugely complex requiring the co-operation of millions and millions of people to make it work properly, and the odds are against any success at the moment.

A form of MTD is accepted by most people I think, but even with Universal Credit there were trials running for several years and that, ironically, is still not in universal use. The same approach has to be taken with MTD. Trials and tests and then a nationwide rollout.

At the moment, HMRC are looking to put on an event that no one is going to attend, and perhaps that will be the point when they finally realise that people are not interested in or simply not aware of this event. If they tried a more popular approach to this project, then more people are likely to turn up to their event, and perhaps enjoy themselves a bit.

Faith in the obvious is what is required, and faith in our own judgement of the situation as professionals.

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Replying to Jennifer Adams:
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By Peter-S
15th Nov 2016 08:59

And they end with:
"the individuals and small businesses – some of whom will not wish, or even be able to, embrace a digital approach. For them there should always be a manual, paper-based alternative. HMRC believes the majority of taxpayers will have made the transition to digital accounts by 2020. We are not sure on what basis this assertion has been made but consider it to be unfounded. No supporting evidence has been produced; indeed government data contradict it. "

So how many people/groups/organisations need to tell HMRC the same thing before they start to realise there is genuine foundation for our whinging?

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By North East Accountant
15th Nov 2016 08:53

Don't worry folks, HMRC will have taken all responses onboard within a 16 day window, amended MTD to take account of these and all will be clear on 23rd November.

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By RobertD
15th Nov 2016 17:17

http://pressreleases.responsesource.com/news/92006/cost-and-difficulty-o...

The latest group to say this idea is dross.

How much more evidence does that silly little man need.

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By david wilks
15th Nov 2016 17:34

These ivory tower flunkies have thicker skins than elephants and, no doubt, guaranteed pensions unlike their "customers" whose life will be made eversomuch more miserable and poor if MTD goes ahead in the time frame suggested.
Once more I set down the challenge for Harra to come to my office and explain to each of my clients just what he has in mind.
Go on, I double dare you.

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