Making Tax Digital FAQs: August 2016 update
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I can see this becoming an utter mess for the smallest clients who have zero interest in using any digital system and do not want to spend thousands of pounds they don't have paying for someone to enter all their figures into a system they don't understand.
HMRC seem to think everyone has unlimited resources and an entire accounting department ready to deal with whatever whim they throw at us next.
I can see more of the smaller traders just dropping out entirely rather than pay a big increase in accounting fees as they will now need to drop all that paper off four times a year rather than once, and the accountant will now have to use a software system rather than excel and four times a year plus adjustments rather than getting the job done once a year.
What the commentators from large firms fail to realise is clients won't see this as 'an opportunity' they will see it as a massive burden and a massive increase in their accountancy costs being imposed on them.
I've not even started calculating how much more time the new system will take- at least twice as much time as there will be emails, chasing, drafts, finals, chasing missing information checking details four times a year rather than once.
I can just imagine what subcontractor clients are going to say to all this....
I'm not so sure the £10,000 is the only significant aspect.
This, "3.17 If we reach the end of the tax year and a query has not been resolved, we will make an estimated assessment using the information we believe to be correct, on the understanding that this assessment may change upon resolution of the query."
No mention of an appeals process, or even of the option to standover disputed tax. This means that if a third party provides inaccurate information, even if disputed, the taxpayer could finish up paying until such time as the dispute is resolved. Seems like APN for everything, to me.
Hi SteLacca - I saw this query just before I picked up the phone for an interview with HMRC director general, business tax Jim Harra and put your concerns to him.
He likened it to the situation where if you don't submit a VAT return HMRC will make an estimate based no the information it has. The taxpayer can override that when they do file.
If the business is not VAT-registered, there will be no obligation for quarterly payments, so the estimate would only happen for them on the final quarterly report of the yaer. "We’re expecting we’ll have to establish some liability, but that will be replaceable when the taxpayer does file," he said.
"If anything I want fewer people penalised. I expect proposals in the consultation document [for penalty points like driving offences] will achieve that, particularly for people who file late. Only if those who persistently fail to comply will get penalised."
We're still working through the detailed documentation and will cover that aspect in full shortly.
"If anything I want fewer people penalised" John even you must think Jim lives on a different planet. It's life Jim, but not as we know it.
That last bit says it all. "We're still working through it". They haven't got a clue what they are doing and how they will make it work. So will they offer courses for tax payers who default (like they do with driving offences) so no penalty points.
Thanks for asking the question, John. However, I don't liken the scenario to the VAT one, but rather to self-assessment in its' current form. i.e. right now the taxpayer submits his/her Return and pays tax according to that Return.
Under this proposal (and I specifically use an example where the third party information is flawed), the taxpayer doesn't get a say, and HMRC will instead call the shots. HMRC are likely to use the figures that they have and will raise their assessment. The taxpayer will then have to pay according to HMRC's assessment and not their own records.
If the third party discrepancy is significant the tax involved could be significant. The taxpayer (who, let's face it, has done nothing wrong and made provision to pay based on accurate figures) is forced to pay an inflated sum with nothing more than assurance that, at some future unspecified date, once the dispute is resolved (in this case, in the taxpayer's favour), the assessment will be corrected and a refund paid.
In the intervening period, of course, owing to HMRC's new presumption of guilt, his wife has divorced him, the building society have foreclosed on his mortgage and he's currently living in a cardboard box under the canal bridge.
Compared with the current system where HMRC would have to open an enquiry, the questions would be asked, the dispute resolved and no additional tax would ever be charged.
Like I said, APNs by a different name applied to all taxpayers at a whim with no formal process.
Is there a precedent for this? Does any other tax authority in a G8 country work like this? As far as I'm aware, everyone else does it once a year and with good reason.
As I previously posted this is BIG BROTHER gone mad. Where will all the additional bookkeepers and accountants come from?
I really can't get my head round HMRC wanting 1/4 figures yet not doing anything with them. How accurate do the figures have to be? Can they be estimated and sorted at year end?
As much as I've tried I cannot see this working. I haven't got any business on the books with a £10k or less turnover. Doesn't the £10k relate to PA. So what are HMRC giving the small business?
I have recently heard that this initiative stems from an EU requirement for more data as it appears they are not getting all the VAT they think should be paid. More data would help them understand where things are adrift (if at all). I would have hoped that with the Brexit vote HMRC and the government would consider it important that we stop burdening UK business with unnecessary regulation/administration and this would be a fine opportunity to significantly reduce reporting requirements. To set the level at £10K t/o for quarterly reporting, etc., is ridiculous - £10M would be closer to the mark.
What a load of rubbish. (Not the Contributors to this article of course, but MTD in general)
We already have a perfectly good system of accounting for Tax and Financial Reporting based on annual periods which could be adjusted fairly easily to accommodate the making of tax payments more frequently, if that is the ultimate aim of the Government. Annual reporting periods will still be required for Financial Reporting so why make a deliberate attempt to create a completely different tax environment?
The Government will still have a fiscal year so what about a more logical fiscal year that ends at the end of a month rather than an arbitrary 5th of the month, for a start and how are seasonal variations in income going to be dealt with. Pay a load of tax in one quarter and then claim much of it back in the next.
The Government are going to have to get people like myself on board if they want to have any chance of success with making tax digital which must start with the bigger businesses, be optional and be introduced over a long period of time. So far I am not impressed at all with the proposals and will not support them.
All I see is uninformed people playing with something they do not understand and ultimately there will be a lot of money to be made by a relatively small number of people, such as the software developers.
Over the next few months we are going to see the effects of that other fantastic idea, Auto Enrolment, as tens of thousands (perhaps hundreds of thousands) of unrepresented small businesses find themselves being fined heavily for not doing something that they do not understand, and many being swallowed up by the complexities and onerous ongoing obligations of this unnecessary project. This could easily have been effected through the existing PAYE system with relatively minor changes.
The bit that I find particularly patronising is the assertion that agents will love this system as we will not need to prepare annual Tax Returns. This is clearly the view of someone who has never dealt with taxpayers who find it difficult enough to collate annual data let alone quarterly data.
Making Tax Difficult is still my interpretation of the proposals. There is clearly an opportunity to make more use of digital technology, and I am not against this, but this is not the way to do it. Forcing people to do something that they cannot, or do not want to do, and then fining them heavily for not doing it is not going to achieve anything. Just watch how auto enrolment progresses, and my point will be neatly illustrated.
I await with interest the conclusions of the consultation process.
As usual this is being rolled out by people that do not understand the requirements of a small business. I run a small business that has a turnover just over the VAT threshold. I use simplex d books and convert to self assessment at year end. I am the only full time employee and the extra burden of real time PAYE and the new pension requirements coupled with increases in minimum wage has meant that I no longer employ even part time staff. The time I was spending on administration far out weighed the benefit of having employees. This will be the final straw for many. This and previous governments have always ignored the small businesses out there and digital tax accounts are another erroneous attack on being self employed. To expect me to create quarterly accounts for a retail business is plainly daft. Will I have to stock check, will I have to depreciate or claim capital allowances. What about forward payments for utilities will it be this quarter or next. What about pre season invoicing? My year end is August meaning that the accounting year just ended is not due in the self assessment system until January 2018. How will that work in a quarterly system. Will I have to enter this and last years accounts into the system before the role out of quarterly accounting, when would I enter my final figures? Will the quarters cross accounting years like the VAT? I think it is time for proper consultation with those of us that are running small businesses and not just so called experts from industry and finance.
If clients input information using apps themselves I can see many wondering why they need to employ an accountant at all. And if the accountant is needed for the final reckoning 9 months after the accounting date it could be goodbye to Christmas for those accountants who haven't lost the bulk of their clients.
You've hit the nail on the head there. MTD is the government's attempt to sideline representation for the small and micro business, thus paving the way for more tax investigations resulting in success for HMRC, into those least equipped to deal with it.
I've got just over 250 clients. So the practicality is:- can I do 1/4 figures for all of them in a particular time scale. The answer is simply no. So the choice I have is either selling up or getting the client to do it themselves. Without further info from HMRC I'm (like many others) in limbo. Thank goodness for the start of the football season!
I've got just over 250 clients. So the practicality is:- can I do 1/4 figures for all of them in a particular time scale. The answer is simply no. So the choice I have is either selling up or getting the client to do it themselves. Without further info from HMRC I'm (like many others) in limbo. Thank goodness for the start of the football season!
We are in the same situation, running a small practice from home and mainly using spreadsheets, except for the largest clients. At 64, I have no appetite for learning new processes, so my clients will have to do it themselves or find a new accountant. This leaves us with a problem, as we will not have enough income to retire!
Well, I'm halfway through the second "consultation" document (I quote the term because it clearly isn't. The questions asked are not the important ones), and I have to say, the authors appear to live in some eutopian world where all taxpayers can instantly scan receipts and input payments into a smartphone, and where OCR is perfect and can read badly scrawled documents.
It further assumes that taxpayers have a good understanding of PU adjustments, CGT computations etc. And let's not forget tax adjusted accounts in the first place.
If this isn't a disaster I'll eat both of my hats.
And another thing, the more of these damn consultation documents I read, the more it is being sold as a method to enable taxpayers to see in year how much they want, with much emphasis on estimates will be less accurate without this, that and the other.
Now, if that's all it's for, why the threat of penalties for failure to comply? Surely penalising someone for not wanting a potentially inaccurate estimate long before the final liability is due is just wrong.
Or, are HMRC being less transparent about the true reason for MTD than they would like us to believe?
Honestly, in my 33 year career I have rarely seen such an ill thought, misguidedly optimistic and downright misleading proposal.
4 quarterly updates to be submitted within one month. Can opt for adjustments for stock etc to give estimated tax.
Followed by an "End of Year Activity" within 9 months of year end.
By my reckoning that make 5 submissions instead of the current 1. So much for making simpler.
Agree this has all the makings of a complete and utter shambles.
“The government is committed to reducing burdens for taxpayers and building a transparent and accessible tax system fit for the digital age… HMRC will collect and process information affecting tax in as close to real time as possible, stopping tax due or repayments owed from building up.
Try telling this to all the construction industry businesses still waiting for refunds of CIS suffered in excess of CIS and PAYE due. HMRC have not been able to sort out PAYE/CIS overpayments under RTI yet. When was RTI introduced? So they now think MTD will solve all our problems?
This is clearly going to hit the smaller end of the SME sector.
They will face:
1. Larger professional charges due to a greater quantity of work:
2. Higher professional charges since the adviser must invest in yet more software which will be changed , err updated, each and every year, needing a full price purchase:
3. SMEs already have significant problems in raising sufficient working capital: thus if HMRC start demanding quarterly payments and next ( naturally!) monthly RTI type data submissions and payments, the trader's working capital requirement will rocket.
Mainly since if the trader awaits settlement of a number of chunky bills, they will struggle to fund these.
Yes I realise they are trustees for government's capital (Tax; VAT; PAYE), however, as we all know, classic working capital base is synthetically softened by a daisy chain of exploiting supplier's credit and delaying settlement.
A growing business, generates increasing revenue, year-on-year and it is precisely this cashflow, which keeps it afloat and solvent: traders don't "Save": they fund last year's tax bill from this year's -increased - revenue. 'Twas ever thus. Mainly since they are running full out t0 keep afloat in a changing world of greater competition, rising costs, increased taxation and simple fire-fighting. This is prototypical SME territory.
Of course, now nice Mr Carney has provided bankers with loads of extra cheap cash and insisted (Again!) they increase lending to businesses, it won't be a problem.
Hah bloody hah! Didn't work last time, did it? Or the time before with the massive QE programme...
Government and idiot ministers and myopic civil servants still fail to grasp the salient simple reality, that circa 48% of UK GDP and around 45% of private sector employment flows from SMEs: plus if one examines the full segmentation analysis, a preponderance of SMEs is Class Size Zero and Micro-Enterprise activity.
The average age of SME traders is above 40: which means ICT literacy is only partial or totally absent. (Faeces booking and Twattering activities excepted!).
Additionally, all research shows the UK population is increasingly illiterate and innumerate.
And, sadly, this trend grows: indeed, not long ago statistics were published, showing 17% of school leavers are functionally illiterate.
http://www.teachingtimes.com/articles/school-leavers-functionally-illite...
http://blogs.spectator.co.uk/2016/01/britain-named-worst-in-developed-wo...
Since most artisan traders et al emerge from people of limited educational ability and qualification, quite how these future traders will deal with digital record keeping, I know not.
HMRC and Government are dreaming again.......they have fallen to the Siren Song of clever ICT sales executives, who promise the World, the Moon and the Stars and deliver SNAFUs! Again; and again; and again.
What are our professional bodies and particularly CCAB doing about this?
Since their main priority is massaging the egos and balance sheets of the top ten practices, who focus on major multinationals and PLCs, the empty answer is nothing much.
Welcome to the next forthcoming utter complete disaster zone; a comedy written, produced and directed by HMRC.
Coming to a town near you soon!
The tax and accounting bodies should be saying b*llocks to the ill conceived Making Tax Difficult proposals. However they are completely out of touch with practical accounting and tax compliance for individual traders and small companies and are only interested in furthering the interests of the large accounting firms they represent.
The office of tax simplification is a complete joke. Where is their input on this??
Until HMRC senior management are replaced by competent individuals who are sincere about reducing the compliance burden for individual taxpayers it can only get worse.
HMRC simply do not value the vital conduit that agents provide between small business and HMRC. If they want to manage without agents then fine but I suggest this will result in a reduced tax take in the long term. Utter madness.
The following direct quotes, from the "Case Studies" sections of the consultation documents are illuminating - clearly HMRC are now thinking for a post-agent (accountant) world:
"During the year Richard buys a new van for use in his business, he isn’t aware that he is entitled to claim capital allowances against the purchase. Before MTD he would not have realised this entitlement and would not therefore have claimed part of the value of the van from his profits before paying his tax. However, when entering his van purchase into his MTD compatible software, a pop-up message advises him of the capital allowances available..." [He would have realised this entitlement because his accountant would have handled it]
AND
"When Eve completes her yearly accounts, she includes depreciation of her business equipment as an allowable expense. Before MTD she would have used the accounts information to complete her tax return, and might not have realised that depreciation is not tax deductible." [No accountant would let this happen]
The guidance also goes on to say "In this way businesses’ accounting records will already have been through at least one level of checking by the time they come to submit the information to HMRC." This pre-submission checking role is currently performed by thousands of accountants up and down the country. HMRC would now prefer to replace them with software "prompts and nudges".
This is what I wrote on this over 5 years ago http://adrianpearson.com/blog/2012/8/2/hmrc-to-lose-thousands-of-quality...
Would Richard also know that he may not want to claim all the allowance due, as his profit (for the year end, which the final tax figure is based on) might not warrant it?
If the Eve mentioned is anything like the Eve in Corrie then she would be putting all her bling in as a repair and renewal.
HMRC obviously already assumes that Adam and Eve have a working knowledge of double entry book-keeping and accounting procedures - and also the nature of "Capital" v' "Revenue" expenditure. That is the first and blindingly obvious flaw in their thinking.
In Adam's case, it is highly likely he would have claimed the full cost of his van as a "Motor Expense" and not have realised he was doing anything wrong.
I think this just highlights some of the problems that HMRC are experiencing with Do-It-Yourself tax submissions. I have seen one example of a trader claiming the full AIA on a van and then claiming 18% in the same year as the HMRC guide said he could. How many such errors are not picked up by HMRC and will nudges and hints really replace the knowledge and experience of professional help.
What nudges and prompts arise when it comes to complex capital gains and any other unusual circumstances that can arise from the 17,000 pages of tax code that professionals deal with on a daily basis.
I find it really difficult to reconcile the obligations that professionals have to ensure that the work they carry out for clients is of high quality and the have-a-go approach by HMRC.
I do not think the MTD plans will go ahead as envisaged by HMRC. The £10,000 exemption limit is just a sop by the Government to look as though something has been given away. If you have been around as long as me you will know that there are always such concessions from the Government for things that were never going to happen in the first place. I am not impressed. What would impress me is a proposed quarterly turnover/rents level equal to the VAT registration limit. This would be a good starting point for introducing a more digitally orientated system although this should still be an optional choice as not everyone will be in a position to use digital tax reporting.
As a aside observation. I think there is a change going on in the Accountancy profession already where there is a much more defined split between Book-Keeping and other Accountancy services. I find that whilst it is possible to teach people to use electronic book-keeping software, there is often an inability to understand the concepts of the Profit & Loss Account and the Balance Sheet, particularly when it comes to depreciation, prepayments and accruals, for example.
I can see a great opportunity for purely book-keeping service businesses to expand and leave the more complex tax and accounting aspects to Accountants. I cannot earn much from book-keeping myself and will gradually phase this out and stick to more profitable tax matters. Larger Accountants will be able to provide both services but I still think it will be difficult to earn a reasonable profit from book-keeping type of work, especially as the software providers keep increasing their charges. I refuse to spend a lot of time for little reward just to line the pockets of the software developers and other associated service providers.
My last comment then is that I do not think for one second that MTD will be anything like envisaged in the Consultation Documents and the Government need to work harder to get Accountants and other professionals on board to have any chance of introducing any sort of digital tax system. I am still bemused by the difficulty in dealing with HMRC by email. Often I will send an email only to get a reply to the effect that they have received my email and will deal with it within 30 days. I have been dealing with some of my clients by email since the year 2000, yet the Government have difficulty with the concept of dealing with an email communication quickly. Making Tax Digital .... this is a fantasy expectation from HMRC.
A little less deluded arrogance from the Government would help a great deal. Also they need to stop ignoring the fact that the HMRC service is abysmal at the moment, and will not improve with MTD, so some positive action in this area now, today, would also help.
Making Tax Difficult is very apt. I wonder if Nigel Farage would come out of retirement to take on HMRC with a digexit campaign.
HMRC may do whatever it wishes because the professional bodies refuse to act as Trade Unions for their members. Further, getting accountants to work together in this matter is not possible. Accountants in public practice appear to be genetically programmed not to be able to work together when dealing with HMRC.
I suspect this is because most of us (including me) are sh*t scared of being listed by HMRC as a "Troublemaker".
2)
As the late unlamented Joseph Goebbels said, if you tell a big enough lie people will believe it. The Big Lie in this matter is that HMRC are claiming 86% of tax returns are filed electronically and that therefore taxpayers are well able to deal with this. This lie is bigger than the turtle that supports Terry Pratchett's Discworld.
The reality is that taxpayers divide into two basic sorts. Those that have maybe one or two entries on their returns- PAYE and a bit of interest, and those that need a tax computation.
For some reason it is difficult to get hold of the number of "Tax agents" in the UK. The last number I heard was about 40,000. So I think a reasonable guess is that maybe 4 or 5 million returns are filed by agents. I would guess that 95% of those taxpayers know less about a tax return than they do about the Rovers' Return.
With Corporation tax I am sure that the percentage of returns filed by active companies of any size is, 99.5% filed by tax agents.
Outrageously, HMRC which could if it wished, will not release the true figures.
This whole scheme is B*llsh*t dreamed up by IT salesmen and civil servants as a way of "Privatising" the UK tax collection system.
It is very much our own fault, because the default position for the Accountancy tax profession, as a whole, is to lie down and be walked on.
Tax accountant = Crook, is the Treasury / HMRC mantra.
According to my computer there is approximately one "Qualified" accountant (Seven organsations) for every 300 persons in the the UK.
In the USA it is approximately one CPA for every 800 persons.
Our most effective recruiting officer is HM Government.
HMRC may do whatever it wishes because the professional bodies refuse to act as Trade Unions for their members. Further, getting accountants to work together in this matter is not possible. Accountants in public practice appear to be genetically programmed not to be able to work together when dealing with HMRC.
I suspect this is because most of us (including me) are sh*t scared of being listed by HMRC as a "Troublemaker".
2)
As the late unlamented Joseph Goebbels said, if you tell a big enough lie people will believe it. The Big Lie in this matter is that HMRC are claiming 86% of tax returns are filed electronically and that therefore taxpayers are well able to deal with this. This lie is bigger than the turtle that supports Terry Pratchett's Discworld.
The reality is that taxpayers divide into two basic sorts. Those that have maybe one or two entries on their returns- PAYE and a bit of interest, and those that need a tax computation.
For some reason it is difficult to get hold of the number of "Tax agents" in the UK. The last number I heard was about 40,000. So I think a reasonable guess is that maybe 4 or 5 million returns are filed by agents. I would guess that 95% of those taxpayers know less about a tax return than they do about the Rovers' Return.
With Corporation tax I am sure that the percentage of returns filed by active companies of any size is, 99.5% filed by tax agents.
Outrageously, HMRC which could if it wished, will not release the true figures.
This whole scheme is B*llsh*t dreamed up by IT salesmen and civil servants as a way of "Privatising" the UK tax collection system.
It is very much our own fault, because the default position for the Accountancy tax profession, as a whole, is to lie down and be walked on.
Tax accountant = Crook, is the Treasury / HMRC mantra.
According to my computer there is approximately one "Qualified" accountant (Seven organsations) for every 300 persons in the the UK.
In the USA it is approximately one CPA for every 800 persons.
Our most effective recruiting officer is HM Government.
As this progressively unfolds, the more progressively larger my grin becomes. All this talk about software solutions is highly amusing for a start.
If this year is anything to go by, software solutions that work properly will be thin on the ground. I am still having to battle with multiple basic problems with my cloud based well known software for 2016 which makes life very difficult, with solutions offered that require changing historic information!
Instead of coming up with fantasy ideas, the basics of digital communications and tax software need to be fixed first.
I posted earlier in the year a big Why for MTD?
Answer I think at 5.9 on page 37 of the condoc "Bringing business tax into the digital age" where it states;
"HMRC will use the data in the updates to build a better understanding of each business. This data provision will help HMRC provide support and assistance to those businesses who need it. In turn this enables HMRC to more easily identify those businesses who deliberately do not comply with their tax obligations and to focus its efforts on them".
Can't wait for the enquiries where client has filed a load of toot during the year and end of year submission corrects the multitude of errors they inevitably make.