MTD feedback: HMRC studies reactions and costs
Paul Aplin dug through the 23 March tax paperwork to discover two pieces of research commissioned by HMRC. The findings confirmed a lot of points he’s seen before.
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Paul Aplin was for many years a tax partner with an independent West Country firm. He is a past president of ICAEW, a former Chair of the ICAEW Tax Faculty, a member of CIOT Council and the Tax Technology Committee of CFE. He is a non-executive director of three companies, a member of HMRC’s Admin Burdens Advisory Board and the OTS Board....
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For Sage, MTD was and is a money making scheme. I was already using Sage 50s functionality to upload the VAT data to HMRC. When MTD became mandatory Sage started to charge an extra £300 per year to continue to allow me to do what I was already doing when the process was voluntary.
No benefits over my existing process, just more unnecessary expense and being held to ransom by Sage.
The VAT link from Sage used to transfer the data seamlessly. Now, since MTD, it wants me to log into HMRC with the mobile phone code nonsense and then give SAGE permission to access my data and transfer it. Every single quarter.
That was fixed in V26 (I think). Now there's a 'remember my details' tickbox somewhere and you only need to log into HMRC once every 18 months.
There are clear benefits in MTD to some businesses, but not all. If the benefit was to all businesses, there would be no need to make it mandatory, and indeed it shouldn't be.
There is no rationale for imposing digital record keeping on a business that doesn't benefit from it. There is a clear subsection of businesses for whom the only impact is negative and all HMRC's eulogising about it doesn't change that fact. The reason it is mandatory is 100% for HMRC's benefit and is to the detriment of everyone else.
As ever there is a conflation of:
1. Business making use of better digital record keeping
2. The additional burdens of MTD replacing one digital filing system for another one.
Whilst it may be true some businesses would not have switched to better software if it hadn't been for MTD, if they had any sense that would have switched anyway if there was an advantage and probably would have done over time.
All the opposition I have to MTD is the client for whom it DOESNT make sense and is a significant burden.
Exactly. Making Tax Digital is a good thing. Mandatory Making Tax Digital is a bad thing.
Whilst it may be true some businesses would not have switched to better software if it hadn't been for MTD, if they had any sense that would have switched anyway if there was an advantage and probably would have done over time.
Exactly this.
The problem with surveys like this is that it gives the impression that those who were positive about their MTD experience only got to this level of nirvana because of MTD.
Nothing could be further from the truth. This subset of the MTD victim market would have got there in due course under their own steam anyway (perhaps with some nudging from their accountant along the way) so all MTD has done for them is slightly accelerate the process and, as an entirely intended side-effect, drag in all sorts of other businesses for whom MTD has either no benefit or where it actually creates harm by transforming decent manual records into sub-standard digital ones.
It really isn't rocket science to know that MTD doesn't have benefits for most. It is a way HMRC can see all transactions without having to open an investigation (eventually). Most business, as they expand, will automatically go with a software package of some description, which, by definition, makes them digital. Is there a need for the smaller business to be digital? IMO yes but not using the cloud or internet. HMRC will not take any notice of feedback that doesn't agree with their MTD strategy.
HMRC should have just been honest about MTD and said "we're changing to this system for our benefit, so you have to comply" which is basically what happened...
For those with digital records already it was a lot of turmoil for no gain whatsoever - just same 9 boxes as before... and as others have pointed out, sometimes at significant cost
Those with manual records have been dragged kicking and screaming on to digital platforms and all they can see (because they resent that is was forced on them) is the cost. Of course many of these will see a benefit of digital record keeping in the fullness of time but not because of MTD!
I do wonder how many people have gone from imaculate manual records to GIGO digital ones because of MTD!
"During their transition to MTD for VAT, some businesses found the range of software packages overwhelming. While choice is a good thing, surely the market cannot support the number of products currently available for much longer"
All HMRC had to do was create the universal software that everyone could use for free that did everything that they wanted it to. As an Accountant it is a waste of time me trying to understand how to use hundreds of different sets of tax and accounting software when a single standard would have have been easier for everyone.
The gravy train that the Government have created for the software giants is now becoming obvious as they ramp up their charges before selling out at a massive gain to anyone with the cash to spare. (Sounds a bit like the Football Club industry)
We had two clients go out and buy (different) software from two of the major suppliers, without consulting me first, and I ended up spending hours trying to sort out the complete mess they made of their records, without being able to fully recover the time in fees. Sage and Quickbooks, in particular, make a big deal in their adverts of how easy it is to use their products but without a basic understanding of how the products work it is far too easy to get it wrong.
Automatic bank feeds don't necessarily help either, as one client entered all his purchases from receipts and again from the bank feed, so that there were numerous duplications and of course as he had no idea how to reconcile the bank account these were not picked up. He also picked up sales receipts from the bank feed, having previously entered them from invoices or even quotes, and as the amounts didn't always match up we thought he had gone over the VAT threshold when he hadn't.
There are some good, basic products out there (we use VT) but it can be difficult to find them.
I am glad it's not just me that has found total garbage in MTD due to clients just having a punt on software cluelessly. I always charge in full for the extra work, they have always paid. A couple have decided to pack in their silly software and do what I advised them to do in the first place. I have not lost any clients over this.
Stand firm is my advice. Explain clearly why sorting out a total compost takes time. Everyone can understand that, in all areas of life it takes less time to do stuff right first time than sort out a compost. Really and truly the clients should be legally permitted to just knock my invoices off their next VAT payments, HMRC is where the blame for the messes really lies.
I've just had a call from my friendly neighbourhood QBO sales guy. It was a good call, I was very insistent that he should pass the message up the line that accountants very much resented their gravy train attitude to this, instead of pushing back against the numpties who run HMRC. I will do this on every future sales call from all the software companies and encourage you all to do likewise.
"Those who saw clear benefits tended to have high volumes of invoices" which is what I was saying since HMRC first started 'selling' MTD. It is obvious that if you've got loads of transactions digitisation is going to save time whereas if you're a landlord with just 12x income and a handful of of expenses, digitisation is just making a mountain out of a molehill. I'm helped all our larger clients onto software because I can see clear benefits for them, but I've not put any of our smaller clients onto software because the cost/time is more than the benefit.
But whilst I can see a benefit for larger businesses using software, I cannot see any benefits from using MTD. For example, most of our larger clients use Sage desktop and were filing their VAT returns through Sage. The XML filing was turned off in April and they now file through MTD. The Sage MTD filing process is actually more convoluted than the XML process. And the business gains nothing from MTD at all compared to the old XML process.
Most of our MTD-mandated clients now use spreadsheets and bridging software compared to previously using spreadsheets and manual keying into GOV.UK. The time taken to input into a spreadsheet is the same irrespective of filing method. The time taken to link bridging software to the client's spreadsheet is about the same amount of time it takes to manually log into GOV.UK and key in the 4 boxes manually. The likelihood of making a GOV.UK keying error is about the same as linking the wrong box to the bridging software. So these clients gain nothing from MTD either.
The big hit will be the voluntary registered businesses (in my case, mainly farmers who make zero rated supplies and therefore receive refunds of VAT). Many maintain manual records and phone the totals to me and I log into GOV.UK and file online. It only takes 5 minutes to log in a file: if that. From April 2022 these clients will have to digitise their records. Most won't be able to do it themselves so will have to pay me. These clients generally keep accurate manual records so digitisation will not improve accuracy. They will gain nothing and have to pay me for the privilege of gaining nothing. In reality, I will apply for MTD exemption for most of them. I've already been granted MTD exemption for 25% of my mandated clients so I expect to get exemption for these voluntary registered clients too.
In summary, not one business has gain anything from MTD and the smaller the business, the more (proportionally) it costs to comply with MTD.
If MTD is good
No need to be compulsory
Asking volunteers is cr4p
Ask the unwilling for balance
second attempt at this posting, Hope I remembered what I said last time
It would make more sense if MTD and digital record-keeping was compulsory for all new businesses. Current ones could switch if they wish. Those that see no benefit should be allowed to continue as they are, and the numbers will gradually reduce down as the owners retire or close down.
MTD and digital record keeping are two different things. HMRC have already allowed exemptions to MTD so your proposal, although sensible, wouldn't be practical.
HMRC is forcing businesses onto MTD whilst HMRC's own systems remain unaltered. For example, all the paper-only processes and those that are manual within HMRC. If HMRC wants us to digitise then HMRC should digitise their administration. Way back in February 2012 HMRC announced the Agent Dashboard would be launched just 2 months later in April 2012. The Agent Dashboard included the following functionality:
1. Ability for agents to alter a client's PAYE code online.
2. Ability for agents to register a new client for SA and receive the UTR at the end of the registration process.
3. Ability for agents to self-authorise themselves.
But here we are 9 years later and it never happened. In fact it is going the other way. Back in 2012 we agents had the functionality to register a non-nominated partner for SA but that was removed about 5 years ago and now we have to use paper form SA401.