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HMRC’s Giles McCallum on the purpose of MTD

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Giles McCallum, the director of Making Tax Digital, sets out HMRC’s vision for MTD and the benefits it will bring to the tax system.

19th Oct 2021
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Two things are key with Making Tax Digital (MTD): the first is that we must deliver an Income Tax Self-Assessment (ITSA) service centred around the end user – be that a taxpayer, an accountant or a bookkeeper.

Secondly, MTD should be a catalyst to drive up wider digital adoption by businesses, the self-employed and landlords, which I know will bring benefits to both the tax system and the way business operates. MTD is but the first building block of wider tax digitalisation and simplification in HMRC.

I also understand that not everyone will find the transition to digital easy. I’ve heard from those in the vanguard of digital adoption urging us to move further and faster. But I’ve also heard from those apprehensive, or indeed reluctant, about moving from paper-based processes to digital and from a single end of year submission to quarterly reporting.

Not everyone is ready to make this move just yet. That’s why the Financial Secretary to the Treasury (FST) announced the new date for the mandation of MTD ITSA, of April 2024. This will ensure we move at a pace which meets the needs of the full range of businesses and agents who will have to adopt new processes, while also ensuring that more customers have the opportunity to fully test the system by participating in the pilot.

Costs of complying

As part of the FST’s announcement, we also released our estimate of the likely costs of complying with MTD ITSA. These estimates were produced following a period of consultation with stakeholders, including business and accountancy representative bodies, testing our assumptions and gathering feedback to ensure that they reflected the likely range of experiences that different business types could expect.

Some of those who worry about the costs might reasonably ask why small businesses should have to bother with MTD at all. My view is clear. While there are costs involved, particularly in the transitional period, we expect businesses to experience benefits in the longer term, through wider digitalisation, additional resilience and time saved on administration.

Software options

The government thought long and hard about whether to produce a basic ‘one size fits all’ piece of software to use, or whether the software market was better placed to provide these solutions. We believe software suppliers will deliver products that work best for taxpayers. Facilitating a software market means a range of options will be available, so that software which does more for your business is available, whether that be tying in with bank feeds, business management tools or increased automation. So, our job now is to help develop a software market that provides for the breadth of different business needs. It will be able to do this far quicker than HMRC, and with a greater focus on continuous improvement as a result of market pressures.

For there to be a smooth transition to a more digital way of doing tax, we also believe that those with the most straightforward affairs should be able to choose a product to use which is free of charge, something we are working with the software industry to ensure is in place.

Moving to a quarterly rhythm

Alongside digitalisation one thing that some stakeholders want to understand is what drives the need to move to a quarterly rhythm of sending updates to HMRC. I want to be clear that these updates are not tax returns. They will just be a simple summary of income and expenditure drawn from the digital records you are already keeping, without the need for lots of reworking. Adjustments for tax purposes are made in an end of period statement at the end of the year and may be used to correct any inaccuracies in quarterly updates.

The core purpose behind quarterly updates is to bring record keeping more up-to-date. When a business keeps paper receipts throughout the year, the information in the resulting tax return is often incomplete and inaccurate. Receipts may have gone missing or simply a business may not remember the context of an expense. Keeping more up-to-date records will reduce those errors and give a better indication of how the business is performing.

Time to prepare

We continue to communicate with businesses and agents to raise awareness of these changes. It is vital that not only do they understand what will be required of them, but also that they are reassured that for the vast majority, this will be a fairly straightforward transition. It will bring their interaction with the tax system up-to-date and more in line with what they come to expect from the other digital services they rely on to run their business, as well as in their day-to-day lives.

The emerging evidence from our experience of MTD for VAT is that MTD is working as intended. It is cutting down on errors, making tax management easier to get right for businesses, and bringing more money into the Exchequer, which can be spent on our vital public services.

Now that we have additional time to prepare for MTD ITSA, HMRC is redoubling our efforts to take full advantage. We will work closely with businesses, agents and software suppliers to ensure we get this right and deliver a digital tax service fit for the 21st century.

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Hear from HMRC at AccountingWEB Live Expo 

Giles McCallum, along with HMRC’s chief executive Jim Harra and other HMRC representatives, will be speaking at AccountingWEB Live Expo on 1-2 December. This will be your chance to to put your questions to HMRC. Register to attend the event by clicking the link below.

Replies (228)

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Replying to David Gordon FCCA:
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By Agutter Accounts
22nd Oct 2021 13:06

The best you can say about this man is that in terms of tax he would be regarded as a "gifted amateur". It is the quality much used at the top of the civil service for many years and shows why so many government systems are so dysfunctional.

Add to this that too many top politicians -look and the current Cabinet - are ex-journalists, lawyers or SPADS or investment *ankers and you realise what a complete bu**ers muddle the central government has become.

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By JRX
22nd Oct 2021 13:32

Same old message we have been told many times before. The guy has zero tax knowledge as far as I can see and no idea of how the majority of clients and small practices operate - who's bright idea was it to recruit him to this role!

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Replying to JRX:
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By johnjenkins
22nd Oct 2021 14:22

He's obviously had a lot of success in industry and no doubt he will oversee the MTD system how HMRC want it to be. Accolades all around, knighthood in the wings.
However it's what we are left with that will be the problem.

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By adam.arca
23rd Oct 2021 09:45

Just out of interest and without reading all 195 posts (wow), has Giles actually respond3d to anything?

Or is this just another fire and forget missile from HMRC so they can tick that “we’ve consulted” box?

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Replying to adam.arca:
RLI
By lionofludesch
23rd Oct 2021 10:35

adam.arca wrote:

Just out of interest and without reading all 195 posts (wow), has Giles actually respond3d to anything?

Or is this just another fire and forget missile from HMRC so they can tick that “we’ve consulted” box?

Don't be ridiculous, Adam.

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Replying to lionofludesch:
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By adam.arca
23rd Oct 2021 10:57

Yes, just too outlandish :)

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Replying to adam.arca:
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By Hugo Fair
23rd Oct 2021 15:55

A "fire and forget missile from HMRC" would at least suggest they're capable of building & operating the launch system (although they'd probably forget to prime the charge)!
Their current standards aren't noticeably advanced from those seen in a Primary school playground ... where "throw something and run away" is deemed the height of strategic planning.

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By sammerchant
24th Oct 2021 11:01

There are very many valid arguments made herein against the present proposals for MTD for ITSA. If someone with the patience could glean these and consolidate them into an article, that would be very helpful. We agents could then send a copy to our MP and our clients arguing for a rethink.

Perhaps that might even tempt HMRC (Giles or similar) to respond in detail tackling the points individually, rather than by means of a glib brush-off.

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By David Gordon FCCA
25th Oct 2021 13:22

Dear Sammerchant
You are correct, but this MTD disaster is largely of our own making.
Our professional associations should act as our Trade Unions. The observable fact is that they have not.
According to stuff put out on the internet by HMRC there are some fifteen separate tax professionals organisations HMRC deals with. Have you heard or seen any sign of them getting together to represent us in this matter?
No? Me neither.
If our organisations do not speak for us why should HMRC take any notice of individual tax accountants?
My observed reality is that us accountants, because we are mostly wary of being labelled "Troublemaker", are very wary of sticking pins in our professional organisations, let alone HMRC.
So HMRC and our organisations may go on their merry way, confident that the mice will never agree on who is going to bell the cat.
This is the truth of our professional life.

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Replying to David Gordon FCCA:
Tornado
By Tornado
25th Oct 2021 13:50

"If our organisations do not speak for us why should HMRC take any notice of individual tax accountants?"

The simple answer is that is that MTD will not work without the co-operation of thousands of Accountants like us.

Also, the Professional Bodies will not exist without the co-operation of thousands of Accountants like us.

Something for everyone to think about there.

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By KenKLM
26th Oct 2021 10:38

Firstly it’s appreciated that we have someone from HMRC actually reaching out. Now you need to listen …..

Quarterly returns will presumably be 5/7 ; 5/10 ; 5/1 and 5/4 ? Most sole trade clients I have are extremely unlikely to download an App and do it themselves . Not going to happen in the real world of hairy [***] builders and chippies. Even those with some basic understanding will want their accountants wiping their backsides. Will they bring in records on time ? No .. they never do . Will it mean if they do want their accountants to put it together on agent’s software will all of your clients be dropping work in paperwork in the same month of a quarter - this is what I want an answer to as it will overload us that month and give us 2 other quiet months . What about VAT registered clients with difference staggers ? In my view you don’t fix something that currently works . Once a year is adequate and I can see no sensible argument for this quarterly reporting .. it’s just creating work and stress and if HMRC think ALL sole trade taxpayers are going to be delighted with software / Apps and forced to do this then I think you are deluded . The other delusion is that taxpayers will actually meet filing deadlines - how many miss the annual January one already !! A further delusion is that taxpayers will understand what to enter ; how to enter and understand what they can and cannot claim - capital allowance is 1 example ; meals ; clothes ; personal proportion of expenses … etc. etc.
The final delusion is that accountants will embrace this . Some will see it as an opportunity to churn Bookkeeping work but I fear most will recognise this will be one hell of a cockup they can do without and will simply not want to get any more involved with their clients than they currently are and certainly will not want to get involved if and when there are errors on self submitted returns or clients are getting themselves in a mess with late filing etc.

A slow move to annual digital filing is acceptable . Quarterly is frankly a joke .

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Replying to KenKLM:
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By Agutter Accounts
26th Oct 2021 10:52

That is the situation very eloquently put. I am currently chasing up my stragglers, sometimes for the second or third time.

Going digital gradually on an annual basis sounds very sensible and doable.

And a threshold of £85k as for VAT would mean the more digital savvy go first.

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Replying to KenKLM:
RLI
By lionofludesch
26th Oct 2021 11:04

KenKLM wrote:

Firstly it’s appreciated that we have someone from HMRC actually reaching out. Now you need to listen …..

Quarterly returns will presumably be 5/7 ; 5/10 ; 5/1 and 5/4 ?

My understanding - which may have been incorrect - was that the quarter ends tie in with the accounting year, not the tax year. I'd like that clarified.

As things stand, folk with March year ends might find themselves being pressured by their accountants to have January or February year ends.

If this mandatory fiscal year assessment comes off (which is looking less likely now), April and May might be the more popular choices.

Or you could just urge the clients to bring the stuff in monthly and, if they don't, they get penalised. In the same way that you don't rush around trying to complete a SA return by the deadline for a fella that only brings his books and records in at 5 pm on 31st January.

Don't accept all of the responsibility. Submitting on time is the client's problem.

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Replying to lionofludesch:
Morph
By kevinringer
26th Oct 2021 11:30

lionofludesch wrote:

My understanding - which may have been incorrect - was that the quarter ends tie in with the accounting year, not the tax year. I'd like that clarified.


Originally one quarterly submission was going to be made which would be combined VAT and ITSA, and would follow the VAT stagger, and if the year end didn't coincide with the VAT stagger another submission would be required to the year end. Each business would report separately eg sole trader with two businesses would have two sets of quarterly MTD returns. Rental income would be reported separately to 5 July, October etc. That was before the (now postponed) basis period changes. The basis period changes require the apportionment of profits to 5 April (or 31 March). Note it is apportionment and not the actual profits. I've no idea how this apportionment would be reported through MTD ITSA but assume that must require a submission to 5 April (or 31 March). Given that the basis period changes are now up in the air and everything is delayed for 12 months because the poor software providers (who were dead keen on MTD until they realised how much work it involved) can't cope, I suspect the final rules will be changed to accommodate the software industry.
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Replying to kevinringer:
RLI
By lionofludesch
26th Oct 2021 11:47

kevinringer wrote:

I've no idea how this apportionment would be reported through MTD ITSA ...

We've no idea about any of the practicalities, Kevin.

That's what makes it so bloody hard to come up with a plan for your clients to start on MTD.

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Replying to KenKLM:
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By Latinaid
26th Oct 2021 11:04

KenKLM wrote:

will all of your clients be dropping work in paperwork in the same month of a quarter -

You're obviously an optimist. Same day of the quarter, I'd say - i.e. the last day.

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Replying to KenKLM:
Morph
By kevinringer
26th Oct 2021 11:13

KenKLM wrote:

A slow move to annual digital filing is acceptable .


It's already here, it's called Self Assessment and I guess most of us file online and not on paper. The problem with MTD is not so much the quarterly filing because we already do that for VAT, the problem is the digitisation of transactions. If we already had all the transactions digitised I reckon MTD ITSA could work. But it's the digitisation of the transactions that will stop MTD working. Most clients will be incapable of digitisation their transactions and those that are prepared to do it will make a pig's ear of it. HMRC seem to think all clients need to is "press the button" and hey-presto their quarterly MTD return is filed. But HMRC don't realise that most small businesses don't have digital records, and many don't have any records at all.
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Replying to KenKLM:
Tornado
By Tornado
26th Oct 2021 11:15

A good summary and another reasoned explanation as to why MTD will fail in its current format.

I had envisaged that HMRC would back off at the very last minute and set the limit at £85,000, and my odds on this happening are 96%, but now I am getting even more sceptical and think the only other viable option that HMRC have is to make MTD for ITSA optional across the board.

This would then give them a fighting chance of getting their systems to work properly within the next 10 years.

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Replying to KenKLM:
Morph
By kevinringer
26th Oct 2021 11:44

KenKLM wrote:

Will it mean if they do want their accountants to put it together on agent’s software will all of your clients be dropping work in paperwork in the same month of a quarter


Most clients would not receive their supplier invoices until part way through the 30-day filing period. So everyone would deliver in the last 2 weeks (if we're lucky). There's no way we can do a whole quarter's work in 2 weeks. So if MTD ITSA happens, I think we'd have to do the work monthly. It's the only way we could cope. That would mean chasing clients monthly instead of annually. And I know that'll be a challenge because I already do this for a few clients and it's a real struggle getting the info in.

And there's something else. We are supposed to get client approval for every Tax Return submitted. That's easy in SA: I send them a paper Tax Return, they sign, I submit online. I don't use an online client authorisation system because most of my clients are digitally-excluded or digitally-challenged. But how would this work for MTD ITSA? Will I be expected to print a paper copy of the MTD ITSA submission and get clients to sign? That will require another week.

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By djtax
26th Oct 2021 12:35

Further to the suggestions above to do so I have just sent Giles the following:

Giles - have you read the responses to your article and will you take up any of the offers to see what actually goes on in the real world of small businesses? What experience do you have personally of small businesses, how they function and how MTD will impact upon them? I have 25 years experience and am one myself. NB by 'small business' I do not mean the standard official definition of under 50 employees or even 10 (so called 'micro' businesses). What I mean is the one man band or husband+wife set up or the two work colleagues deciding to set up their own firm perhaps with one or two staff at most. I mean businesses that do not have a handy IT dept to deal with all this. I mean businesses that have kept immaculate manual records who are being pushed into technology that is wholly alien to them. I mean businesses that will feel no longer able to do the record keeping themselves and so will incur significant additional costs engaging previously unnecessary bookkeeping/software assistance. Please break the HMRC mould and engage with us rather than just talk at us.

Thanks (6)
Replying to djtax:
Morph
By kevinringer
26th Oct 2021 13:04

Well said djtax, very well said.

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By johnjenkins
26th Oct 2021 12:58

Dear Giles,
I bet you wish you never allowed Aweb to post your article.

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Replying to johnjenkins:
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By djtax
26th Oct 2021 14:15

John - though if you look at his AWeb account activity this is his one and only involvement on AWeb. It is quite likely that he will never be seen here again and that he has not logged in since writing his article and therefore remains blissfully unaware of any of our comments or indeed the 'replies' we think we have sent to his AWeb presence. Though if anyone wants to contact him properly HMRC personnel generally have an entirely predictable pattern for their official HMRC email addresses.....

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Replying to djtax:
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By johnjenkins
26th Oct 2021 14:33

So as in Rebecca's post, a PR exercise that has fallen flat on its back.

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Replying to djtax:
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By sammerchant
27th Oct 2021 13:41

I agree that it is highly unlikely that anyone from HMRC is following this thread. I think Rebecca is and perhaps she can pass on the very many valid points made by the contributors.

As a member of a professional body myself, it irks me to think that they are taking the Switzerland position in all of this. The solids when they fly will cover everyone but not in glory. The professional bodies should be tweaking HMRC's year and that of the Minister responsible for HMRC, Liz Frazer who is a QC and, I would wager, quite unfamiliar with the tax reporting and compliance system in the UK. The question is, can she be bothered to find out?

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By David Gordon FCCA
27th Oct 2021 12:32

For today
The point really is that except and unless our professional organisations take up the cudgels for the
members, in a meaningful way, we will get nowhere.

This MTD business is similar to the fiasco regarding the proposed new tank, which has taken ten years not to be delivered. When the first samples were recently delivered, they made the servicemen test driving them so sick, many of them had to be permanently invalided out of the army.

As Cromwell is reputed to have said to Charles I, "I beseech you sir, think you not you may be wrong?"

This is apart from software houses, bombarding us daily with their amazing new offers. Bit like coffin and shroud accessory purveyors telling undertakers how Covid 19 is an opportunity to use their products for extra fees.

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By AndrewV12
24th Nov 2021 11:15

'I also understand that not everyone will find the transition to digital easy. I’ve heard from those in the vanguard of digital adoption urging us to move further and faster. But I’ve also heard from those apprehensive, or indeed reluctant, about moving from paper-based processes to digital and from a single end of year submission to quarterly reporting.'

Who are these people demanding further and faster.

On another note 227 replies and counting, this post has touched a nerve.

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By lh3f9764bg1g
25th Nov 2021 11:22

If they think we are a bunch of complainers . . . . . . just let them wait until they (dare to) inform the taxpayers of their intentions.

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