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MTD does not reduce errors

Nearly 90% of businesses and agents have rejected HMRC’s claim that MTD for VAT reduces errors, in a new survey which finds HMRC's digital project failing to live up to its promises.

31st Jan 2020
Practice Editor AccountingWEB
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Making Tax Digital was sold on the idea it would make tax easier for agents and businesses but the majority of respondents (90%) in a new ATT and CIOT survey think differently: 70% haven’t seen accounting errors reduce, while the remaining survey respondents have actually seen errors increase.

MTD for VAT compliance has also hit pockets more than originally anticipated with 45% of respondents forking out between £109 and £500 on costs, which is above average transition cost estimate of £109 per VAT-registered business, while 12% have even seen costs soar over £5,000.  

Ongoing, 54% of respondents expect the annual costs to settle between £43 and £500, and for 20% that number could even land between £500 and £1000, which exceeds the government’s estimate of £43 per year.  

The survey also found that these extra costs have not exactly translated into an increase in productivity. Only 14% experienced an MTD productivity boost, while it had the opposite effect for 55% who saw productivity drop in their organisation and for 51% for their clients.

The initial results from the joint survey contradict the government's claims that MTD for VAT would ‘make tax easier’ and reduce the tax gap, and nor does it abate concerns from the project’s most vocal critics that digital reporting does not benefit businesses.  

The CIOT and the ATT are using the survey results to call for a comprehensive review of the roll-out of MTD for VAT before HMRC extends its scope.

“MTD for VAT has so far created additional, costly obligations for most businesses beyond what was predicted by HMRC,” said Tina Riches, chair of the joint CIOT and ATT digitalisation and agent services committee. “The results suggest there is a very long way to go to achieve the benefits claimed by the government about MTD for VAT.”

Riches recognised the significant benefits appropriate software brings when it is used properly and to the businesses needs but says the survey demonstrates that “MTD is not currently delivering those benefits to businesses, nor likely to reduce the tax gap”.

MTD takes its toll on agents

Agents are the ones who have taken the digital flak both in time and costs to ensure businesses meet MTD requirements. The survey found 56% of agents needed to help three-quarters of their clients move to digital record keeping. But for many, the task doesn’t stop there: 48% anticipate three-quarters of their clients requiring ongoing help filing VAT returns.

AccountingWEB has reported the toll MTD has taken on accountants’ stress levels. One anonymous accountant felt overburdened by long working hours and strain of MTD that they had a breakdown and their doctor told them to retire.

But the survey also unearthed the cost MTD has had to agents, with 70% reporting unrecoverable time and costs of over £100 for each client within the scope of MTD for VAT.

Riches commended agents for helping their clients comply but considers the costs borne by agents as “unacceptable and unsustainable”.

“A truncated pilot, issues with the Agent Services Account, and dealing with large numbers of teething problems are key contributors to this, as well as limits to the support that clients are willing and able to pay for,” said Riches. 

A vocal proportion of AccountingWEB readers have raised concern about the digital project throughout its existence. A recent thread on the forum repeated these concerns when a reader’s decision to voluntarily adopt MTD for VAT was met with the typical responses of “Not sure what benefit it offers” and “Why would you want to join MTD before you need to? Wait until all - well, most - of the bugs in the system have been sorted out.”

MTD beyond VAT

Since April 2019, VAT-registered businesses with a taxable turnover above the VAT threshold have submitted their VAT returns using MTD-compatible software. But plans for MTD to roll out for other taxes have been put on ice for the meanwhile.  

Unsurprisingly, the majority (74%) of respondents thought mandating MTD for income tax shouldn’t come any time soon, preferring instead for voluntarily VAT-registered businesses to be the next stage.

Considering the difficulty businesses and agents have expressed in this survey, Riches envisages an MTD for income tax roll out for “those less digitally capable” than VAT businesses as “much more complex”. She added, “Taxpayers will require significant training and ongoing support, and we are concerned that their agents, the tax charities and HMRC, simply will not be able to cope.”

An HMRC spokesperson told AccountingWEB that it welcomes the views of members of the accountancy profession: “MTD for VAT is still in its first year and we completely understand that some businesses and their agents will need time to get used to the new system.  

“We appreciate that while there are free products available, some businesses will have incurred software and training costs, but MTD’s enabling of digital records linked to HMRC’s systems will help to free up valuable time.”  

News that MTD for VAT has done little to stamp out errors comes as a blow to HMRC who predicated the need for digital record-keeping on achieving just that.

Shortly after the then Chancellor George Osborne announced the death of the tax return in the spring Budget 2015, the government initially dubbed the project ‘Making Tax Easier’. It initially promised to “make it easier for individuals and businesses to get their tax right and keep on top of their affairs’, in addition to reducing the tax gap and reducing avoidable errors.

The tax bodies conducted the survey throughout December 2019 and January 2020 and had a total of 1,091 responses from businesses and agents.

*The article has been updated to include a comment from HMRC.

Replies (86)

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By ireallyshouldknowthisbut
31st Jan 2020 10:13

Its seems to happen with depressing regularity that things everyone who knew anything about a subject said would and wouldn't happen following proposed changes, did and didn't happen when those changes are forced through, despite the persons proposing those change ignoring and rubbishing those expert views at the time of the decision. O and those responsible for the mess have of course now moved jobs to do something else.

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By johnjenkins
31st Jan 2020 10:33

Spot on. Accountingweb should publish some of our fears that were posted at the time, especially Mr. Gauke standing up in the House of Commons saying (from a script) that MTD was the best thing since sliced bread. Where is he now????????????
Mel wasn't much better.
The digital age isn't what it's all made out to be.

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By GW
31st Jan 2020 10:02

HMRC have marketed the idea of MTD in two different ways depending who they were talking to:

1) Making life easier for tax payers and reducing errors - which not surprisingly hasn't turned out to be true
2) MTD would increase the tax take - do we have any indication if this has suceeded?

Either way I expect HMRC will anounce it has been a great sucess.

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Replying to GW:
By Duggimon
31st Jan 2020 10:04

I am quite sure I read somewhere not so long ago that the tax take has not changed at all.

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Replying to GW:
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By Nick.Ferriter
31st Jan 2020 10:12

yes they will, and we have always been at war with Eurasia.....

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By johnjenkins
31st Jan 2020 10:35

If MTD hasn't reduced errors (presumably in HMRC's favour) then the tax take wouldn't be increased.

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By Duggimon
31st Jan 2020 10:04

Well I for one am astonished by this revelation.

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By andyhopkins
31st Jan 2020 10:08

The costs to businesses suffered from software companies seeing MTD as a "gold rush" -using it as a lever to get people to move to a monthly subscriptions model (rather than a one off purchases) as the only way to get the MTD compatible version of software.

MTD -the gift that keeps on giving (to software companies).

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Dan
By danstopp1
31st Jan 2020 10:15

I work for a Free accounting software and part of my role is customer support. The most common question I get is why can't I type in the figures into your VAT Return and I have to explain that you can't do this and you need to record your transactions, but these users often just find a bridging software where they can just type in their VAT figures. This way of just typing in figures will no longer be compliant at 01/04/2020 as HMRC's soft landing period will be over, perhaps then things will change and the amount of errors will reduce, will be interesting to see survey results later this year.

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By Duggimon
31st Jan 2020 11:21

I think that forcing people to use bookkeeping software is going to increase errors rather than reduce them.

I would also point out that while HMRC can impose penalties from 1 April 2020 for non-compliance with the digital link requirement, they still have no means of detecting non-compliance and no facility for receiving anything beyond the 9 figures which may or may not be typed in.

At least that's my understanding of the current position, perhaps you have insider knowledge of HMRC's system being updated to cope with a massive influx of data in April? Though if that's the case I think we can all rest safe in the knowledge that it will immediately break.

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Replying to Duggimon:
Dan
By danstopp1
31st Jan 2020 12:21

No I don't believe any think will change technically, so it will still only be boxes 1-9, but if people choose to continue to type in the values box 1-9, then they are taking the risk like with most things in tax, you won't need to pay any penalties unless you are caught.

I'm not saying that everyone should should be made to use, but using software or a digitally linked spreadsheet is certainly more accurate than paper workings and definitely reduces the chances of a mistake.

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By johnjenkins
31st Jan 2020 13:25

Accountants who are trained in the art of Accounting will always "balance the books" using "digital software" or "paper workings".
So you're talking a load of tosh when you say more errors occur with handwritten workings. As someone said GIGO.

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Replying to danstopp1:
RLI
By lionofludesch
01st Feb 2020 10:07

danstopp1 wrote:

I'm not saying that everyone should should be made to use, but using software or a digitally linked spreadsheet is certainly more accurate than paper workings and definitely reduces the chances of a mistake.

Please state your evidence for this bold statement.

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By martinf81
31st Jan 2020 10:15

It's really disappointing that as an accountant only half way through their career that this is the way things are going to be now with new changes with lots more to come. We have a cycle of being told about new developments that are badly planned and thought out, we all voice our concerns and highlight the problems, HMRC ignore them and implement them anyway, then we all say "we told you so." Is anyone at HMRC in touch with the real world? If HMRC listened to accountants we would have a much better tax system for everyone, why are they always ignoring us?

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By BlueNose1812
31st Jan 2020 10:34

Any self respecting civil servant who understands the practical problems will leave at the first opportunity and join the real world, leaving behind those that don't and are incapable of understanding the issues. It is a back-stabbing jungle at HMRC and the only way anyone can progress up the ranks is by implementing change for changes sake and then moving on to leave others to pick up the mess. "My design was perfect - it was the your implementation that failed " is the common mantra.

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By susan23
31st Jan 2020 11:52

You have officers in ivory towers writing legislation with little knowledge of how Tax works in the real world. The conduct pieces of work asking for information from accts and technicians but don’t understand the replies.
I’m sure MTD is purely about getting rid of staff in HMRC , it does not ensure accuracy, that is down to whoever inputs data into the system, numerous problems there.
No businesses need visiting HMRC staff because the business has supposedly done all the work by allowing HMRC to inspect the data behind the Vat Return from a desk.
Only my thoughts ..

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By Barkster
31st Jan 2020 14:55

I recall Michael Steed, esteemed lecturer on the circuit and brilliant all round chap, a few years ago, saying he had just been teaching tax, at the Treasury, to a bunch of fresh-out-of-University graduates, for them to then advise the Government on tax !! Says it all.

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By susan23
03rd Feb 2020 14:13

I used to know Michael Steed, excellent guy, and recently I had lunch with someone who also said that HMRC now has many young graduates undertaking roles that used to be undertaken by very experienced staff, some of which were good.

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By johnjenkins
03rd Feb 2020 14:52

Since the recession of the early 90's, middle management (people with common sense and intelligence) was decimated. So even if great ideas came about, the people to monitor and nurture weren't there. Now there is nothing wrong with young graduates, but left to their own devices with the bosses only wanting one thing - not good.
A good example is England football team. Midfield bypassed, crap against good teams.

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By coleprice
31st Jan 2020 10:18

It's like the founding commandments of Animal Farm that gradually had amendments added to them.

Original: "MTD will increase the tax take"
Amended "MTD will increase the tax take and cut the government salary bill"

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Replying to coleprice:
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By lionofludesch
01st Feb 2020 10:09

coleprice wrote:

It's like the founding commandments of Animal Farm that gradually had amendments added to them.

Original: "MTD will increase the tax take"
Amended "MTD will increase the tax take and cut the government salary bill"

Amended "MTD will do nothing to raise the tax take but will cut the government salary bill."

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By David Gordon FCCA
31st Jan 2020 10:40

Well what a surprise.
it is a pity that HMRC are exempt in statute for legal action under the Provision of Services & Goods legislation.
and
Harassment legislation.

I am not kidding- look it up.

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By Michael C Feltham
31st Jan 2020 10:41

When government "Experts" decide any status quo, they invariably have attacks of cognitive dissonance. Then in panic mode, they fly to Special Advisers, who also lack real grasp of core problems and solutions.

Having been a (Published) respondent to ALL the Government requests for input and having analysed ALL the contributed comments and analyses, it was early on, abundantly clear, those leading the project, Middleton and Stanier, hadn't a wee clue about how the real World of business, commerce and record-keeping worked.

To make the situation worse, major accounting and bookkeeping software solution providers, sensing a gold mine, rushed into high pressure ad campaigns; amongst the very worst was Quickbooks, promoting saturation media adverts showing such as Joe The Plumber "Doing me books..." on his smart phone. Hilarious!!!

Earlier this week, I was sent one client's next year final reports, Quickbooks, now serviced by a known and successful Payroll and Bookkeeping agency. It was utter garbage with far too many entry errors to count!

GIGO.

"If the blind shall lead the blind, then shall both fall into a pit!"

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Replying to Michael C Feltham:
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By Helen Piper
31st Jan 2020 11:19

I totally agree with you Michael Feltham. I cringe when I hear the radio adverts that say this miraculous software will 'do everything for you' so that you never have to actually enter data in detail in order to produce a VAT Return and Accounts. As for the new 'paperless' revolution that software producers are now selling, SMEs are unaware that they will have to pay a huge price for the software to import receipts and invoices and their book-keeper will also have to spend huge amounts of time mapping the data to suit their accounts system. Its dishonest.

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By lincolnartist
31st Jan 2020 11:31

I hate QB with a venom. I have some clients who kept perfectly good records on paper or spreadsheets. Then they bought QB due to the , let's not mince words, false advertising, and now I have a jumbled mess and questions why my profit in the accounts doesn't agree to crapbooks p&l

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Replying to lincolnartist:
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By Michael C Feltham
31st Jan 2020 13:40

Years back, lincolnartist, my practice, worked closely with Barclays Corporate.

One fine day, my manager called me, invited me to a seminar and pushed me to join the Quick Books Barclays initiative and we became a Distributor; for a short while!

I could do better with a quill pen and an abacus.

Also, I despise Sage. Inflexible. The best offering was from a South African outfit and was called TAS. Once again, I signed my practice to became a distributor

Sage feeling threatened, bought out TAS; and junked it.

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By Barkster
31st Jan 2020 14:59

I hate QB too - had a client, painter/decorator, less than £25k turnover. Would do his accounts in an hour or little more on Excel, He was keen to try Quickbooks and after his first year it took me a day and a half to unravel the mess. Had duplicated all his sales and all his bank, complete disaster. And he had tried, and thought he had done a good job.

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By L Haldane
01st Feb 2020 09:53

I totally agree. My blood boils every time one of these adverts comes on the TV. Now that the January deadline has passed, top of my to-do list to get rid of the pent up January anger is to make a complaint to the advertising standards authority about these blatantly false adverts.

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Replying to Michael C Feltham:
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By cazas
03rd Feb 2020 13:29

One of my clients has just done his accounts on QB. he had been told it was easy. It took me three times as long to sort his accounts out. Having to reanalyse his codes. He had put drawings in wages so if he had submitted his tax return from this clever program, he would have been underpaying tax substantially. His bill with me was triple the previous year.

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Replying to cazas:
RLI
By lionofludesch
03rd Feb 2020 13:51

cazas wrote:

One of my clients has just done his accounts on QB. he had been told it was easy. It took me three times as long to sort his accounts out. Having to reanalyse his codes. He had put drawings in wages so if he had submitted his tax return from this clever program, he would have been underpaying tax substantially. His bill with me was triple the previous year.

I've only been saying this for donkeys' years.

A client gave me his figures for his first QB VAT return. He had huge box 2, 8 and 9 figures, even though he has no trade with anyone outside the UK. [sigh]

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By JD
31st Jan 2020 10:49

A common sense report, that will be ignored by HMRC because MTD digital project saves them cost. Only a fool (and cloud sales people) could ever think that cloud tech can suddenly convert poor record keepers into the administratively perfect.

Perhaps A.Web editors might like to now change their Animal farm ''spreadsheet bad, anything app/mobile phone/cloud related is good'' editorial line. Dare I say anything about cloud profiteering at this point...

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By The Rogue
31st Jan 2020 11:01

I'm a company accountant and I do our VAT returns. The arrival of MTD meant that we had to pay £1745 for the module plus an annual fee. In order to use the module we have had to fudge a lot of VAT transactions into the system. Quarterly processing has become a lot more complicated.

Who is it benefiting?

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By flightdeck
31st Jan 2020 11:56

Wow, that is a lot! Can I ask why you have to pay so much - is that you have a lot of users and they charge by seat? Or is that if you are already bedded into a package then that package provider has you by the short and curlies and can more or less charge as they please?

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Replying to flightdeck:
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By The Rogue
31st Jan 2020 13:16

The latter. It's a poor accounts package which was recommended to us by the people who supplied the stock system we recently acquired. While my Board appreciate my issues with the system it won't be practical to move elsewhere for a long time.

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Replying to flightdeck:
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By The Rogue
31st Jan 2020 13:16

The latter. It's a poor accounts package which was recommended to us by the people who supplied the stock system we recently acquired. While my Board appreciate my issues with the system it won't be practical to move elsewhere for a long time.

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By evileve
12th Feb 2020 20:18

I'm in a similar position - we had to pay £1700 for a 'module' addon, which we were told by our software partner at the time would be a one-off. Today they rang me to say they had just found from the software provider that its going to be an annual fee! (thankfully for us they are so p**d off with the software provider that they have now written their own addon, got it accredited by HMRC and offering it to their clients for free)
Also have had to do some 'fudging' - digital records are only as good as the people who input the information, when you're in an organisation with many people processing information who are not accountants, you can explain VAT rules until the cows come home.....
I now have my original 'VAT return spreadsheet' and a second 'reconcile the VAT return spreadsheet to the software VAT return spreadsheet'.
So agree its more costly and much more complicated!

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By HLB
31st Jan 2020 11:17

Could the ICAEW and ACCA please get off the fence and back the views of their members who work in small practice? This is the ideal opportunity.

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Replying to HLB:
By Nick Graves
31st Jan 2020 11:55

Nope - my understanding is that they are very much part of the statist/corporatist revolving-door cronyism and that simply won't happen.

I have spoken to several ICAEW members who have joined the minor accounting bodies simply because they feel they have become so disenfranchised.

My suspicion is that this corporatist disgrace will continue to grow until the system implodes.

If they continue imposing crap like RTI/MTD/Financial Underwriting By Automated Reconciliation, it will happen much sooner than anticipated.

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By Michael C Feltham
31st Jan 2020 15:46

After leaving a senior post with PwC, my wife worked for the ICAEW at Moorgate. Mainly on liaison with the Small Practitioners' Committee.

These were and are the Poor Relations; Madness, since we know sole practitioners and two partner practice are the majority of members of ICAEW and ACCA.

Both these professional bodies hold sway in the CCAB and are a first port of call for Government. Which creates and sustains the core problem with Britain and its fiasco of a government.

SMEs are the CLEAR MAJORITY of UK private sector business population; create and maintain a majority of employment and real domestic product.

However, it is abundantly clear, Government suffer from what I call Multinational Myopia ©.

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By Helen Piper
31st Jan 2020 11:22

I was invited by HMRC to join a panel that was set up to improve communications between accountancy practitioners and HMRC. That was a year ago - not heard anything since!

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Replying to Helen Piper:
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By Michael C Feltham
31st Jan 2020 13:34

Personally, Helen, I wouldn't waste my valuable time...

I am a member of a strong local accountant's group: one very experienced member, an FCA, was nominated to join the Working Together Group. A dismal and, sanguine and wholly pointless exercise!

Clearly, HMRC, Treasury and Government do not want any real time input.

They just seek input from those ill-informed self-interested, self-serving clowns seeking honours...

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By tedbuck
31st Jan 2020 11:55

As one of your correspondents said GIGO.

That says it all. Clients who have been good bookkeepers for years and made few mistakes get a new program they don't fully understand and press on - but their past knowledge is lost in the fancy footwork of the programs which just don't allow for inexperienced bookkeepers.
Disbursements are a problem where cash accounting is used.
Non Vatable charges are a problem where cash accounting is used.
People claiming Vat on non- vatable inputs is a problem because they tick the wrong box.
Additional cost is a problem.
Training time is a problem.
Reconciliation can be a problem particularly where credit card systems are used.
Ageing clients in particular are finding the largely unnecessarily complex systems difficult to follow and consequently errors creep in which have to be rectified at a later date at a further cost.
Hmmm. I don't seem to have found a positive yet from MTD.
Ah! Maybe HMRC have one - but they get exactly the same information as they did, although probably less accurate.
Perhaps they are saving staff - well judging by the use of help lines to actually register for MTD and implement it - that seems unlikely.
But - it keeps the IT contractors busy and perhaps they get a kick-back from the software companies? But what happens when the IT consultants b*****r off because they are told IR35 applies to them or perhaps HMRC don't have to bother with things like that.
Hey - I'm for Dominic Cummings - let's have a shakeup in the Civil Service and get someone with brains to run HMRC - or is that just too much to hope for?

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By pauljohnston
31st Jan 2020 12:11

I suspect that if HMRC had not had any hand in this project it would be a sucess. Why because the implementng company would take it at a pace that meant that software problems would be solved before users were pushed into using it.

But hey Civil Servants know best - just look at the problems through out all departments.

I vote for a 25% reduction this would mean our tax bills could go down. The same effect as the proposed MTD increased tax take ie more cash for Treasury to waste (sorry spend)

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By North East Accountant
31st Jan 2020 12:54

Of course MTD will not reduce errors and we told HMRC in no uncertain terms during the August 2016 "consultation".

Old tin ears HMRC only hears what it wants to hear.

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By Bill H
31st Jan 2020 13:39

I have two clients with whom I unfortunately do their VAT. I have not yet signed them up to MTD but I record their transactions on an accountancy program but I would have to use bridging software to file under MTD. The next quarter to file for both clients is 29th February 2020 and I propose doing it under the old portal for the last time and then sign them up! I have three nagging questions.
1. When will be the first quarter where I will definitely be charged a penalty for not using MTD?
2. Will I still be able to use bridging software from quarter 31st May 2020 onwards?
3. Does anybody want these two particular clients if 2. is not allowed?

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By djbrown
31st Jan 2020 13:43

Who'd have thought?

If you want to know if HMRC have their heads in the cloud, get involved in some way with the opportunity of meeting face to face with them. About 15 years ago, I was banging on about the VAT enquiries section so much that I was invited to join a meeting at the Treasury with the HMRC Head of External Communication and her team. Sadly, I was 100% disappointed with my impression that it would help. These people are:

1) on a different planet
2) brainwashed into thinking that they know best
3) totally clueless
4) unaware that they are any of the above

Alternatively, they pre-date the request from Cummings for weirdos and misfits to join the government.

A number of years ago, I wrote to my MP, telling her that MTD was never going to work. I quoted one of the first AWEB posts about MTD and she wholeheartedly agreed. Did she do anything about it? Nope. I wrote to her again, but she didn't even reply.

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By johnjenkins
31st Jan 2020 14:05

It wouldn't surprise me if the same people that didn't listen to our fears about MTD were those that opposed Brexit to the extent that 3 years were wasted. Mr Gauke was certainly one of them.

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Replying to johnjenkins:
Hallerud at Easter
By DJKL
31st Jan 2020 21:27

No, that one was down to those defining what Brexit actually was and they still have not quite got there it seems.

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By hibees07
31st Jan 2020 14:40

It was never going to change the tax take significantly. HMRC thought that all errors went against them whereas many would have been in their favour.

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By Barkster
31st Jan 2020 15:04

None of this mentions the problems with the software packages themselves and how clients immediately phone or email us as the first port of call when their browser won't load FreeAgent, or the bank feeds stop working overnight in Kashflow, or bank feeds are missing or duplicating transactions, or they can't allocate a payment to more than 100 supplier invoices - I could write a book on the problems and limitations with the main software packages, none of which have turned out to be "free" by the way !
Let alone clients who don't have a computer, or can't switch one on, or who don't do online banking because of "security issues", or have no internet, or just who haven't got a clue about any of it and care even less.
MTD-for-everybody-else would be accounting armageddon - its been time consuming enough for the 5% of clients who had to do MTD for VAT and they are actually used to the concept of keeping accounting records, receipts and the like, and of doing something quarterly even if they don't really know what it is.
May God help us all.

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