After our recent webinar on Making Tax Digital, one thing remained clear: AccountingWEB members are frustrated by the lack of solid information. This interactive Q&A is based on community questions, and will act as an ongoing reference source as the project evolves.
MTD has become accountancy’s snow leopard: confirmed to exist, but rarely sighted.
To help our members as much as the editorial team, AccountingWEB has created a frequently asked questions (FAQs) article for Making Tax Digital. This FAQs will grow and transform as MTD gradually unfurls. We will keep adding to it, taking new questions into account as and when they pop up. The people we speak to will also increase on a continual basis.
AccountingWEB members will be at the heart of this process. If you have a question you want answered: let us know and we’ll try our hardest to get it answered.
For now, here is the inaugural collection of MTD FAQs.
HMRC said that it will provide free software solutions to small businesses. When will we get to see them?
Mark Purdue, product manager for tax products at Digita: “The government has made the commitment that businesses with the most straightforward tax affairs will have access to free software for managing their tax account data.
“At the moment, ‘straightforward’ has not been defined, so the scope of what will be available is not yet known. Currently, HMRC are in discussions with software developers on what solutions will be available.”
Steve Checkley, director of TaxCalc: “HMRC won’t actually be providing this software themselves but are relying upon suppliers in the market to do so.
The industry generally isn’t keen on giving away free software”
“Without wishing to put words into the mouths of suppliers out there, I believe that the industry generally isn’t keen on giving away free software – it’s not a very commercial proposition and freemium models rarely work in reality. The compromise would be to identify groups of taxpayers for whom the requirement to buy additional software products is unconscionable (eg very low earners). How these groups are to be identified and how software will be restricted is yet to be determined and/or agreed by HMRC and the industry.
“We won’t be able to see this software for some time since HMRC have not determined what they actually want from taxpayers. As a result, we can’t build it! There will be consultation in July and the Chancellor of the Exchequer will reveal the decisions in the Autumn Statement.”
Do we know if clients will have to use cloud bookkeeping to upload or will there be alternative methods to upload such as a link at HMRC where they can key in their data?
Mark Purdue: “This type of detail will be clarified as part of the various consultation documents (expected after the EU referendum vote). The only clarification HMRC have made so far is that the recording of data must be digital, and for this purpose, that excludes spreadsheets.”
Steve Checkley: “Uploading of data will be done through an API (Application Programmable Interface), so I don’t see why Cloud has to be a prerequisite of this software.”
If clients already have Digital Tax Accounts when will accountants be able to get access to clients digital tax accounts?
Steve Checkley: “Digital Tax Accounts are already live. Individuals have a Personal Tax Account and businesses and organisations have a Business Tax Account.
Accountants will not be able to access a client’s Digital Tax Account directly.”
“Accountants will not be able to access a client’s Digital Tax Account directly. Instead, they will be able to obtain information indirectly from within their tax software via an API.
“A couple of APIs have already been developed and implemented by software providers such as TaxCalc. These APIs include the ability to download end P60 and P11D information directly into a tax return. In TaxCalc’s case, we’re waiting for HMRC to turn them on for use by our customers.”
Mark Purdue: “A small point to clarify is that, as mentioned by HMRC is their Agent Services webinar on 19 May, agents will only be able to access the Digital Tax Account data for their clients via third party software i.e. HMRC will not themselves be providing the equivalent of the existing web-access via the Government Gateway.
“Third party software will allow agents to access the underlying data held in the client’s tax account. At the moment HMRC are working on exposing this data (via APIs) to allow third party providers to write the necessary agent software. HMRC have committed that their work will be complete in this financial year, so watch this space.”
If you have a few small business clients and currently use the HMRC free software what are the best options available for 2016/17?
Mark Purdue: “HMRC have confirmed that they will not be writing any software solutions to mirror their current offerings.
If you are an agent, currently using the free HMRC products, then you need to start considering your requirements.”
“If you are an agent, currently using the free HMRC products, then you need to start considering your requirements, and looking at what third party products will be available to meet your needs.”
Will clients have to pay tax more often based on quarterly returns?
Steve Checkley: “This is something that has been very strongly challenged by the software industry, particularly members of BASDA. There was consultation back in February on “Simpler Tax Payments”, which touched on this. In the open consultation I personally attended, the idea that the regime would change was not well received and fiercely debated.
Currently, as far as we understand, there will be no changes to the frequency of which taxpayers will make payments.”
“Currently, as far as we understand, there will be no changes to the frequency of which taxpayers will make payments.”
Mark Purdue: “At this stage, there is no suggestion of mandatory quarterly payments. There was a consultation earlier this year, and the outcome was that HMRC would offer voluntary quarterly payments to those who would prefer to pay by this method.”
What happens about capital allowances, how will they be calculated?
Steve Checkley: “HMRC don’t know how the application of annual allowances or other such rules will be applied. They’ll commence consulting in July and the Chancellor of the Exchequer will reveal the decisions made in the Autumn Statement.
“Capital Allowances could go one of two ways: they are applied as an end-of-year adjustment or apportioned throughout the tax year. The same would be true of, say, private use adjustments. They may either be applied annually after the year has concluded or on an as-you-go basis as activity dictates. Of course, application of adjustments throughout the year is edging ever closer to making a more formal tax return, if only concerned with trading activity.”
Mark Purdue: “A good question! At this stage, the simple answer is we do not know (the consultation documents referenced above will clarify this). Other similar questions include; What happens about loss relief? How will farmers averaging work?”
When will the last year of Self Assessment Tax Returns be?
The requirement for a formal SA tax return is likely to disappear.”
Mark Purdue: “Based on what HMRC have published to date, at the point that ‘Quarterly Reporting’commences, the requirement for a formal SA tax return is likely to disappear. This suggests that for unincorporated businesses and other individuals, the last SA return will be for the year ended 5 April 2018.”
Steve Checkley: “Hard to say. I believe that from the documents issued by HM Treasury and HMRC that we’re looking at either 2018 or 2019.
“The thing is, the forms are likely to stay but be beyond the use of most taxpayers. At Accountex, Oliver Fisher, who is HMRC’s Deputy Director of Making Tax Digital (Business) Strategic Design & Policy, presented a seminar and said that a form will be retained but only for use by those who physically are unable to use a computer or through religious conviction. Everybody else will be obliged to use digital services.
“I believe that the system is set up such that if a taxpayer is making submissions of data to HMRC or submissions are being made on their behalf (such as payroll, bank interest, dividends and so on) and they do not challenge or amend the data, the assessment made by HMRC will stick and become their liability. In that respect, a taxpayer that has no need to challenge or amend tax data held by HMRC has no need to complete a tax return. However, the self employed, for example, will need to amend year end data and therefore be required to complete a return in all but name.”
If filing is every 3 months does this mean we will have a January season every period? Will it be 31/01, 30/04, 31/07, 31/10 dates for filing?
Mark Purdue: “I think it is fair to say that the transition to quarterly reporting will have some challenges! One such challenge will be getting quarterly data from clients, reviewed and to HMRC efficiently as possible, and in accordance with the HMRC deadlines (which are still unknown).
“The meaning of a quarter and deadline for submissions remains to be clarified, again by the consultation documents.”
Steve Checkley: “Oliver Fisher, HMRC’s Deputy Director of Making Tax Digital (Business) Strategic Design & Policy, presented a seminar at Accountex where he alluded to taxpayers commencing with Quarterly Updates in the first quarter following their accounting year end. For many taxpayers, this will be the start of April 2018 but for others, later in the year. To a small extent, this would be helpful in staggering taxpayers throughout the year although I appreciate that most taxpayers will be skewed towards the start of the year.
HMRC are keen to stress that what they are after each quarter is an update of bookkeeping information only.”
“HMRC are keen to stress that what they are after each quarter is an update of bookkeeping information only. Of course, if they then want tax adjustments to claim in-year or annual allowances, the submission will start to look more like a tax return, if only concerned with trading income.
“Personally, I think that taxpayers will be obliged to make four quarterly submissions of basic bookkeeping data (income, expenses and accounting profit) and then be given until 31 January to make any amendments, apply tax adjustments and pay any taxes due.”
Will agents be able to submit quarterly reports for our clients?
Mark Purdue: “Yes - assuming their chosen third party software supports this.”
Steve Checkley: “Again, the software industry has been pushing for this. The accountancy profession is the best quality assurance department that HMRC has.
“Thankfully, at his presentation at Accountex, Oliver Fisher pretty much said agents will be able to submit on behalf of clients.”
A lot of people seem to be finding a lot of issues/things wrong with MTD - can you help us to find the silver lining?
Mark Purdue: “The silver lining for an agent is the new process will enhance the working relationship with clients. No longer will it be an annual letter requesting historic data, and the annual provision of a form of no worth to the client. Instead, agents will be able to access near live data for their clients, giving the ability to offer advice and planning opportunities in year; planning to mitigate a client’s higher rate liability before the year end, for example.”
The silver lining for an agent is the new process will enhance the working relationship with clients.”
Steve Checkley: “Making Tax Digital consists of three strands: Digital Tax Accounts, Application Programmable Interfaces and Quarterly Updates.
“The first two are positive in the long run. The Digital Tax Accounts provide taxpayers with more information about their affairs and the APIs will feed the information contained within into commercial tax software.
“The APIs could, in the future, also deliver some other potentially useful functions to accountants:
- Populate more information in a tax return e.g. bank interest, dividend income etc.
- Keep client data in sync with HMRC – update a client’s address in, say TaxCalc, and HMRC receive a notification of the change, updating the client’s records automatically (and vice versa)
- Find out whether clients have paid their liabilities, or indeed, that HMRC have allocated the correct payments, and follow up with action if required
- Gain access to a client’s digital message inbox (the alternative to receiving paper letters). Accompanying meta data to these messages would help sort and prioritise the messages
- A replacement for the 64-8 and related authorisation systems offering better granularity and more than one representative agent per service
“With regard to Quarterly Updates, no matter how one feels about this concept, it’s going to happen.”
How do I deal with clients still using paper records?
Marl Purdue: “This, without doubt, is the biggest challenge agents are likely to experience with clients.
HMRC are saying alternatives will be found, with ‘phoning in’ quarterly data one possibility likely.”
“Some of your clients may be classified as ‘Digitally Excluded’ (unable to access digital services). For this category, HMRC are saying alternatives will be found, with ‘phoning in’ quarterly data one possibility likely. Another possibility is that the agent (where the client is represented) takes on the role of quarterly reporter, on behalf of the client.
“Those clients who are not digitally excluded, but currently don’t have a digital solution will need to be educated on their role in the new process. Whilst some may argue that HMRC should be the primary educator, agents must take an active role in advising their own clients on what steps to take (you, ultimately, want your client to be as efficient as possible in line with your processes).”
Steve Checkley: “It’s not going to sound like a great answer but really these clients are going to need to get on board with the idea of completing records using software of some description.
“Whilst it’s likely HMRC will offer a soft landing for quarterly updates, I believe that they will tolerate and maybe even offer support to businesses that genuinely have a go but be more forceful with those that flatly refuse to cooperate.
“The alternative is that an accountant or bookkeeper completes the quarterly submission on behalf of a client. This will necessitate a certain level of bookkeeping of which the professional will want to be paid.
“I’m afraid I can’t be of more help with this one. It’s certainly going to provide a tricky problem to solve for practitioners and their clients.”