MPs tell Chancellor: 'don't rush MTD'

Treasury
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The Treasury Select Committee has urged the Chancellor not to rush Making Tax Digital after hearing evidence from accountancy representative bodies and the Federation of Small Business (FSB).

Accountancy and small business experts told the committee on Tuesday about the financial burden MTD will inflict on small businesses and argued against mandation.

Mike Cherry, the FSB’s policy director, estimated that MTD will cost businesses £2,770 per year. He later said a more indicative timescale for the digital project would be 2025, “which would enable businesses to latch on to something that does work after being properly tested”.

The idea that you should be bringing this in on sole traders and landlords as a tranche before testing it properly starting with larger businesses... [is] going about this the wrong way,” said Cherry.

“Many small businesses are not aware that this is coming down the track. It’s creating a perfect storm. We have had the national living wage, dividends changes, auto enrolment, and now we seem to be tinkering around the edges.”

Chas Roy-Chowdhury, ACCA's head of taxation, said businesses with agents were aware of the changes but one man band types had “no idea whatsoever".

Frank Askew, head of tax faculty, explained how the professional bodies want to support the principle but "the fundamental parameters have already been set and we are just consulting on the detail”.

Rebecca Benneyworth, head of HMRC’s digital advisory group, recommended at least the VAT threshold being set as an exemption. But she used data from a Lloyd’s bank report to warn that 1.4m small businesses have no digital skills. Benneyworth illustrated this with an encounter she had with a taxi driver who knew nothing about HMRC’s digital plans and said he “would be stumped”.

Cherry added that 75% of businesses do not maintain their accounts electronically in full detail. And Askew cited an HMRC survey which found 18% of self employed were not digitally enabled and 38% required help.

Cherry believed HMRC’s mandatory digital plans are driven by the Treasury’s investment in its IT and not so businesses can comply.

In a letter to the Chancellor, Andrew Tyrie, the Treasury Select Committee chairman, requested details on: the cost of software (and upskilling to use it), the added administrative burden; cost migrating to new accounting systems; the cost employing tax agents and accounts; and the impact on business productivity.

He also called for a measured approach to the Making Tax Digital implementation. “Every effort should be made fully to pilot its introduction, perhaps over several years. Only after the lessons have been learned from the pilot should consideration be given to a mandatory scheme."

He added: “Nothing like enough has been done, so far, to ensure that this proposal does not harm many of Britain’s small businesses.

“As things stand, it looks as if the effect will be to transfer part of the costs of HMRC’s IT investment to businesses, along with a heap of administration.”

About Richard Hattersley

Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

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By NH
29th Oct 2016 11:43

Where did Mike Cherry pluck those figures from?
£3600 average spend on tax compliance? And where on earth does he get £2770 from?
"we are not scaremongering, this is really happening...." as Thom would say

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to NH
31st Oct 2016 13:54

I find it very hard to come up with reliable costings because we don't know yet what target we're meant to be hitting and clients are starting from such different points and all have different IT and accounting gaps to make up.

But it's going to include things like better broadband, new equipment and software, advice, training and staff costs as well as extra accounting fees. £3K doesn't actually sound that much once you start thinking about it

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By Tornado
29th Oct 2016 17:15

"It is clear from the evidence that the Committee heard that HMRC needs mandatory MTD to fulfil its business case for much needed investment in its IT. But it is equally clear that businesses will have to pick up the bill for this. The measure is therefore a transfer of the cost from HMRC to businesses."

This extract from the letter to The Chancellor from Andrew Tyrie (27th October 2016) partly supplies a reason for the fanciful MTD proposals but it was what Mr Tyrie said during the inquiry that was more revealing.

He suggested that HMRC were effectively just thinking up ways to spend the 1300 million pounds they had been given and implied that this was the main reason for the poorly thought out approach to this project.

Where it is difficult to find any other rational reason for the unbelievable proposals for MTD, a simple situation where the MTD team have been given a massive sum of money to spend and that is what they are going to do as fast as they can, does provide some sort of explanation for their extraordinary behaviour.

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By RobertD
29th Oct 2016 17:45

I notice that Mr Tyrie didn't mention the tax gap figures and the breakdown of these figures. He also didn't suggest that MTD will not reduce the supposed gap.
My biggest question is how can such a monstrous plan get the full steam ahead by government without proper assessment and consultation? I find it incredible that MTD can get so far without being properly questioned. HMRC has swallowed everything that the software companies have fed them. The Tim nice but dim MP's have let it progress without understanding or wanting to understand the potential harm that this will do businesses. I really despair of our government. Thank goodness for Andrew Tyrie. It is quite noticeable that Phillip Hammond has not mentioned this or replied to AT's original communication.

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30th Oct 2016 20:43

You have to put this in context. In my view Osborne was the worst Chancellor in my lifetime, with minimal consitency from one Budget to the next and even from one paragraph of the same Budget to the next.

Like Brown, he was pretty irresponsible with just giving HMRC money for IT projects without any clear impact assessments and all of the rest of it.

it is currently very difficult to cost out MTD on a client by client basis as HMRC have seen fit to put out the proposals in such a half-baked way. But let's take them at face value, demanding 5 tax returns per year instead of 1, all source records entirely on software.

Now let's take a typical Lake District hotel of say £700k to £1m turnover, currently maintaining its records on Excel. Current annual spend on accounting software is zero.

Then in fact it is pretty easy to get over £2,000 as the cost to this business of MTD if you go for the "Full Monty" approach required by HMRC as opposed to the "MTU approach" I will be offering clients for a fraction of the cost. (MTU = Making Tax Up.)

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By NH
31st Oct 2016 06:48

Are you trying to suggest that a 1m turnover hotel represents the average uk small business?
Certainly does not reflect any of my clients whose cost of compliance is probably a tenth of Mr Cherry's figures and the extra cost of MTD for them will be minimal if anything.

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By RobertD
to NH
31st Oct 2016 10:41

NH wrote:

Are you trying to suggest that a 1m turnover hotel represents the average uk small business?
Certainly does not reflect any of my clients whose cost of compliance is probably a tenth of Mr Cherry's figures and the extra cost of MTD for them will be minimal if anything.

Your estimate of £277 would appear woefully short in terms of accountancy, hardware and software costs and lost time.

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By NH
to RobertD
31st Oct 2016 11:01

I can only talk for myself and my clients - there will be zero added cost for Hardware (we already have a computer), zero added cost for software (we already have and pay for the licences we will need) and given that we will be working more efficiently a minimal increase in fees if any.
If you are thinking of a business that does not have an accountant, or that does not have a computer or software of their own I still dont see how MTD will cost them 3k

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By RobertD
to NH
31st Oct 2016 11:14

NH wrote:

I can only talk for myself and my clients - there will be zero added cost for Hardware (we already have a computer), zero added cost for software (we already have and pay for the licences we will need) and given that we will be working more efficiently a minimal increase in fees if any.
If you are thinking of a business that does not have an accountant, or that does not have a computer or software of their own I still dont see how MTD will cost them 3k

Get ready for a client increase of circa 5.4 million less your existing client base.
Ever thought about starring in one of HMRC's YouTube videos?

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By Tornado
to RobertD
31st Oct 2016 11:56

As a general average, I think the costs of compliance would be into the thousands when you take everything into account, and as RobertD has mentioned, many of those Do-It-Themself taxpayers who entered information into the HMRC Tax Return template from their handwritten notes and other documents, would find compulsory use of specified accounting software beyond their capabilities or resources and would seek help from Accountants and other Agents.

All I can say is that I do not have the resources to deal with hundreds of new clients all wanting a lot of work carried out for next to nothing as I would be the one on the losing end. The only solution here would to increase my fees to enable me to invest in the additional resources required which would mean significant increases in my fees for everyone.

All this is just academic now of course, as it seems more than likely that MTD will not be compulsory for anyone from April 2018 and the threshold will be at least the VAT registration limit or more. Indeed, it could be 5 or more years before there is any compulsory element to the project and even up to 10 years for it to be fully phased in.

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By DMBAcc
to RobertD
01st Nov 2016 11:02

Dear NH it sounds as though all your clients are digitally competent and fully signed up to commercial software etc. etc. Sadly you are not representative of many of the more rural areas of the country. Here in Cornwall many of my clients operate on a "shoe string". They have to be self employed because there is little investment in the county to provide full time employment. My fees are in line with their income - ie very small. These clients come to me because anything to do with the HMRC horrifies them. For example recently a new client approached me about his state pension due to start in January 2017. I noted he had made voluntary contributions. I suggested we needed to check that HMRC and the DWP had up to date records for him. One phone call later I find that after 10 months HMRC/DWP had managed NOT to apply his substantial voluntary payment. It was still held in "suspense". Could I get the two departments to talk together? Oh no it was suggested that this was MY job. So having gleaned enough information from DWP I then had to phone HMRC to ask them to apply his payment to his account. So has my client had a letter from either department to confirm application of his payment or an apology for the delay - take a guess!! My point being that my client had no hope of making these phone calls and sorting this out for himself (he admitted this to me) so what hope has this same person got in buying a computer; learning how to switch it on; set up an email address; get himself a gateway account with HMRC; plough through the miriad pages to find where he should tell them about his income; Oh I forgot, buy the appropriate software that will work on his computer; learn how to use the software; CORRECTLY enter all his transactions; set up links with his bank account and so on. This guy retires next year BUT will be caught by the current £10K threshold. I am sorry NH but you are not living in the same world as the vast majority running small businesses. The contemptable attitude of senior HMRC officials together with the indifference of most MPs makes my blood boil. More so because none of us feel we can do anything about this Titanic of a disaster heading towards us. Nobody is REALLY listening. This pretence of a consulatation is an insult to our profession. And just before you reply suggesting all businesses should be digital now in this digital age - while I have some sympathy for that position, if you apply this to the holiday industry here in Cornwall then the introduction of MTD willl probably mean you won't be able to find any holiday accommodation in the county unless you are prepared to pay cash!!! Cornwall has a long history of dealing with "the King's Customs Men"

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By DJKL
to NH
31st Oct 2016 12:29

How do you know what the software companies will pass on re their charges re practice software? They have development costs, do you expect them to absorb the cost?

How do you know the requirements that will be placed upon your clients to maintain their records in a particular way and the cost of that software?

Whilst I thought the £2,700 cost was fanciful, my gut feel is that ,all in, for the smaller clients, there will be a fairly significant (in percentage terms) increase.

At the weekend I did five vat returns for a group of clients, each return involves correcting excel sheets/squaring banks/ tidying and reviewing, circa 2 hours each. In addition at year end for each I produce accounts (say 2 hours), do partnership returns and two personal returns (1 hours maximum for all as software linked) and likely have about 5/6 meetings a year, say further 3 hours inc admin time.

So for each I do:

Vat/write up/correct 8
YE accounts 2
Tax returns 1
Meetings 3
Total hours 14

My charge-circa £1,000, about £70 an hour re these.

Now even if software cost is say only £20 per month that is an increase of 24%. In addition I must have some more time, even if 2 more hours a year that is 14%, so even if I have limited extra hours we are looking at least at 38% increase in cost here, and these are small vat registered business entities.

For the non vat registered entities whose current fee is say £500 (say 7 hours) I suspect we are looking at minimum one extra hour each quarter , 57% increase (4/7), and software at say 58% (£288 -£240 plus vat) so total fee increase likely over 100%.

These are not the £2,700 quoted but in percentage terms I think my smaller clients will see increases from 40%-100% in their fees if MTD involves both client software cost and my time on each increases.

My biggest client (fee circa £5,750) will likely see some increase re time/software but in percentage terms I suspect at worst 30%, say £1,725 p.a., the software cost impact being absorbed in percentage terms by the larger starting fee.

So really not sure how your practice will not pass on any increases, mine certainly will, the exact figures depending on the final details.

This whole proposal hits the smallest the hardest.

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By NH
to DJKL
31st Oct 2016 13:27

Interesting post DJKL, it is certainly refreshing for someone to put some real numbers to it.
Let me tell you where I am coming from.
Lets say I have a client that pays me £350 a year, all income and expenses go through the bank, turnover less than 50k. A pretty average client.
He usually brings in his records towards the deadline, quite often there are bank statements missing which we have to chase and wait for, my book-keeper enters all the figures on excel. Often there are queries which we have to ask him about, usually in the last week of Jan.

Now under MTD I will set him up with software which costs me £1 a month which will have bank feeds. My bookkeeping staff can now process his figures more quickly whenever they have time during the quarter.
I no longer have to pay overtime in January, I no longer have slack times where the staff dont really have much to do.
When it comes to the end of the year we already have the figures to hand. Any queries are dealt with as we go along.
I envisage this whole process taking no longer than it does now, why would it? In fact it will be more efficient - my only added cost is the £12 a year for software. I suppose I could charge that on to the client, but I probably wont.
It doesnt matter if that is a £1000 client or a £200 client, the principle stays the same.
There may be cases that dont fit that but I am sure we will find a workaround.

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By DJKL
to NH
31st Oct 2016 15:42

Which software is £1 a month?

I have to say that any work I do which is done piecemeal tends to take more time overallthan doing it in one go- the sum of the parts are greater than the whole.

From opening file, working out/remembering where one was etc, this has a time cost; it is why, when I worked full time in practice, we checked/inventoried client records received as they came in before starting work, we wanted a clean run through and less carrying in WIP

It also avoided problems with particular staff say being tied up on other jobs when missing information did turn up later.

I believe your vision is slightly rose tinted, my clients are all pretty good re getting things to me complete and on time (as a part time practice they have to be, I do not have time to chase them) but your view that you can train them all to be organised etc is possibly wishful thinking- I spent years in full time practice dealing with disorganised clients- they do not change their spots.

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By cbp99
to NH
01st Nov 2016 19:22

According to NH

Now under MTD I will set him up with software which costs me £1 a month which will have bank feeds. My bookkeeping staff can now process his figures more quickly whenever they have time during the quarter.
I no longer have to pay overtime in January, I no longer have slack times where the staff dont really have much to do.
When it comes to the end of the year we already have the figures to hand. Any queries are dealt with as we go along.
I envisage this whole process taking no longer than it does now, why would it? In fact it will be more efficient - my only added cost is the £12 a year for software. I suppose I could charge that on to the client, but I probably wont.
.

[/quote]
Sounds like a great plan. Why on earth are you waiting for MTD before implementing it?

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By NH
to cbp99
02nd Nov 2016 06:54

@ cbp99
that is a very good question and the answer is exactly why I am pro MTD.
There are a number of factors involved but if I could keep it simple, I have been in practice over 15 years, back then the cloud was unheard of, no banks feeds etc, so our systems were setup a certain way, heavily relying on excel.
Up until MTD there was simply no real need to change, certainly both clients and staff have been happier to carry on the same way. I will give you a typical example.

I have tried for 10 years to get one client to bring his books in earlier, but his routine is that he likes to spend a couple of days between xmas and new year putting his records together, then bring them to us in Jan. Before MTD what more could I do, threaten a fee increase? not the way I like to work, so we live with it.

The point is that MTD now gives us the incentive to say to these people, its not us asking for this to make our lives easier, its hmrc putting this in place, so change or there will a) be penalties and b) be fee increases.
In fairness it also gives us the push we needed to become more efficient.
I say Bring It On!

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to NH
01st Nov 2016 12:14

All our client groups are different, but clients come to accountants to sort out their business accounts each year and return the correct amounts for tax purposes. MTD expects this five times a year. Someone may be "digitally enabled" because they use Facebook, but it does not mean they can get their heads around an HMRC submission. It is going to cost a lot of time and money for small businesses to comply and, if anything, Mr Cherry's figures are an under estimate.

My smallest nascent business client has a turnover of c £15K and a small profit (supplemented by other income), and would need professional assistance to do MTD. The actual cost of this would mean there are no profits. He is more likely to give up. There will be others like him, and others who will just say they have ceased trading ...

MTD will be a further barrier to small business and will mean a drop in the overall tax take. The Chancellor should take note.

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31st Oct 2016 15:46

As I have said before I expect my costs to clients to increase by maybe 30% to 40%. I do not have many sole traders (1)
nearly all my clients are Ltd Co. They pay from £100 per month which includes a software subscription.

There bookkeeping is checked at least quarterly anyway so never too far away from a decent quarterly P & L.

My practice only started 2 years ago so most of my clients are using some form of accounts software, nothing to do with MTD, if they want to grow beyond a one man band I find it esssential particularly if you issue sales invoices on credit that some form of proper accounts software is used.

I also do a lot of work in Hotel and Leisure sector and I am shocked that a £1m hotel uses no IT systems. Surely there is a business case to invest initally into a good PMS system which would have accounts bolted onto it. As a seasonal business I would have thought management figures would be needed to manage the business.

I appreciate those that have been going will have a different mix and I feel for those with loads of sole trader clients who pay £350. Hopefully common sense will prevail and the de minimus limit for this will be over £50k so most landlords and tax drivers will remain unchanged.

I couldn't run my own small practice on a spread sheet so not sure why I would advise others to do so.

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By NH
to Glennzy
31st Oct 2016 15:58

Glenzy - you seem to be doing MTD already apart from actually sending the submission each quarter, I am wondering why you think your fees will increase?

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to NH
31st Oct 2016 16:34

Hi NH
A lot of my clients are on FRS vat scheme so all banks are reconciled as part of that so would not be massive amounts of work to do each quarter to do a set of accounts suitable.

I think an estimate 30% to 40% extra work is not unreasonable for MTD to allow for some decent due dilligence before the quarterly submission including discussing figures with client before pushing the button.

I think the above estimate is not far away for my clients. I have heard others suggesting that the 4 submissions will lead to 4 x the cost to clients which I cannot see anyone accepting. You need to make work MTD work for all stake holders.

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By Tornado
to Glennzy
31st Oct 2016 16:18

"I couldn't run my own small practice on a spread sheet so not sure why I would advise others to do so."

I have run my practice on spreadsheets since 2002 and I am still using that 'software' today, every day.

The perception of 'spreadsheet' might need some clarification here in that in 2002 (after I refused to join the Sage Club) I spent some two months full time in 'writing' a suite of spreadsheet based accounting modules for a variety of functions, and also wrote (recorded) a number of macros that carried out instant transfers of specified information from one sheet to another.

I still give some of this software to my clients to use if they wish and they just email me their cash books and other information each month which we check and update and send back for them to carry on with.

The software costs are nil to them and all they need is a basic copy of Excel on their computers.

Spreadsheets are used by tens of millions of people all over the world and enable people to create 'software' that does just what they want it to. The addition of macros enables quite sophisticated reports and calculations to be extracted from the sheets with relative ease.

So when we talk about using spreadsheets for financial purposes, a carefully designed spreadsheet can be just as good as commercial software at a fraction of the cost.

In the great scheme of things my efforts rate at about 2/100 on the scale of complexity but that is all I need to achieve much.

The problem with MTD, of course, that none or few of these spreadsheet based 'programs' will be able to deliver specified information to HMRC "at the push of a button in the software you already use" although it would be relatively easy to extract certain information from those spreadsheets in order to enter this in a template each quarter to submit to HMRC.

How perverse is it that HMRC will insist that everyone uses software in their prescribed format for no valid reason?

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31st Oct 2016 17:01

Whilst I am sure your spreadsheet is brilliant, that was in 2002 when Sage was £1000 per year. Why would someone
starting out now spend 2 months setting up a spreadsheet when you can pay £10 per month for QBO which will do everything you need.

I can issue an invoice in seconds on the bus if if i want using just my thumb. Bank feeds etc save huge amounts of time, and automate what is a labour intensive process.

I find spreadsheets get messed up by clients and many end up ridden with errors unless just a simple cash book.

I am sure there is data somewhere where 70% of spreadsheets have errors.

Giving out spreadsheets may have been good advice in 2002 but I dont think it is appropriate now for a modern business issuing sales invoices with a need for credit control. In the same way Simplex cashbooks were great in there day but you don't see many now. Most clients I come across have very basic excel skills and things just get messy once you get beyond a simple business.

MTD should not be the driver for people to take on accounts software but there are numerous valid business reasons why clients should improve their records.

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By Tornado
to Glennzy
31st Oct 2016 17:57

I was not suggesting that anyone starting out now would necessarily do what I did, and in practice if was starting out now then I would approach this in a different way as well, but even so, the cost of commercial software will go up a lot if MTD goes ahead in its present proposed form and would be a significant cost to businesses. I suspect your £10 per month will go up significantly if you are committed to QBQ with no easy way out.

It may be the case that spreadsheets can get messed up by clients but by creating built-in checks, with red or green flags to help with balancing for example, and locking the sheet to allow entries only in the data entry boxes, you can control the amount of messing up quite precisely.

The point I was trying to make is that there are many Accountancy Practices like mine that have a variety of efficient methods of dealing with the needs of our clients and there is really no need to move anyone to a different way of accounting. Besides, this would be a massive cost and time consuming exercise for me and would not succeed anyway as some of my clients, large and small, would simply not be able to cope with the new requirements.

New practices setting up do have the advantage of being able to chose the type of client they want so perhaps they would not even think about taking on anyone who looks as though they cannot handle a computer or mobile phone but Practices like mine that have been around for a long time have perhaps a large proportion of clients like this who need extra help to deal with their tax and accounting affairs.

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By Tornado
to Tornado
08th Nov 2016 12:52

"It may be the case that spreadsheets can get messed up by clients but by creating built-in checks, with red or green flags to help with balancing for example, and locking the sheet to allow entries only in the data entry boxes, you can control the amount of messing up quite precisely."

I have just reviewed an Excel Cash/Accounting Book that a client sent to me for October and she mentioned in her email that she tried to change some cell formatting but was unable to do so. This is because the sheet is locked to only allow entries where they are required and only I have the password to unlock the sheet.

This lady is very good with her data entry, she is intelligent and running a successful business but each month I have to correct fairly basic errors and then send her back the corrected sheet for her to carry on with. At the same time I can improve, repair or add additional features to the basic spreadsheet that are relevant to my client. Quarterly VAT figures come straight out of the on-going monthly summaries.

This is a quick and secure arrangement for clients to use 'software' that is free and easy to format according to individual business requirements, and arguably a much better alternative to using cloud software.

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01st Nov 2016 10:16

On software costs, KashFlow has just gone from £10 to £13pcm - a 30% uplift despite the fact their client base is expanding rapidly.

Draw your own conclusions!

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01st Nov 2016 10:25

Why are the Accounting bodies not putting a stop to this ?.
It is not going to work. Most small business owners will not want to comply or have the ability ,or be able to afford the cost of help.

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01st Nov 2016 10:26

NH - Still interested to see which software costs a £1 per month?

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to North East Accountant
01st Nov 2016 13:22

Sageone cash book was available for up to 50 licences for £1 per month. Or free if you did not want the bank feed.

Xero also have a basic package which costs £2 which will do the basic accounts for sole traders.

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01st Nov 2016 10:32

I have just managed to convert one of my small clients to an online accounts system (a major player) and he has started to see the benefits in terms of control of his business. However one thing that has encouraged him is that he was able to download his bank transactions into his accounts system. He banks with NATWEST and they have just pulled the plug on his downloads with the explanation that they did not want anyone but him having access to his bank account - in spite of the protocols that are in place!!!!!
They have actually made him completely resign onto the system and barred his accounts system access.
Has anyone else experienced something similar? This sort or action from the major banks will make a complete nonsense of any attempt at MTD. Does HMRC know about this view from NATWEST which scuppers much of what they would want to do?

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01st Nov 2016 10:35

Let's hope they take notice, well done Rebecca Benneyworth - most of my client base stand with her taxi driver!!

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By Peter-S
to Helen Rolfe
01st Nov 2016 11:03

Helen Rolfe wrote:

Let's hope they take notice, well done Rebecca Benneyworth - most of my client base stand with her taxi driver!!

Same here. I did in fact explain what lies in store to a taxi driver client a short while back. His response was an incredulous 'I'm not doing that'!

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By RedFive
01st Nov 2016 10:58

@NH one of the main issues you might have missed is that HMRC are legislating for the taxpayer themselves to keep the source documents digitally. They are trying to sidestep the agent / accountant.

This is the biggest issue I have with the proposals.

@Glennzy where do you get Quickbooks online for a tenner? Sage recently doubled their One Accounting to £20 + vat per month which annoyed me as I thought it was ok At half that for the first few clients I have moved across.

I'm off to Harrogate tomorrow for the Quickbooks Connect seminar so hopefully get more info there.....

I haven't forgotten about a beer, just been stupid busy but email me when you are free and would be great to catch up.

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By janefg
to RedFive
01st Nov 2016 11:48

I agree. I went to a seminar recently where they said that it was by no means sure that agents and/or independent bookkeepers would be allowed to keep these digital records on behalf of their clients. What HMRC want is for the taxpayer themselves to do it regardless of their ability or wants. I have a client who keeps immaculate written records and has absolutely no desire to be anywhere near a computer (she has no mobile phone either!). That is why she uses our services.

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By Tornado
to janefg
01st Nov 2016 12:13

I think you are absolutely right on this point. My interpretation of the proposals is that HMRC want to deal with the individual directly on all matters of tax and accounting and even suggested that 'Family Members and Trusted Friends' would be allowed to assist people, no mention of Agents. Even now, Agents have limited access to client's tax information and there is every reason to believe that HMRC do not want Agents to be heavily involved with MTD.

On the other hand, Andrew Tyrie at the 25th October 2016 inquiry was taking evidence from representatives of professional organisations and seemed to assume that Agents would be naturally involved with MTD.

The fact is, that at the present time the tax administration system would be in tatters if Agents were not involved, the system would cease to function at all.

I am confident that the Government will have to drastically change their MTD proposals in a number of ways otherwise there will be a revenue crisis in the UK. There is simply no logic in the current proposals on many levels and, quite frankly, the Government would look pretty stupid if they did not recognise this.

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to RedFive
01st Nov 2016 13:34

RedFive thats the acountant pricing sometimes they are cheaper than that.

They have just emailed me saying you can have 10 licences for £10 per month for life. at that price its worth taken them on and just filling them up over next few months.

Sage one is only £10 as well on accountants pricing are you talking retail price to clients dealing direct?

PM if you want some crack on this.

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By NH
01st Nov 2016 11:13

@ North East - Sage Start and Quickfile are two that you can get that cheaply and both are adequate without setting the world on fire.
@ Red Five - we dont have any legislation yet but as far as I can see HMRC have made it clear that the agent will still continue to play the primary role.
@ DMB - not many of my clients are that digitally aware but I am, and thats the point, thats why they will rely on me.
@ DJKL - the futures so bright I will have to wear my rose tints, I agree. The point is that the discussions I will have with clients over the next 12 months will be "you start doing things this way to make my life easier and fees will stay the same, if not expect a rise.

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By DMBAcc
to NH
01st Nov 2016 11:21

Dear NH. unlike you I am already upto my limit on clients. I do not have the facilities to train clients on new systems. I do not provide book keeping services. If this is pushed through there will be 50 small businesses scrabbling around in Cornwall trying to find another accountant or book keeper neither of which is in great supply here in the county. In fact I am getting more enquiries because many accountants are retiring. Even without MTD there is a real issue in the county.

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to DMBAcc
01st Nov 2016 16:29

Is this not Bob Harper's manor. He will happily snap up the 50 clients with his value priced accounts offering.

MTD should present a solution to Cornwalls accounting needs as with cloud accounting I could do the work from here and solve the problem of no accountants in Cornwall at the same time.

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By RedFive
to NH
01st Nov 2016 12:03

@NH
MTD: Bringing business tax into the digital age.
Consulation Document:
Page 5
1.3 This consulation focuses on how we will bring business tax into the digital age.....most businesses, self-employed people and landlords will, by 2020, be REQUIRED (my caps) to use software or apps to keep their business records.....

I have sat in on every HMRC webinar and each time asked whether agents can do this on taxpayers behalf - this is the answer received:-

A: We are keen that digital records are captured close to the point of transaction, we don't expect for example a business to bring paper records to their agent or bookkeeper every quarter to do this

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01st Nov 2016 11:14

There is a real disconnect here between those clients that use smartphones, cloud software, etc and those more 'traditional' clients to whom clouds are things in the sky.

The former will no doubt not notice much of a difference, except smaller non-VAT registered businesses and indeed smaller businesses generally where you will need to now include all sorts of adjustments on a quarterly basis that you used to include at the year end.

For the latter this will all just go in the 'ignore' pile and they will pass it on to us. Or worse, they will attempt to do it themselves, or even worse, they will attempt to use some 'free' or low cost software to do it for a year. Then ask you to complete the final submission, which is will easy, right?

Apart from having to then unpick all the erroneous entries for an entire year (you know, like claiming VAT on travel because QB assigned 20% VAT as the first entry was a hotel bill) which takes longer than actually drawing up the accounts from scratch, you will then need to explain to the client why his bill has increased so much when he's done 4/5th of the work himself...

MTD is a huge mess waiting to happen. For my clients under the VAT threshold and landlords generally, I'll stick to my spreadsheets and their piles of paper as that's the way they like it, then we'll just file 3 line quarterly entries based on the previous year then correct it all in the final submission.

If HMRC think it's going to happen any other way, then they better start paying us direct as clients aren't going to see any benefit to them and aren't going to be happy with the fee increases.

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By DMBAcc
01st Nov 2016 11:14

One point I have never seen in print is that those of my clients using spreadsheets are able to automatically produce managment accounts and key performance indicators. As a by product they produce their financial accounts and thus their tax return. HMRC appear to think if we move from spreadsheets producing management accounts (and thus management information) to software products designed only to produce financial accounts and tax returns that my clients will be better off. Sadly they will have to keep BOTH systems going in order to manage their businesses. For them this is a costly step backwards.

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01st Nov 2016 12:09

What about the individuals with lettings income of just over £10,000 pa who will be required to have software?
More than one of my clients have one rental receipt per quarter. They receive an agent's statement that has to be analysed to split out the rental income, arrears, deposits and various expenses payable to or defrayed by the agent.
This is currently done annually on a spreadsheet or entered directly into tax return software.
The client does not and would not have a clue how to do this. If they did do it, we would ignore the quarterly filings and prepare the final filing from scratch. The "current" information would be of zero use to anyone, including HMRC.
The biggest problem is the haste with which this is being implemented. Especially if you also look at the changes in basis period, exceptions from GAAP, admin, penalty regime, interactions with VAT changes etc.
We still don't know precisely which of our clients will be affected or when. We will also have to review all of the longstanding clients have overlap relief so that we can change accounting periods if necessary. Don't forget that under the new system, overlap relief will only be available on cessation, not when more than 12 months profits become taxable in one year.

We still have to discuss the changes in detail with each client and then agree what services are required and from whom. We also have to, possibly acquire or help them acquire additional or other software and have sufficient trained staff to use it. We still don't have any of the software suppliers approved by HMRC for MTD records and filing.

Bearing in mind that the first deadline for MTD filing is on 30 July (or 4 August - not yet decided) 2018, all of this is just too much, too soon.

As for what will apply to trusts and estates, who knows?

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By Tornado
to leon0001
01st Nov 2016 12:19

I would relax a little. I cannot see in any way that the MTD limit will end up at £10,000 turnover. It will more likely be the VAT threshold or even higher.

This is such a ridiculously low level that I believe this is just a sop so that HMRC can change it later and say that they listened to the consultations. It was never intended to be a realistic level in the first place.

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01st Nov 2016 12:29

To put "MTD" into context, I moved my business premises over 3 years ago and, despite advising HMRC repeatedly of my new address, still get about 1 letter per week addressed to my former premises. Surely HMRC should get their own digital records straight before beta testing this idea onto the business community.

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01st Nov 2016 13:09

Some interesting comments. I've put many clients successfully on to software. The £1m hotel:

1. Has a low-cost system which balances to the bank and has worked successfully for over 20 years, including VAT visits.

2. Has staff who in my judgement would struggle to cope with accounting software.

3. Has owners who are in the process of looking to sell.

So if it ain't broke do not fix it.

For another example, I give you Julie the cleaner. She has no IT skills but is a very good cleaner. She brings me her carefully written up takings, mileage and costs book once a year. I do the accounts, key into Taxcalc and press submit. £200 plus VAT.

Under MTD I see no prospect whatsoever of keeping her fees at £200 plus VAT. The whole process will now be 5 times per year not once per year.

Note that both of these examples - the hotel and the cleaner - have featured in my submissions to HMRC, the Treasury Select Committee and the Chancellor.

In my view this is an important way of smashing a big iceberg into the MTD hull. Get specific. Give specific example sof real people who will be badly damaged by this nonsense.

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By DMBAcc
to mr. mischief
01st Nov 2016 15:32

Dear Mr Mischief. Please could you publish the addresses for the three gov't receipients you sent your responses to so I can do the same. Thanks

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01st Nov 2016 19:50

I would love the whole MTD debacle to be properly considered and I agree with :"a more indicative timescale for the digital project would be 2025, “which would enable businesses to latch on to something that does work after being properly tested”."
I know all my jobs - 'bag' and larger would agree!I was telling one client today about it - he has deep despair about his 'number blindness' - a disability which will rapidly increase perhaps if this goes ahead so soon?

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01st Nov 2016 20:55

What HMRC seem to fail utterly to understand is that for the compliance side of our work accountants are a necessary evil. The clearest examples are people with pretty simple tax affairs or a few pensions.

Going back 20 years to the days when the UK tax system was 8 out of 10, my 20 or so clients in this category would not have needed me. They could be pretty condifent of dealing with HMRC without being threatened and fined left right and centre, and could always drop by the local tax office if necessary. At worst they could write a letter and expect it to be properly answered by the tax office within a week or two.

All that has gone and we are left with a tax service I scored 1 out of 5 in the survey last week. MTD will make things WORSE - quite possibly much worse - for the majority of these sorts of taxpayers.

By definition internet savvy people with the latest iphones are less likely to need accountants than the average person. MTD is just going to stuff lots of the less internet savvy folks up.

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By Tornado
02nd Nov 2016 10:57

Perhaps a sign of the times, although more likely someone trying it on, but I now receive regular spam emails from a company offering finance to pay my IRIS software fees.

They do not know if I use IRIS or not, but I can see that the cost of Accounting and Tax Software (not just IRIS) is going to increase significantly under the current MTD proposals and loans to finance better software deals may be necessary for some practitioners, and possibly some clients.

As I have mentioned before, I think software developers will have to pay Agents and other advisors commissions for promoting their products under MTD, but even so, the remaining costs will be significant.

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