Lords committee: MTD plans 'déjà vu all over again'

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HMRC’s digital VAT plans came under the microscope in the House of Lords yesterday, as its economic affairs sub-committee examined the rollout of Making Tax Digital for VAT, its pilot scheme and the recent six-month deferral for complex businesses.  

As part of an ongoing inquiry into draft Finance Bill 2018, the committee launched scathing attacks on the level of preparedness among small businesses, the cost of compliance and the figures behind the scheme. The session can be viewed on Parliament TV.

Former business leader Lord Hollick was among the most vocal critics of the programme, and declared that since the issue of Making Tax Digital last came before the committee in March 2017 “precious little progress had been made”, and quoted a famous baseball line that it was “déjà vu all over again” for those who had sat through the previous hearing.

Last year HMRC’s implementation timetable came under scrutiny from the sub-committee, who urged the government to delay its tax digitalisation until April 2020 – a suggestion that was ultimately adopted for income tax.

Responding to committee chair Lord Forsyth, Making Tax Digital for Business director Theresa Middleton said that there were “no plans” to further delay the project and that she expects all groups will be ready ahead of the April 2019 mandation date.

Pilot scheme and awareness

Prior to the hearing, the committee received evidence from parties including software vendors, accountancy bodies and individuals. Lord Lee stated that the evidence showed an “overwhelming lack of awareness and preparedness out there” from businesses and that the impression the committee had was that the project was heading for a “giant car crash”.

Middleton acknowledged that awareness levels were not “massively high” amongst the business population, but asserted that HMRC did not want to promote MTD for VAT before the pilot was publicly available and HMRC’s partners in the software industry and accountancy bodies were ready.

According to Middleton awareness levels are “where we expect them to be,” given that the tax authority only recently begun its promotional campaign.

“Our judgment is that when you start to raise awareness people say ‘what do I do?’”, said Middleton, who went on to state that until the pilot was ready it wasn’t sensible to get people “excited or anxious”.

However, Lord Hollick disagreed, stating that anybody working in the commercial sector would be delighted with high levels of product awareness and that HMRC had a duty to inform taxpayers of a “very important” change in their lives.

Hollick also criticised HMRC for narrowing the definition of the term ‘pilot’ to one that just covered whether the software was working.

“The impression we gained [from last year’s session] is that the pilot would give you the opportunity to see how businesses will react... in every other form of life an extremely valuable input,” he said.

HMRC recently opened up the MTD for VAT pilot to more than 500,000 businesses, and Middleton affirmed that the pilot did not exist just to test the software, but also to examine the “customer support model” (YouTube video tutorials, online guidance, etc) and work out if they were good enough to guide taxpayers through.

Cost to business

Baroness Kramer moved the conversation on to the cost of compliance for business. According to Kramer, a former vice president of Citibank, the evidence presented “two entirely different pictures” when it came to the financial impact on businesses.

“There is one conversation between HMRC and the software companies, for whom this is all their Christmases come together, and on the other side people who actually work with small businesses,” said Kramer.

She went on to state that HMRC’s suggested numbers were “way off the mark” and the reality would actually result in a “crushing increase” in business cost, especially when training and professional support costs were factored in.

Middleton admitted that while under the original MTD proposals HMRC’s figures showed an ongoing saving to business, its reduced scope now showed a “small ongoing cost”. This, she explained, was because those now mandated into MTD were more likely to be using software, and therefore would not reap the efficient benefits of going digital.

According to HMRC figures quoted by Middleton, the typical cost of small business software required to comply with MTD is between £10 and £20 a month, and while businesses currently using paper-based records will bear the cost of buying and learning to use it there would be an “opportunity cost” based on efficiency savings. Middleton went on to state that she believes the market will be “quite competitive”, particularly for businesses currently not using software.

One of the biggest challenges, Middleton stated, was to find a way to help taxpayers navigate through the increasingly extensive list of ‘MTD compliant’ vendors and find software suitable for their business.

Deferral for complex businesses

Along with the opening up of the VAT pilot, HMRC last week announced a six-month MTD deferral for a number of organisations with more complex requirements to give them “sufficient time for testing the service” before they are mandated to join.

Lord Leigh questioned this decision, asking if the delay was because larger companies with more complex VAT affairs had “shouted the loudest,” and if it was an example of HMRC “bending over backwards” for large customers.

This was vehemently denied by HMRC’s director general for customer strategy and tax design Ruth Stanier, who stated that the delay was due to the “complexity involved in making sure necessary IT functionality is in place.”

Stanier went on to point out that the group of businesses affected by deferment is a wide spectrum, including charities and local authorities, and the decision was driven by an assessment of complexity and functionality.

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By Tornado
23rd Oct 2018 17:08

"director general for customer strategy and tax design"

Pretentious rubbish.

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to Tornado
24th Oct 2018 20:05

HMRC. As brought to you by Siobhan Sharpe of Perfect Curve. Expanding your mind whilst contracting your wallet.

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23rd Oct 2018 17:50

The large number of vendors does not help. If HMRC could issue a list of those companies who will provide the easiest excelt out of cloud solution for those of us using digital records which is cheap or free and where we can download the software tomorrow to have 6 months of testing it htat woud be helpful. Instead as far as I understand it they have not yet told the software companies exactly what they need to produce for bridging software so we cannot download it yet. I might be wrong of course.

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By nicdell
to EnglishRose
24th Oct 2018 10:09

I had an email from Taxcalc the other day saying that they have produced bridging software. It costs £75 - presumably per annum - but I haven't had time to look at this yet.

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to nicdell
24th Oct 2018 11:54

per quarter I believe

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By nicdell
to Tom 7000
24th Oct 2018 12:20

Just checked with Taxcalc Tom and their prices are per annum. However, £75 is for a micro practice (12 clients). The unlimited clients version is £200.

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to EnglishRose
24th Oct 2018 10:47

There are a number of solutions which act as bridging software between Excel and HMRC already available to use for the pilot.

Wolters Kluwer have CCH OneClick which includes the ability to take any Excel spreadsheet containing the 9 boxes and submit those numbers to HMRC.

( I do work for Wolters Kluwer)

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By nicdell
to lee.bennett.wolterskluwer
24th Oct 2018 11:00

How much does it cost?

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to lee.bennett.wolterskluwer
24th Oct 2018 11:55

how much is it for 300 clients please?

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By nicdell
to Tom 7000
25th Oct 2018 09:23

No response yet from CCH on price?

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23rd Oct 2018 17:53

Good summary Tom, the session is well worth a watch if you have not seen it.

Apparently HMRC are still clinging to the belief that digitalisation will raise tax revenues. Apparently we don't ever do a VAT rec and pick up on any typos, or check sales invoices to bankings and miss them off.

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to ireallyshouldknowthisbut
24th Oct 2018 10:51

I don't believe it's all necessarily about raising tax revenues but making the process more efficient by using software when able to. There are going to be instances where adjustments are necessary, either to the original trasactions themselves, in which case use the bookkeeping software itself to make the submission, or by using Excel to make any adjustments, in which case use some bridging software.
And also don't forget - going digital can just mean using Spreadsheets - it doesn't have to mean using the most up to date bookkeeping software available.

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to lee.bennett.wolterskluwer
24th Oct 2018 11:28

Efficient for whom? Its not the tax payer. If the tax payer can be more efficient they will, by and large, already be using digital methods. For those where its not more efficient, they wont. Business people are generally rational people, not children willfully wasting time, and its their time after all!

From HMRC's point of view I don't see why its more efficient for them to have to vet 70+ software products, vs having their own portal that works and collects the same data.

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24th Oct 2018 08:37

"So", as all the responses began, from the HMRC wing!

As Lord Hollick correctly remarked, people are; "highly critical, highly anxious and, highly concerned". It's akin to our present daily dealings with HMRC, in general practice.

In recent years, the UK has demonstrated that, when we come to integrating major changes, which I'm sure will include making tax digital (difficult), we're actually not that efficient. Compared to other nations, we're not that good. You've only have to look at; Universal credit, our railway infrastructure, Crossrail, Home Office etc etc.

To leave (some) taxpayers unaware of this major change, with only six months left, before integration into the existing arrangements, is tantamount to gross negligence.

"So", to summarise (as the HMRC wing would begin) - which member would venture to wager that the new regime will be the success that HMRC's board, would have us believe?

For one who started out in the profession (1973), when HM Inspector of Taxes and HM Customs and Excise, were; highly respected and revered, the decline in general standards and expectations is so; disappointing and, I have to say, embarrassing.

For one who embraces change and, accepts that systems must be updated, I simply fail to see why HMRC and, other Government agencies, won't co-operate with the private sector, to ensure that these operations can be seamlessly integrated. A realistic lead in time, for such major changes, would, in my view, be 24 months, with successive pilot programmes.

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to Chris.Mann
24th Oct 2018 09:36

Chris.Mann wrote:

"So", as all the responses began, from the HMRC wing!

I still have around a half hour or so to go, but the whole "So....." thing is really starting to irritate me, now.

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to SteLacca
24th Oct 2018 10:31

Quite unbelievable.

As a daily listener, to the BBC Radio 4, Today programmes, it really is amazing, how many individuals speak in this manner.

One of my other gripes is (often in the queue for a sandwich) "can I get"? No, you most certainly can't. The assistant will serve you!

"So", I really am becoming a grumpy old man. "Can I get" some care!

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By Tornado
to Chris.Mann
24th Oct 2018 10:13

I agree with everything you have said.

"For one who started out in the profession (1973), when HM Inspector of Taxes and HM Customs and Excise, were; highly respected and revered, the decline in general standards and expectations is so; disappointing and, I have to say, embarrassing."

I started in 1971 and have experienced all major changes in the tax system since then. Mostly, and especially with Self-Assessment, changes have been introduced in a gradual and realistic way with real consultation and communication between all those affected by the changes.

I was active at the time of the introduction of VAT and just looking back at the first VAT Return that this firm submitted, I am reminded that there were 24 boxes to be completed. Successive Governments have realised, however, that trying to obtain so much information leads to errors and misinformation so by limiting information required to key areas, the quality of information is better and more accurate. Special schemes were introduced to assist businesses to simplify their records to produce more accurate results. Hence the 9 boxes that are now completed on a VAT Return. With just 1 in 10 businesses actually dealing with importing or exporting, some of those are never even completed by the majority of those registered for VAT.

We should remind ourselves that the Government and the Civil Service are there to do OUR bidding, not to do what they want to to do. We have democratic processes that have worked well for hundreds of years and do not need reforming. What we see with MTD is the Government telling us what to do and not doing what we bid. Somehow, these Public Servants think they own the Country when in fact they are just there to do our bidding, just like directors in a company doing the bidding of the shareholders who are the real owners of the company.

I would also point out that a 51% to 49% vote by shareholders at a company meeting means that the majority win and the motion is carried in favour of the 51%. No moaning, no suggestions by the 49% that the 51% did not know what they were doing and the vote should be taken again. The motion is carried by the majority and the company proceeds on that basis which moves the Company forward decisively.

HMRC today is full of people who are arrogant, ignorant and have their own agendas.

“There is one conversation between HMRC and the software companies, for whom this is all their Christmases come together, and on the other side people who actually work with small businesses,” said Kramer.

This highlights the thoughts of many of us that the ultimate winners from MTD will be the software companies who stand to make £Billions from these unnecessary changes, and where has the 1200 million pounds budget for MTD gone?

I think this stinks quite a bit and this is one change in the administration of taxation that needs to stopped and thought out again right now.

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By trecar
to Tornado
24th Oct 2018 11:45

Not too sure why the 51% majority point was brought in. But, would say that the 49% have a choice if they don't like the decision. They can just sell and look for other opportunities, for which there are many in the stock market. They have a choice unlike other circumstances where there is either no choice or the alternative choice is life changing. MTD being such a circumstance.

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to Tornado
24th Oct 2018 12:31

I started in 1965 and can pin point the exact time HMRC started to fall apart. It was the day Gordon Brown took over. Up until then there were always little purges, which tended to sort out those that took the Michael. Then the GB era really started to mess with Joe Bloggs, self-employed, trying to put all small business onto PAYE. To this day that still is the objective of HMRC. MTD is the final straw that will either break the small business or will be the biggest disaster HMRC have ever been involved with. So, what's it to be???????????

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By Tornado
to johnjenkins
24th Oct 2018 12:58

"So, what's it to be???????????"

Retire to somewhere warm and let the kids sort it all out on their mobile phones.

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to Tornado
24th Oct 2018 13:12

Wot and miss all the excitement. The next 5 years are going to be incredible.
MTD, Brexit, Election fever, Trump, Putin, Saudi Arabia, Harry, Global Warming, plastic, pot holes, UC, meeting aliens and all you can think about is retiring to a warm place. If they don't sort out global warming you may as well stay where you are and watch the world go by with a glass or two of Malbeck..

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By Tornado
to johnjenkins
24th Oct 2018 13:27

If you put it like that, then it might be worth sticking around, especially to meet the aliens, although some might say that they are here already and running the country.

The Malbeck will have to stay in the bottle, however, as these days it has to be alcohol free Ghost Ship on account of the amount of driving I have to do.

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By SM80
to Tornado
24th Oct 2018 15:24

Sensitive or high impact decisions normally require a special resolution I would have thought. Just saying!

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to Chris.Mann
25th Oct 2018 12:04

I'm waiting to find someone who is "excited" by the prospect of MTD.

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24th Oct 2018 10:44

So to summarise...

evidence showed an “overwhelming lack of awareness and preparedness out there” from businesses and that the impression the committee had was that the project was heading for a “giant car crash”.

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24th Oct 2018 10:50

My blood-pressure medication has been utterly defeated . . .

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to dgilmour51
24th Oct 2018 11:56

Really sorry dgilmour51. For my next piece, I'll try and cover mediation or breathing techniques :-)

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24th Oct 2018 11:34

MTD is a complete joke - now that it consists of a small bit of software that links a spreadsheet to the HMRC system. How is this supposed to reduce the tax gap or make any progress in digitalisation?

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to matthew pennifold
24th Oct 2018 12:00

I suspect that spreadsheets will only be 'tolerated' for a limited period, perhaps no more than a couple of years, at which point taxpayers will no doubt be mandated to use a product capable of both recording and submitting digitally.

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By KenKLM
24th Oct 2018 11:36

HMRC with their head up their arses not seeing the problems for small business . It WILL cause extra cost and stress and some small business will simply not have a clue how to deal with it . Why are businesses being forced to use software they don't want in order to complete a VAT submission ? We are already unpaid tax collectors . Why do HMRC think they can change the rules and not provide the software to do it how "they want it" ? Continue to make the on-line submission available in its current format for all small businesses - simple solution . All an absolute shambles as usual . Time to retire when this all kicks in .

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24th Oct 2018 11:54

Precisely what useful information do HMRC expect to get from MTD? And, more to the point, what will they be able to do with it? HMRC is already resource stretched and systems are hopeless. RTI still doesn't work properly!

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to BryanS1958
24th Oct 2018 11:59

Because the pipe that submits the numbers from the vat calculation you have to HMRC allows them to look not only at the numbers you sent in but what backs it up. So HMRC s worms come down the line and check all your purchase invoices and sales invoices. So no more vat visits - you get auto interrogation

Perhaps not now but that's the aim.

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By Dandan
to Tom 7000
24th Oct 2018 14:47

Tom 7000 wrote:

Because the pipe that submits the numbers from the vat calculation you have to HMRC allows them to look not only at the numbers you sent in but what backs it up. So HMRC s worms come down the line and check all your purchase invoices and sales invoices. So no more vat visits - you get auto interrogation

Perhaps not now but that's the aim.

Digitilisation will eventually backfire.

In the same way that the internet and digitalisation has been very beneficial to criminals and hackers , making it impossible for the police to track scammers, HMRC will find it difficult to substantiate what are no more than binary codes underneath it all. No more hard copies to look at.

Perhaps the real future of taxes will be a kind of flat rate depending on size of business or status of individual. A kind of "back-duty investigation" type of algorithm. Every person pays tax according to what category they fall in and their status i society. No more invoices and bills to be used by HMRC as proof of income.It will save HMRC billions.

The digital world is a bit like a quantum mechanics world. What is in there depends on the observer.

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24th Oct 2018 12:08

"According to HMRC figures quoted by Middleton, the typical cost of small business software required to comply with MTD is between £10 and £20 a month, and while businesses currently using paper-based records will bear the cost of buying and learning to use it there would be an “opportunity cost” based on efficiency savings. Middleton went on to state that she believes the market will be “quite competitive”, particularly for businesses currently not using software."

Clearly, Middleton et al believe we charge possibly £10/hour?

On an annualised basis, her figures stack up to:

£120 p.a. to £240 p.a.

WE KNOW, even if the Great Gods HMRC and Treasury clearly do not, a MAJORITY of SMEs will be running to their accountants, since they are incapable of managing the process.

In any case, what about the SME operator's OWN TIME?

If it is spent struggling with software, then they are losing revenue: at a time in economic history, that they can least afford it!

One of the very first lessons I teach receptive new businesspeople, is to compute the real value of their own time. Most aren't receptive; too stupid and increasingly quasi-literate and quasi-numerate too.

I explain how they must value their own time, on a simple basis of "What were you earning before starting your new business? What perqs did you receive? Were you paid for holidays? How much (sunk) capital have/will you in invested/invest in your business? What is the COST of this?".

And now we have the idiots at HMRC denying such time has any value!

The purblind leading the blind, I fear.

In any case, until any business can afford a full-time bookkeeper, their default position is the accountant.

As I pointed out to the Lord's Committee in my 20017 submission and the latest, a MAJORITY of SMES ARE ONE-MAN/WOMAN-BANDS. Government's own stats!!!

This is going to end up in utter fiasco.

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24th Oct 2018 12:16

HMRC still sticking to their utter fantasy that the cost to businesses will be negative or even be of benefit.

Completely ignores all the additional training, new software, hours spent trying to talk to a human in HMRC when it fails to work because of something at HMRC's end, not to mention the endless additional hours the profession will have to spend fixing all the errors clients make when trying to categorise expenses and determine amounts of VAT that are claimable on receipts containing VAT and non-VAT items.

Already had my first client who's decided he's had enough and from next April is semi-retiring so his income falls below the VAT threshold in future. There goes £30,000 of VAT. He has no intention of trying to convert to digital just to please HMRC.

I really wish the ivory tower people who come up with these ideas were forced to come and work in small practices for at least a year (although who would employ them...) before they are allowed to introduce new 'ideas'. Preferably they should all have had real world experience before taking these jobs.

Now if only we could impose the same rules on all politicians, local councils, etc imagine how much less bureaucracy there would be!

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to Ian McTernan CTA
24th Oct 2018 12:24

Couldn't agree more, Ian!

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By djtax
24th Oct 2018 13:06

Together with seven other accountants (including two other AWeb regulars) I was invited to present the 'small business' case to the Lords committee last week.

From our session it seemed clear that the Lords committee does genuinely understand our concerns - as also evident from Monday's public session with the HMRC representatives (though, interestingly, HMRC supremo Jim Harra declined his invitation to attend .... passing the buck?).

As reported above this same committee did succeed last year in forcing HMRC to backpeddle at that time and I would not be surprised if the outcome of the current enquiry sees more HMRC backpeddling.

I understand the HMRC long term objective but agree with the overwhelming sense of opinions expressed on AWeb that the current project is flawed and is being pushed forward too quickly with insufficient testing. Lets hope the Lords again make HMRC appreciate what actually goes on in the real world.

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to djtax
24th Oct 2018 13:19

I don't think anyone is against the concept of digitisation of business records, however the timescale for such a MAJOR change and culture shock (to some) is ludicrous.

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to djtax
24th Oct 2018 20:30

Only in the context of HMRC could you ever look to The House of Lords to find out what the real world is all about. Seriously, do Mesdames Middleton and Stanier have any relatives, friends, acquaitances who are involved in small business? Do they ever meet a cabbie, window cleaner or the like?

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24th Oct 2018 13:26

Everyone must watch this session. HMRC are convinced that invoice are blown out of the van windows as the trader drives! HMRC's worry is that the value of output invoices blown away exceed the value of inputs. Rubbish. If this were true the road verges would be knee deep in invoices. In any case, most contractors using paper based systems will use duplicate books, not individual invoices. Well done to the Lords for giving HMRC such a grilling. The Lords really are defending the small businesses that will be disproportionately affected by MTD.

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By Tornado
to kevinringer
24th Oct 2018 13:41

"HMRC are convinced that invoice are blown out of the van windows as the trader drives"

Thanks very much for that one Kevin!

I just wet my knickers laughing at that observation.

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to kevinringer
24th Oct 2018 13:57

I've noticed this over the last couple of years. Never really had much time for the Lords, but the way they have gone after HMRC over MTD has brought a new found respect.

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By Tornado
to SteLacca
24th Oct 2018 15:47

SteLacca wrote:

I've noticed this over the last couple of years. Never really had much time for the Lords, but the way they have gone after HMRC over MTD has brought a new found respect.

It might be because there a a lot of them and many are or will have been in business and know what they are talking about. Those still in business, or associated with businesses and will be affected by MTD, may have their own misgivings about the extra work they may have to do to comply with MTD.

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to kevinringer
24th Oct 2018 14:16

Only time I ever heard of this happening from a client it was the purchase invoices that flew out of the van window so it was actually in HMRC's favour!

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24th Oct 2018 14:22

We are a small business and this MTD is a nightmare. We do not have to update our software every year, we also do not want cloud software, but Sage will not give us anything but cloud and the price is to high for what we would get out of it. What are we to do???

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to Honda Chic
24th Oct 2018 15:00

Sage will be continuing with their desktop software. It is now called Sage 50cloud Accounts even though it is desktop. I guess you would use the Essentials version (equivalent to the old Sage Instant) which costs £20/month. See https://www.sage.com/en-gb/products/sage-50c-accounting/.

MTD is a nightmare and you are at the mercy of your software supplier. Sage prices have been up and down. There's nothing stopping them doubling their price after MTD is compulsory.

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to Honda Chic
24th Oct 2018 15:47

Anything with the word 'cloud' is a potential worry under GDPR.
Your knowledge of what actually happens to the stored data is limited to words on a contract - i.e. zilch.
'cloud providers' will inevitably end up being processors AND controllers, so you really shouldn't use them unless you have the specific consent of your clients for each named one.
Until these 'cloud providers' standard contracts contain indemnification, without limit, over all and any costs, penalties etc. arising from their breach [of data loss, of location, etc.], howsoever caused, the risks are too high. Remember, under GDPR the fine is the good news - its the tort bit that will slay.

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By Tornado
to dgilmour51
24th Oct 2018 15:51

You seem to have flagged up a serious flaw in the use of Cloud Accounting which could potentially decimate Accountants and others using Cloud based software.

Perhaps AWEB could look into this in more detail for us?

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to Tornado
25th Oct 2018 09:59

"So" (as HMRC would begin a response) -worth a read?

http://www.cheapaccounting.co.uk/blog/index.php/making-tax-digital-breac...

Yet another thread to the debate?

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to Honda Chic
24th Oct 2018 18:01

For some of my very small landlords, £20 a month is 1% or more of their gross rent, plus the additional time spent scanning invoices and preparing whatever else they are supposed to submit. And this on top of restriction of tax relief on mortgage interest and increasingly having to pay local authorities for licences to operate as a landlord.

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