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MTD director defends roll-out strategy

27th Sep 2016
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Roll out project
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The appearance of the Making Tax Digital (MTD) for Business director Theresa Middleton on a discussion panel at last week’s Iris World London event was one of the main draws for conference attendees, with the bulk of the questions from audience members focussed on specific details of the proposals outlined in the MTD consultation documents.

Before the panel AccountingWEB briefly caught up with Middleton to ask a couple of questions about the project, its rollout and ambitions, and put a couple of key concerns AccountingWEB members have raised.

‘Agile’ approach

One concern expressed by accountants has been around the project’s rollout to the smallest businesses first, with many worried that their clients will struggle to adapt to such dramatic a change in the relatively short timescale given. Some have expressed a preference for the scheme to be rolled out to the largest businesses first in the same vein as auto enrolment.

While Middleton expressed sympathy for this perspective, she argued that the way Making Tax Digital is to be implemented will allow the project more flexibility to adapt to its users’ needs.

“The way in which we delivered IT change in government used to be big bangs”, said Middleton. “We’d spend a long time gathering the requirements, then deliver and deal with what happened. In that scenario you were able to work first with the biggest businesses, then roll out slowly across the population to the smallest last.”

However, according to Middleton the government does not run IT projects like that anymore. “We start with what we call a minimum viable product, which is the smallest, most straightforward service we can deliver, built on customer research, and then we test, build and iterate.”

This means starting with the smallest and the most straightforward: in this case unincorporated businesses. Middleton revealed that private beta testing service for this has already started, with HMRC sharing the project’s APIs with 18 software providers who are part of the private beta.

Closing the tax gap

Another reason Middleton gave for MTD’s initial rollout to smaller companies is the government’s demands for a return on its investment in the project. Around £1.3bn is being spent on the scheme, and the way the government plans to get a return on that is to reduce the tax gap caused by error. According to Middleton, error is something that is a “behaviour of small businesses”.

“Typically large businesses don’t make errors – they may engage in other behaviours that contribute to the tax gap, but error is not one of them,” she said.

The most recent figures have the UK’s tax gap - the difference between the amount of tax that should be collected against what HMRC actually received - at an estimated £34bn.

Virtual customer relationships

Middleton also stated that with small businesses increasingly interacting digitally with HMRC, the Revenue hopes to use MTD to mirror the type of experience for them that larger businesses receive through having a customer relationship manager.

“What we are seeking to do is to mimic the type of experience we’re all used to from the sites we use to buy goods and services”, she said. “They use their IT to know how you behave, what you buy, and are able to prompt and nudge to encourage you to buy more things.

“We might use such tools to say ‘you’re approaching the VAT threshold, are you aware of that and might you want to think about registering?’ or ‘here’s a relief that businesses like you have claimed – you haven’t claimed it, are you sure this hasn’t been overlooked?’”

Nudges and prompts

While Middleton was adamant that HMRC does not see MTD displacing the role of the accountant in the tax system, what is clear is that they see the role they perform in it changing.

“Depending on what type of operating model an agent currently employs”, said Middleton, “they may find that some of what we call ‘lower value’ work such as adding up a pile of invoices and filing a return based on that will disappear. The agent will then be able to spend their time giving the business advice about growth or being more profitable.

“We’ve certainly not detected in any of our research any appetite amongst businesses to not use an agent, but the way in which they use them will be a much higher value add in terms of profitability and growth, which we think must be a good thing.”

 

Do you think HMRC’s ‘agile’ way of working will increase the likelihood of the MTD project landing, or is the uncertainty around the exact nature of the tool just adding to public concerns about the scheme? Have your say below the line.

Replies (66)

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By Plantsman
28th Sep 2016 14:09

I wonder if this is not a case of emperors clothes sold to hmrc by the software companies. Yes we are dealing more and more with hmrc digitally but only because we have to. I would love to know how many of the in excess of 5 million micro businesses currently use an accounting package on their computer or if they are using the free hmrc software available. Personally if they want to roll it out bottom upwards they need to keep it simple. A single page form such as used in the old simplex d books would surfice with hmrc receiving digital bank account details to verify approximate monies in and out. No need for a complicated software package. The usual full set of figures at self assessment time would verify and allow for adjustments for stock, capital allowances etc. If it is good enough when filling in VAT it should be good enough for income tax. Maybe a bit Luddite but there you go!

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By johnjenkins
28th Sep 2016 15:23

Theresa May (oops sorry Middleton) has really got it right. What is the point of going through a pile of receipts and invoices, apart from gleaning information about the client so that you can advise.

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By chunkycat
28th Sep 2016 16:06

So Ms Middleton, Who is actually going to do the 'lower value work' in your fantasy scenario ? Many thousands of self employed are incapable of performing this task and therefore use accountants. They are also incapable of operating computers and computer systems. Those operating under the VAT threshold are merely scratching a living and don't want either business advice nor additional administrative burdens imposed by this 'Orwellian' government.

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By Antrobus
28th Sep 2016 16:31

I'm sure that HMG has asked its experts/advisers "Is this possible?" as it has done so many times before with subsequently failed IT projects. Please ask those who know "Is this practical?".

Drop this madness now.

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Tornado
By Tornado
28th Sep 2016 18:30

I am baffled as to how someone as obviously ignorant about many aspects of Tax Administration as Ms Middleton, gets to be a Director of what is the biggest proposed changes since Self-Assessment. Unbelievable! At least with Self-Assessment there was a lot to commend it right from the start and a pragmatic approach by the Government means that you can at least still file paper Returns if you want to. There is a lot to the Self-Assessment system that is very good, it is just the uselessness of HMRC that is the problem. (I must say that it is not the people that work for HMRC that are useless, just the system and the people that run it).

There is not one aspect of MTD that convinces me that 1300 million pounds needs to be spent on it. Much less could be spent on improving the current Self Assessment system to bring it up to a higher standard and improving the efficiency of HMRC which has not a snowballs chance in hell of being able to handle the complexities of MTD.

What I am seeing is software developers (18 at least) offering free simple record keeping software. What is all that about when all HMRC needed to do was offer one single free program that would do everything they required. Are all these developers going to provide unlimited free support for these products or are they going to treat the free software as a trial and heavily push people into paid for services.

I smell a big pile of poo here full of dung beetles all trying to grab a slice of 1300 million pounds and stonking future profits. It is all a disgrace and cynical attempts to persuade us that it will be better for us are intolerable.

Apart from all that, we are in a period when the County needs to concentrate on making the most of opportunities arising from Bexit and trying to fight the fire within a Government department that is rapidly heading for a meltdown at the same time can only result in difficult times for us all.

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By laurenceexigent
28th Sep 2016 19:15

There's some interesting Logic in this article

1)‘Agile’ approach. That is a technology systems philosophy. The issue here is roll out, only the stupid put a tsunami of users at the beginning of the project of this size, when everyone is learning the realities of implementing such a far-reaching system. Piloting a few big ones would knock the bugs out of the system before SME's get their hands on it. Oh and didnt I hear the HMRC say
"error is something that is a “behaviour of small businesses”." Really and you want to use error-prone users to pilot a system? How are you going to figure out if its a system or user error, your playing with too many variables at the same time.
2) Getting users to implement MtD is an organisational issue for them NOT a systems issue. Giving systems houses API's is all very well but about as relevant to SME's as judging a fish's capabilities by how well it can climb trees.
3) The relationship and information exchange between an SME & HMRC through MtD is nothing like the relationship between a consumer buying goods and services.
4) There is an implicit assumption that SME's are highly computer and technology literate. WRONG. That may be the case in 25 years but for now, there are a sufficient number of people committed to using cheques rather than electronic payments to suggest a lot of users will really struggle and have to rely more heavily on their advisers than they do currently, rather than less as the HMRC expect.

I submit most SME's will find the extra expense of employing an accountant for quarterly returns that are correct of significant concern
The accounting industry likewise is going to struggle to meet the surge in activity resulting from MtD, which may mean that many accountants in order to survive disengage from the bottom 30% of their client base resulting in a large number of disenfranchised customers.

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Chris M
By mr. mischief
28th Sep 2016 20:52

Here is a topical real life example which came up today. It will form part of my submission to Mr. Tyrie.

This is my client who has gone DIY on Xero. I have today had a £300 variation accepted as follows:

1. Report into the best way forward for the Xero company systems, including process improvement.
2. Getting the 2016 accounts to agree to the bank statement.
3. Identifying where the problem with the reporting of VAT outputs in 2016 arose and identifying more robust process for fixing this in future.

So I am advising this client to stick with Xero despite the fact I view it as pretty rubbish. I feel it is much more likely he'll make even more mistakes going to a better system, and at least Xero will be compliant with MTD as they seem to be at the front of the [***]-licking queue with HMRC.

So my client got zero guidance on how to set up his director's account - so has 3 of them in random areas of the TB. Zero guidance on VAT, so a material difference in outputs between the VAT returns and the trial balance. Zero guidance on how to post the bank statements so a £10k difference on that. Xero by name and Zero by nature!

In other words, the accounts are all over the bloody place. This is the brave new world numpties like the MTD director are press-ganging all the small businesses into.

Note further that this client actually takes quite a bit of interest in finance and accounts compared to most small company directors!

So £300 extra fees. As I have posted elsewhere, I fully expect to be £10k per year better off if MTD ends up going through. If it was just about my own self-interest I would elbow Xero out of the way at the front of the arselick queue.

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By Patricia McCartney
28th Sep 2016 21:15

I am really concerned about how soon HMRC are rolling our MTD. A great deal of small businesses will be still reeling after getting to grips with Automatic Enrolment, the extra administrative burden AND the extra costs. HMRC have not yet finalised the plans but they are introducing it in April 2018!!

Here is a link to the Consulation Documents - we have until 7 November 2016 to make our comments

Please, please, please would all of you voice your concerns and give HMRC your feedback so that at least we can try to influence the outcome.

Yours worriedly.

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Replying to Patricia McCartney:
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By Patricia McCartney
29th Sep 2016 10:04
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By HLB
28th Sep 2016 21:51

Just been to a consultation meeting with HMRC in Cardiff. Not well attended by agents but then again I only found out about it as someone mentioned it on Accountingweb. No direct invitation from HMRC.
Three HMRC representatives who listened but can't really gauge how much. What came across was that they don't understand how much pressure will be put on accountants. They really think that clients will use their Apps in real time and it will save us work! Unbelievable.
They have no idea how people will learn how to use their Apps. They are not going to train their customers. So who is going to do that? Us? Software houses?
Make no mistake they have invested in this and they will bring it in. The best we can hope for is a delay in implementation. I see three options. Gear up for it (somehow - answers on a postcard), bring forward retirement plans or join the Plymouth Brethren as apparently they will be exempt on religious grounds!

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By taxbakbristol
29th Sep 2016 02:16

Ye Gods...I cannot even start to pick holes in her reasoning as its ALL HOLES!
Who are these weird people HMRC wheel out.?
She is comparing AMAZON on line with an HMRC piece of software...and to say that they now start with small IT projects and then adapt to a larger version is like building a rickshaw when you hope for a bus!
Weirder and weirder!

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By Agutter Accounts
29th Sep 2016 05:03

Knowing what some of my small business clients are like, getting the annual accounts out of them for submission on time can be a stretch. Reporting more often is there going to be an "interesting" experience all round.

For those businesses registered for VAT the new regime will probably be no big deal. Quarterly reporting is required. For other businesses I reserve judgement.

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Replying to Agutter Accounts:
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By RobertD
29th Sep 2016 06:03

Agutter Accounts wrote:

Knowing what some of my small business clients are like, getting the annual accounts out of them for submission on time can be a stretch. Reporting more often is there going to be an "interesting" experience all round.

For those businesses registered for VAT the new regime will probably be no big deal. Quarterly reporting is required. For other businesses I reserve judgement.

It will if businesses registered for vat don't use accounting software.

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By david wilks
29th Sep 2016 09:43

Ok. I have really had enough of the total tosh that is being spouted by the the idiots who have found themselves in the very unfortunate position of having to push forward the idea of MTD. I suggest they try to get a job in the real world where proper English is spoken.
The office of "let's use as much nudging speak as possible to confound humanity" must be having to work overtime in thinking up unfathomable phrases to try to sell this ridiculous idea.
As I have said in a previous post (the thanks for which I am grateful) the response to all of this must be NO. We dedicated professionals will not have any truck with the proposal in its current form. The Administration must not only listen but HEAR what is being said by sensible and reliable people such as us. If it's not broke don't try to fix it in such a high-handed and dictatorial fashion.
Again, I issue my invitation for them to come to the coal face of my office and tell my clients face to face of the current proposals if they dare.

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By anthonystorey
29th Sep 2016 12:39

According to Middleton "error is something that is a behaviour of small businesses. Typically large businesses don’t make errors."
The arrogance of this woman is unbelievable. This week alone I have -
received an incorrect amendment from HMRC to a clients Self Assessment taking away the class 2 NICs even though they are definitely due and were correctly shown on the Tax Return, and
received a notice of coding from a client showing that HMRC have incorrectly and for no apparent reason re-allocated his Personal Allowance from his well paid main source to his very small sub-source.
HMRC should concentrate on putting their own house in order before casting aspersions on small businesses. And if they can't even get simple matters like the above right why on earth are they asking small businesses to send them tons and tons (or should it be giga-things) of additional information under Making Tax Dreadful.
I can categorically say that none of my clients want MTD and some have even said that they will pack in their self-employment if it goes ahead. This is on top of those who have already given up or at least stopped employing people because of RTI and auto-enrolment.
I can see the cumulative effect of what is happening driving more and more people onto the hidden economy to avoid all this red tape. Whatever happened to David Cameron's pledge to the Federation of Small Businesses Conference in 2014 for government to "get out of the way of small business success". LOL Mr Cameron, and no it doesn't mean lots of love.

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By dgilmour51
29th Sep 2016 14:06

Tornado:"I am baffled as to how someone as obviously ignorant about many aspects of Tax Administration as Ms Middleton, gets to be a Director of what is the biggest proposed changes since Self-Assessment."

How can you be in the slightest surprised at this - its utterly normal.
If you have competence then you don't spend/waste enough [of other people's] money - and if you don't spend enough this year its knocked off next years allocation.
There is absolutely no incentive to employ skill, competence or knowledge.

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