HMRC unwraps MTD income tax pilot for self-employed

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HMRC has opened up its Making Tax Digital income tax pilot to allow all self-employed to register after a near year-long limited testing phase, with unincorporated landlords likely to follow next month.

In an announcement last week, the tax authority stated that self-employed businesses can now voluntarily use software to keep their business records digitally and send income tax updates to HMRC instead of filing a self assessment tax return.

While tax commentators have given the ‘soft launch’ a cautious welcome for moving the project forward, only the self-employed, and only two software houses currently have software capable of filing the quarterly updates required.

What software is available?

HMRC has also published a list of software providers ready to support the MTD pilot for the self-employed or their tax agents.

At the time of writing, there are just two names on the list currently capable of filing the quarterly updates required for MTD: practice software giant IRIS and Rhino, a solution provided by Leicestershire-based Rhino Software. However, HMRC is confident they will soon be joined by others. 

In the final paragraph of the list, HMRC also states that it "doesn’t recommend or endorse" any one product or software supplier, and "isn’t responsible for any problems you have with software.".

According to the AAT’s tax policy adviser Brian Palmer, the lack of MTD-compliant software products for income tax is hardly surprising given last year’s announcement that rollout of the project would be delayed for all businesses under the VAT threshold.

“As a direct consequence,” said Palmer, “software providers switched their resource to ensuring their products will be capable of filing MTD-compliant VAT returns.”

With the VAT-MTD pilot is projected to start next month, many vendors AccountingWEB spoke with are confident they will have products ready to coincide with the start of the VAT-MTD private testing.

What are the implications of the launch?

The AAT’s Brian Palmer stated that he does not expect a “headlong rush” by the self-employed to onboard for income tax purposes, given there are only two income tax update filing solutions available and mandation places the emphasis squarely on VAT.

“However, I do anticipate that if the VAT MTD-pilot is a success, and the subsequent mandation phase goes well, there will be a slow but steady stream of self-employed businesses joining the income tax pilot,” said Palmer, although he did go on to base this on a greater range and depth of MTD for income tax-compliant software becoming available.

According to Palmer, if accountants and tax advisers believe the pilot is going smoothly they may decide self-employed start-ups should be on-boarded straight into MTD to avoid the need to transition from the current regime when mandation comes arrives in 2020.

*This article was amended 19 March to include the correct Rhino Software*

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have any comments or suggestions for us get in touch.

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19th Mar 2018 11:54

Theres only 2 software companies?

1 Very expensive?
2 Its own software

Its not mandatory

Lets see now.... hello mr client would you like something that costs a lot isn't compulsory and there's no fines if you don't have it? Oh and I have to treble your accountancy fees to give it to you and theres no benefit to you....

Wonder what the take up will be?

I am going back outside now to make a snowman.

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By Taxim
to Tom 7000
19th Mar 2018 10:53

Totally agree. It is nothing other than an ill conceived idea creating an unwanted and undesireable burden to business.

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By Tornado
to Tom 7000
19th Mar 2018 11:16

One cannot help feeing that at this stage, making a snowman will achieve more and be significantly more enjoyable that taking part in an MTD trial.

Take away the mandatory aspect of MTD for at least 5 years, and then the trials would start to make more sense.

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By NYB
19th Mar 2018 10:30

My goodness. Must be the most exciting bit of news to come out for months. Must tell my clients. I can see them - the fish & chip shop owner, builders, coffee bar owner etc rushing to join up.
I reckon the above report would be like an unknown language to them.

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19th Mar 2018 10:34

Yes yes please sign me up to file 5 times a year and not once.

Said no-one.

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By SXGuy
19th Mar 2018 10:49

Forget the pilot because its gonna fall flat on its face by July 20 any way.

I'm really sure that Mr yearly sole trader is going to rush to provide me details every 3 months.

And I'm even less sure 200 others we have similar will do the same.

Hmrc on this one are quite frankly deluded.

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By Ammie
19th Mar 2018 10:51

This time next year will be the real test of the success of the pilot.

I expect other relaxations, certainly in respect of fines and very likely to bring the effective use of spreadsheets and/or free software into the mix.

Failing which the proverbial will do more than hit the fan.

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By DJKL
to Ammie
19th Mar 2018 20:34

Ammie wrote:

This time next year .

we'll be millionaires Rodney. (From all the extra fees)

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By mabzden
19th Mar 2018 11:30

Yo Tom, how come aweb's 2017 MTD software of the year isn't on the list?

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to mabzden
19th Mar 2018 11:35

Yo mabzden,

A fair question. While I can't speak for them directly, I believe they are focussing on the MTD for VAT pilot. More to come soon I'm sure.

All the best,

Tom

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By mabzden
to TomHerbert
19th Mar 2018 17:08

Ah OK, that explains it. (Note from editor: does it??)

Thanks ;-)

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19th Mar 2018 11:31

"when mandation comes arrives in 2020"
The following message is for all who believe this will happen:
"I have come into possession of a fine bridge over the river Thames next to the Tower of London. Offers please to....."

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19th Mar 2018 11:32

HMRC is unable today to accept CIS submissions!!! These are the inept individuals to run MTD and all I can say is God help us!!!

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to KIKISROSSIDES
19th Mar 2018 11:49

and they got problems with RTI.

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By DJKL
to KIKISROSSIDES
19th Mar 2018 20:33

I got two in today but did notice warnings re PAYE when I logged on each time ,on the 19th day of March my true love made me do, two CIS submissions and a VAT Return.

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19th Mar 2018 11:35

Really do HMRC actually know brickies, plumbers, Taxi drivers, hairdressers and the like? This is the start of something that could well close down self employment nationally and won't that help with the deficit!

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19th Mar 2018 11:49

No Babs,
It won't close it down - it will drive it underground onto the hidden economy. Same result though, less tax will be paid.

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to anthonystorey
19th Mar 2018 11:56

That was my concern when he was thinking of dropping the vat limit to £25k....

Someone with joined up writing clearly tippexed that out of the autumn statement....

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to Tom 7000
19th Mar 2018 12:10

I wonder how much HMRC would lose if all business went VAT registered?

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19th Mar 2018 12:12

About time someone bought Emperor Hammond some real New Clothes.
And Brian Palmer does not expect a 'headlong rush', to onboard but anticipates a slow but steady stream..............concluding that agents may decide self-employed start-ups should on-board straight away if they think the pilot goes smoothly.
Reading the sensible responses so far, there will be no headlong lemming rush whatsoever; the 'steady stream' will be a stagnant pond and agents will not be swayed by this biased kamikaze pilot.

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to Mr J Andrews
19th Mar 2018 12:54

Does "onboard" or "on-board" mean "board" or perhaps "get on"? I would have thought that the correct terms would be to participate or take part in the trial.
Apart from this strange terminology, I concur with this post.

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to leon0001
19th Mar 2018 12:58

The clue is in the word "pilot".

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By Tornado
19th Mar 2018 12:29

I do not intend to work for nothing just to help HMRC out with their crackpot ideas. Put someone on charge of MTD who really knows what they are doing and then perhaps we can all work together to achieve a result that really does benefit us all.

And, as has already been mentioned, today you cannot make RTI submissions!

What a bunch of clowns.

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to Tornado
20th Mar 2018 15:35

There is a parlous few left in HMRC that know what they are doing.

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19th Mar 2018 12:53

What I find astounding is that the majority of the original draft MTD legislation, and the newly passed MTDfB legislation (with no reason to think the future will be any different) relegates most legislation to secondary, effectively giving HMRC a free hand.

Now, this wouldn't be so bad if HMRC understood legislation, but their obvious and persistent misreading of one of the most fundamental sections of the Acts (S.7 TMA) demonstrates how utterly incapable and unqualified they are to be deciding legislation.

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19th Mar 2018 13:14

But didn't the MTD pilot start April 2017? So has there only been 2 developers in all that time? Where are the cloud providers such as Quick Books, Sage, Xero, Free Agent etc and what about traditional accountancy suppliers such as CCH, Digita etc.

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By Tornado
to kevinringer
19th Mar 2018 13:28

Xero have not yet made a profit in their 10 years of existence. Why would they spend bucket loads of money on speculative software?

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to Tornado
19th Mar 2018 13:40

Indeed, and HMRC said that the software industry will supply free software. What planet are they on?

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19th Mar 2018 13:41

Good luck with this - if today's debacle https://www.accountingweb.co.uk/any-answers/paye-rti-filing is anything to go by.

Oh, and do bear in mind, HMRC weren't initially aware of any issues with their systems?

Until and unless this (unfit for purpose) Government agency is; properly resourced and substantially invests in its workforce, I can't foresee any positive outcome for this project.

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By Bill H
19th Mar 2018 14:30

I cannot believe how the accountancy profession and, sorry to say Accounting WEB, have just rolled over to accept the introduction of MTD. The HMRC webinar that was held on the subject, which was attended by over 800 accountants came to the conclusion that over 70% of their clients were unaware of what is about to hit them. Well that is obvious because there has been no information on the subject relayed to the ordinary man on the street. I asked the question at that webinar why HMRC are not providing free software as they originally intended and the answer was that commercial software houses could produce this at limited cost to the taxpayer. Does not answer my question. If HMRC think that people will want to pay their tax upfront throughout the year then they are living in cloud cuckoo land.
What will HMRC do with all the data they gather. RTI was a complete waste of time and this is another tier of big brother watching over you.

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to Bill H
19th Mar 2018 14:37

Bill, most of us have made our views known by many ways. HMRC and the government are well aware of Accountants feelings about this, however HMRC seem to think that the self-employed will put up with it. I and many other Accountants can't see MTD happening as HMRC want it to so we just sit back and enjoy the fireworks.
Many thousand self-employed banging on the Houses of Parliament doors might concentrate the mind cos nothing we can do will alter their path.

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By DJKL
to Bill H
19th Mar 2018 20:40

Bill H wrote:

What will HMRC do with all the data they gather..

Selling it or passing it on to other parties seems to be the current approach.

Maybe HMRC have twigged that as the data gatherers pay them very little tax on their activities they too should become a profitable data gatherer.

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to DJKL
20th Mar 2018 09:01

By the time HMRC decide to sell, the info would've already been stolen. Perhaps there might be a pathway from the software to whoever controls the data already.

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By edp
to Bill H
20th Mar 2018 11:40

MTD = mythered to distraction
I maintain my wife's business (sub-£70k t/o) accounts and do her SA, based on 15 years profession/private accounting experience prior to becoming a maths teacher 13 years ago. The accounts are on Office Calc. It's a family business with one on the payroll. I use Basic PAYE Tools. I was late to work yesterday due to waiting to speak to HMRC about RTI not submitting (the error message told me to check my internet connection, implying it was my fault) to make sure that they had no excuse to fine the business for submitting late - just cannot afford that. Eventually told it was their end and to retry. As a sole-trader my wife is responsible for complying with a huge amount of regulation that she has to find out about, understand and implement - on pain of penalties. This has nothing to do with providing a retail service, of which she is rightly proud, to the local-and-beyond community. It would be great to farm the accounting, tax calc, payroll, Health&Safety, card-payment compliance, etc out to professionals, however, it's just not financially viable. Exactly what does MTD require and what are the implications of filing, what will be, three quarterly draft accounts followed by a finalised annual version? The idea of filing a tax return quarterly worries me - my wife has no idea about this; she is busy trying to find ways for the business to actually pay her. I'm happy enough with an October y/e giving me time to tweak and finalise accounts well before the tax year end and prepare a simple tax calc - the fear of getting quarterly returns wrong and then being penalised is a stressful prospect.
I hope that HMRC's webinars will be informative, comprehensive and well presented. I suppose that I will have this site as a source of information and that I will be able to download information from HMRC, however, this all sounds like another massive learning curve with the overriding factor being the threat of business-threatening penalties. I'm glad that I only have one business to deal with....
... I've just remembered my self-employed tutoring work so that makes two.

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to edp
20th Mar 2018 13:09

Edp, my understanding is that MTD requires you to digitally record your business transactions (income and expenses) using MTD-approved software which then submits what is basically a Profit & Loss account and Balance Sheet to HMRC every quarter. The submission as to be made by the end of the month following the end of the quarter. After submitting the 4x quarterly submission you then submit a 5th submission which includes annual items such as capital allowances. You do this for every business eg if your sole-trader wife also had a rental property she would do the 4+1 submissions for the self-employment and 4+1 for her rental. Finally a 'final' submission is made which is equivalent to the current tax return: this includes items such as pension contributions.
You have to use MTD approved software. Though the emphasis has been on cloud software, there's no reason why desktop software could not be MTD approved. MTD approved software uses HMRC's APIs to transmit data between the software and HMRC. HMRC control who has access to the APIs and will only grant access to approved developers. HMRC can switch off APIs for individual developers at any point so if a developer fell out of favour HMRC could switch off their APIs immediately.
Though there has been emphasis on using mobile phones apps to take photos of invoices and the software 'reads' the invoice and accounts for it, MTD does not require the photographing or scanning of documents. Users can input transactions details manually exactly the same as they currently do with existing bookkeeping software.
All MTD software is being developed by commercial developers. HMRC will not be developing any software for MTD: HMRC will develop all the APIs for use by commercial developers. HMRC say that there will be free MTD software but HMRC cannot compel commercial developers to release any. MTD software is likely to only be available on subscription and I guess charges will be £10-£20 a month.
HMRC said it will go easy on penalties to begin with. RTI has been around for 4 years but even now HMRC is using a light touch on penalties: none of my clients have ever been fined for missing a deadline.
The good news for you edp is that you won't be required to comply with MTD until 2020 at the earliest. MTD for VAT starts next year and I feel there will be so many problems with that and Brexit that we may never see compulsory full MTD.

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By edp
to kevinringer
21st Mar 2018 13:56

I appreciate you taking the time to reply in such an informative way. Seems like we're heading towards RTI accounting.

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to edp
20th Mar 2018 13:24

Hi epd

'I hope that HMRC's webinars will be informative, comprehensive and well presented.'

Hmmm yes that would nice but don't rely on them answering your specific questions as they get VERY busy and often shut down the questioning service well before the end!

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to Bill H
20th Mar 2018 13:17

Hi Bill

I also asked HMRC (in 2017) if they really thought this was going to work as was told that by 2020 the tax return would be so different from what was needed now they knew it would all work fine!

I also heard a rumour that the complete shut down of HMRC SA on 29th September 2017 (when it was down for 5 days!) was the first attempt at integration of the new requirements... Has anyone else heard that?

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20th Mar 2018 11:15

Will the future of accountants need to provide a quarterly service to every client? I really can't see this happening. Maybe I need to employ a large work force to cope with the impact it is going to have on me as a sole trader. Putting the fees up to existing clients won't be appreciated. Might retire before I am even 50! Sounds more appealing.

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By DJKL
to uktaylor
20th Mar 2018 13:03

uktaylor wrote:

Might retire before I am even 50! Sounds more appealing.

I too am in limbo on this though cannot go at 50 as am fast approaching 60.

My full time employment is now only three days a week and in theory I could expand the evenings and weekends practice I have had for a number of years, but I don't, I hesitate, I maintain my existing clients and spend the spare time on odd DIY projects.

I now have the time to gear up re the new regime, I even purchased a web domain and company whose name better reflects the practical reality of the new regime, but still I hesitate, I really know ,deep down, I do not want to operate under this regime (or certainly not as the owner)

So, I am away to my secluded Swedish house for Easter, I will sit there and contemplate the universe and if very lucky come to a decision whether or not I leap in with both feet re MTD et al or seriously start planning to head for Sweden during the Brexit transition period and make my home there. (Complicated by an elderly MIL and a graduate daughter without a career)

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to DJKL
20th Mar 2018 20:47

That's where I may actually have something from HMRC. My pension, which I can collect at 55, and I'm 53 now, so maybe time to start considering my options.

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to DJKL
21st Mar 2018 16:44

Hi I have been trading as a sole trader for 17 years and its getting harder and more expensive to run my own practice. I have many clients who would not have a clue how to file online and I could not cope with quarterly filing for every client. Not sure how this is going to pan out. I can't see how I will cope with the extra workload and my clients won't want to pay me any more.

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By Ammie
to uktaylor
22nd Mar 2018 17:23

I think you echo the thoughts of a very large number of the smaller practices, certainly sole practitioners and certainly me.

The crossroads of the future are fast approaching for many and very big, (some life changing), decisions will need to be made.

If HMRC press on with little care or reflection on the practicalities there will be repercussions they had overlooked and won't like. Not an unusual scenario for our authorities.

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By Tornado
20th Mar 2018 12:57

I am finding it increasingly difficult to reconcile the fantasy expectations of the Government & HMRC with reality.

With so much disruption in existing Government online services, almost on a daily basis, it is impossible to believe that by April 2019 there will be 100% reliable tested software to deal with MTD for VAT and an IT infrastructure that is also 100% reliable and fit for purpose.

There is no way that MTD fot VAT is going to happen next April and if HMRC do try and push this through, they and only a few of their close mates will be at the party.

VAT revenues will dry up as people (with correct information) struggle to submit Returns and pay what is due. The Country will clearly be in crisis whilst HMRC continue to delude themselves that they know best.

The Government have clearly lost the plot and need to spend a few months in the real world.

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to Tornado
20th Mar 2018 14:04

I disagree
Xero will have 5 million more users
I will have 4 more bookkeepers
Some old boys will retire and I will get their clients
Sales up 27% profits up 35%
some people will get it wrong and we will pick up the investigation/ repair work

Keep up bonnie lad :)

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to Tom 7000
20th Mar 2018 15:10

All this to be paid for by WHO???????????????????
Ah yes the small self-employed who are just about scraping a living, or those that are comfortable and are really going to part with their holiday money.
Now Tom I can agree that that's what should happen if MTD went according to plan, but you know what they say about the best laid plans. So I wouldn't buy the Island just yet

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By Tornado
to Tom 7000
20th Mar 2018 15:59

Interesting about the book-keepers.

Speaking to a client recently whose husband owns an IT business and set up a Sage Book-keeping service with four book-keepers a little while ago thinking it would be a great money spinner.

Apparently he has now sold this on, as a money spinner it was not. Generating enough money to pay the staff was the first problem and constant problems with Sage was another.

All that Sage and other developers are doing is getting you to sell their products for them, for which you get little or no reward.

So it may well be Sales up 27% but profits down 35%.

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to Tornado
20th Mar 2018 16:10

If I remember rightly the original intention of HMRC was that the client did the updates themselves and we just did the normal year end with any adjustments needed. I really can't see any of this happening.
What hasn't been stated is when HMRC are going to do away with the yearly tax return.

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to Tom 7000
21st Mar 2018 16:00

Dream on...

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By SXGuy
20th Mar 2018 18:19

No idea what planet Tom is on personally.

I for one am not looking forward to 200 clients I see twice a year now trying to retrieve information every 3 months instead.

And any extra income I have as a result of the old boys leaving will be eaten up by employing a donkey to do, well donkey work.

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