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MTD ITSA legislation: HMRC green-lights three-line accounts

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Long-awaited draft legislation for Making Tax Digital for income tax self assessment has confirmed that those with turnover under the VAT threshold will be asked to submit just two figures to HMRC under the scheme’s new quarterly update requirements.

4th Jul 2022
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The document confirms that a “relevant person” with an annual turnover below the VAT registration threshold - currently frozen at £85,000 until 31 March 2024 - may choose to “provide the total of all income and the total of all expenses instead of the totals of the amounts falling within each category of transaction”. 

While the decision did not meet AccountingWEB member calls for the MTD ITSA threshold to rise to £85,000, the simplification of the reporting was welcomed by the community as a ‘relief’ that will help lower-income traders comply with the new scheme. However, some members felt the draft regulations called into question the need for quarterly reporting, given HMRC would not be able to perform analysis or interrogation of the numbers on a three-line report.

"We have some important but relatively dry lists of data etc. that will need to go in quarterly updates and end of period statements," said Emma Rawson, technical officer for the Association of Tax Technicians. "Whilst it’s critical to have this, we will need to wait until HMRC publishes its guidance to get more information on how this will work in practice, in particular how tax and accounting adjustments will be handled and how everything hangs together.

"One thing which readers may welcome is the confirmation that those using ‘three-line accounts’ will be able to continue to report on these lines – ie if you are below the VAT registration threshold you can report total income and expenses (without splitting into categories) on your quarterly updates and end of period statements," continued Rawson.

Caroline Miskin, senior technical manager, digital taxation at ICAEW's Tax Faculty, commented that while the draft notices list some of the requirements, until the full guidance is revealed taxpayers, agents and software developers will be left with many unanswered questions. "In particular, the notices do not address the practicalties of reporting income from jointly held property," she said.

Miskin also reminded taxpayers and agents that there are no inaccuracy penalties associated with quarterly updates. "It's a summary of transactions, not a tax return," she added.

From a software perspective, Coconut co-founder Adam Goodall said HMRC "would be mad" not to do this. "Giving sole traders under the VAT threshold the option to submit consolidated income and expenses makes sense given they can do this under the current self assessment process already," said Goodall. "As HMRC has specified the consolidated submission on the MTD ITSA technical guidelines already, this will also bring alignment between technical specifications and governing rules - which brings welcome certainty for software providers like us."

Business types

The draft notices make it clear there are five different types of quarterly updates, depending on the type of business a taxpayer is conducting: 

  1. Businesses with trade profits
  2. Businesses with property income (not UK or EEA furnished holiday lets (FHL))
  3. Overseas property (not EEA FHL) 
  4. FHL in the UK
  5. FHL in the EEA

The draft document confirms that the MTD ITSA end-of-period statements (EOPS) will also follow the five categories above.

One point that may need further clarification is the relationship between the quarterly updates and EOPS - in particular, whether the figures need to be entered on the quarterly update submission and then entered again for the final statement. Accountants have questioned whether there will be a relationship or connection between the two - something hinted at in HMRC’s developer hub but not touched on in the draft notices.

While the draft notices don’t officially confirm this, AccountingWEB understands that the information in the quarterly updates will be effectively ‘played back’ to the agent or taxpayer when preparing the EOPS using data HMRC holds. The agent or taxpayer will then need to amend as required to get to the final taxable figures.

A related grey area is around where adjustments for disallowables must be made, and what mechanism will be used to make them. The document states: “Where a relevant person has not already decided whether the amounts included in each expense category of transaction set out in the Update Notice include any elements which are disallowable, the relevant person must remove any disallowable expenditure prior to providing the EOPS total for the relevant period.

More guidance is expected on this later in the year, but it is anticipated that all tax and accounting adjustments will be made in the EOPS - they can be made in the quarterly updates, but there is no requirement to do so. Agents or taxpayers may, however, have to amend a quarterly update if an income or expense item is missed by accident.

Retail sales and consultation period

The document clarifies the position on retail sales. Similar to the MTD VAT notice, digital records mean a single digital record of the daily gross takings for any retail sales made. The gross daily retail sales digital record must include:

  • all payments as they are received by the relevant person or on the relevant person’s behalf from its own cash-paying retail consumers. This includes payments by cheque, debit or credit card, maestro, visa or similar electronic transactions and electronic cash;
  • the full value of all credit or other non-cash retail sales received by the relevant person or on the relevant person’s behalf. This includes the full value of credit sales, the cash value of payment in kind for retail sales, the face value of gift, book and record vouchers received and any other payments for retail sales including those sales completed via third-party online sales platforms.

A full list of things to exclude when calculating daily gross takings is also provided, including counterfeit notes, refunds to a consumer for overcharges or faulty/unsuitable goods, and instalments in respect of credit sales.

Published on 1 July, the document is an open consultation running until 11:45pm on 28 July 2022. Although there are no formal questions accompanying the consultation, accountants and other interested parties can respond to the government via the following email address: [email protected] 

AccountingWEB is also in regular contact with HMRC and the relevant tax and accountancy bodies to answer questions relating to MTD ITSA. If you have a question you’d like to answer please add it to the comments below.

Rebecca Benneyworth will cover the MTD ITSA draft notices on AccountingWEB’s Tax Talk webinar on Wednesday 6 July at 9am. For more information or to sign up please click here.

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Replies (95)

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By Justin Bryant
04th Jul 2022 16:04

The whole MTD thing is encapsulated well by this from a former Government insider re the Civil Service:

"The problem isn’t the people. It’s the purpose. What exactly is the point of a particular programme, or department, or bureaucratic scheme? The civil servants running it may very well be doing so faithfully and diligently but if the initiative itself is unnecessary, counter-productive or poorly designed then all the hard work and professionalism in the world won’t save it from being a waste of taxpayers’ money."

https://www.mailplus.co.uk/edition/features/185896/how-my-red-tape-night...

If you then read down to the bit about pyjamas it will all make more sense (or not as the case may be).

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By BryanS1958
04th Jul 2022 17:03

The solution seems to be either:

1. Everyone goes on strike and refuses to file MTD returns. This should enable Royal Mail to return to profit, delivering penalties that can be ignored and shredded, or
2. Everyone files nonsense numbers on the two lines and lets HMRC's Sinclair computer crash and burn trying to work out what has gone wrong.

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Replying to BryanS1958:
Tornado
By Tornado
04th Jul 2022 17:22

'Everyone goes on strike and refuses to file MTD returns'

No need to strike, this will probably just happen anyway.

'This should enable Royal Mail to return to profit, delivering penalties that can be ignored and shredded'

Yes, a great idea to revive Royal Mail.

"Everyone files nonsense numbers on the two lines and lets HMRC's Sinclair computer crash and burn trying to work out what has gone wrong."

Do you really think HMRC have a computer as good as a Sinclair.

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Replying to BryanS1958:
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By Hugo Fair
04th Jul 2022 17:22

"Daisy, Daisy, Give me your answer do! I'm haaalf craaaaazy ..."
- with apologies to HAL in 2001.

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Replying to BryanS1958:
Morph
By kevinringer
04th Jul 2022 17:41

Re nonsense figures, that is what has been happening with MTD VAT for the last 3 years and HMRC seems perfectly happy with it. As I've said before, HMRC will accept any rubbish as long as it is digital rubbish.

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By 4b4
04th Jul 2022 17:31

A complete farce from start to finish - but the the British have always written great farces!

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Replying to 4b4:
Tornado
By Tornado
04th Jul 2022 17:47

4b4 wrote:

A complete farce from start to finish - but the the British have always written great farces!

This has to be one of the best.

I guess the Government have the Film Rights.

https://quarterly.blog.gov.uk/2014/07/15/the-blunders-of-our-governments...

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Replying to 4b4:
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By spilly
04th Jul 2022 22:10

Just so, except this one is sadly lacking Brian Rix. The only thing remotely funny about Jim Harra is his amazing ability to obfuscate about HMRC’s ability to perform even basic tasks in a timely manner.

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Replying to 4b4:
By Silver Birch Accts
05th Jul 2022 13:38

It is a pity Brian Rix has passed, he would make a splendid HMRC outreach supremo in his aptly named 'Whitehall Farces''
He was a throughly good chap, RIP

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By indomitable
04th Jul 2022 17:56

And what have our beloved institutes done?

The profession should have pushed back hard against this along time ago and refused to engage with government or HMRC, instead of getting involved with meaningless dialogue and pilots. They should have made plain they are not interested in discussing any plans until HMRC gets it's current act together full stop.

I wouldn't have engaged if I was in charge of the ICAEW

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Replying to indomitable:
Morph
By kevinringer
05th Jul 2022 07:16

From what I understand, if the PBs had not engaged (talked), HMRC would have steam-rollered ahead anyway. By "engaged" I mean "talked", I don't think there has been much practically in helping HMRC deliver MTD. Having only 7 or 8 in the pilot from an anticipated number of 400,000, reveals the complete lack of engagement in a way of making MTD ITSA happen. But we do need to engage to ensure HMRC understand the issues. There's no point whinging to ourselves because if HMRC truly believe digitisation is simple enough for taxpayers to do it themselves, HMRC will perceive our whinging as accountants being unhappy we're going to have less work and therefore be less wealthy. Whereas in reality we're all complaining about the opposite: we know our clients are incapable of digitising their records accurately and we're going to be overwhelmed with work. So thank you HMRC for giving us so much extra work we can charge our clients for am make us even richer. Where would we be without all these time-consuming HMRC regimes?

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Replying to kevinringer:
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By HLB
07th Jul 2022 10:34

Went to an HMRC consultation with Agents event about 5 years ago (which I found out about on AW and not from HMRC themselves) and tried to explain that the practitioners issues would be too much work and not enough people to do it. They all took notes but one of them actually said that work should decrease as software would take the strain. They weren't listening.

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Replying to indomitable:
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By BryanS1958
05th Jul 2022 10:35

The professional bodies seem to be more interested in pushing positive discrimination. such as the Black Talent Charter and #10000blackinterns (for the record, I am in favour of NO discrimination), rather than minor matters such as MTD:-(

Likewise. I wouldn't have engaged with them to see how to best incorporate MTD.
I would have just said it is a terrible idea with no tangible benefit and lots of costs for UK taxpayers, just nip it in the bud.

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By Mr J Andrews
05th Jul 2022 08:05

Still nothing about the hardworking backbone - over £10K -struggling to make ends meet and unable to cope digitally. And the scope for claiming Exmeption for whatever reason , as previously announced.
More fun ahead.

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Replying to Mr J Andrews:
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By tedbuck
05th Jul 2022 11:50

It's the small trader or 'pension fund' landlord whom this legislation will completely knacker. Most aren't computer literate and they certainly aren't bookkeepers so the likelihood of them getting it right for MTD are miniscule.

Programs like Xero keep telling us how clever they are and how simple to use they are but still we find huge recording errors when we come to check the VAT returns. Latest was a complete quarter's sales of one sort recorded as outside scope instead of standard rated. Great for the client if not spotted but not much good for HMRC. And they were usually competent at Xero so heaven help HMRC when Jo in the street has a go at it with no experience at all.

HMRC just isn't fit for purpose. Computers won't solve the problem - just make it worse. They need trained, competent staff. I can only assume they just don't bother to train them nowadays but rely on computers. Tip for HMRC - younger modern taxpayers are cleverer than computers and will use their shortcomings to manipulate the digital figures and the older taxpayer probably cannot cope with computers. So what is the point of MTD? Taxation by fines - of course.

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Replying to tedbuck:
Tornado
By Tornado
05th Jul 2022 12:47

Hello Ted

The real problem behind much of this appalling situation is due to the progressive and deliberate, side-lining of Accountants and all others that assist people in dealing with their tax and accounting affairs.

If HMRC had acknowledged that we were the people who could help introduce any sort of major changes and provide them with all the information that they would require, together we could have improved the tax administration system for the benefit of all.

Instead, HMRC treat us like dirt and seem to expect us to bail them out for no incentive at all. The net result is that I for one, will not provide an iota of assistance to HMRC with their failed project until they seriously listen to those that really know what they are talking about.

HMRC need to produce a fully working and tested MTD system BEFORE expecting anyone to use it which is the least that we and everyone else should expect. It is their responsibility to do this, NOT OURS.

This is so appallingly bad that I think the only solution is to kill it off completely now, stick with the current excellent Self-Assessment system and perhaps start again with planning changes to tax administration based on the knowledge of those that really know, like Ted, me and thousands of others.

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By JustforDavid
05th Jul 2022 17:33

Presumably the £10000 turnover limit for avoiding MTD is still the same ?

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Tornado
By Tornado
05th Jul 2022 17:53

One question to ask, of course, is what has happened to the 2000 million pounds plus that has been spent on this project. Where has it all gone?

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By leekris
05th Jul 2022 18:10

I just called the agent helpline about a self-assessment registration. The friendly and efficient operative volunteered during the course of the conversation that he understood there were going to be quarterly returns for self-assessment but he didn’t know what date it was going to start or how it would operate.

At some point the helplines are likely to be deluged with calls about MTD so I hope by then the relevant information has been passed on to front-line staff.

But maybe the people implementing MTD don’t yet know either.

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Replying to leekris:
Tornado
By Tornado
05th Jul 2022 18:25

"But maybe the people implementing MTD don’t yet know either."

It sounds as though the helpline operative doesn't know the difference between Self-Assessment and MTD for ITSA yet.

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Replying to Tornado:
Morph
By kevinringer
05th Jul 2022 22:14

Far too many on the "helplines" are raw trainees. I had one on Monday on the ADL that had never heard of an "agent". How can HMRC put staff on the ADL and not tell them what the A stands for.

This raw recruit had no idea how to proceed and had to load their script on screen and read it out ..very..very..slowly..they..clearly..had..literacy..problems. They read out "has the customer passed security?" I said "yes". They were happy with that and we proceeded to discuss the client's affairs without me having to supply any security information: name, address etc. My point is, inexperienced helpline staff are probably so overwhelmed with the here-and-now that they'd never be able to cope with anything that might or might not happen in future. The MTD-can has been kicked down the digital-road so many times and the goalposts are always moving that these helpline newbies will never catch up. Way back in 2007 Gordon Brown announced the IHT threshold would be increased to £350,000 in 2010. 12 years later we are still waiting.

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Replying to kevinringer:
ALISK
By atleastisoundknowledgable...
06th Jul 2022 07:02

“They read out "has the customer passed security?" I said "yes".”

Priceless :’)

Hope I’m not overstepping to add a
[chuckle]

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Replying to Tornado:
ALISK
By atleastisoundknowledgable...
06th Jul 2022 06:59

Tornado wrote:

It sounds as though the helpline operative doesn't know the difference between Self-Assessment and MTD for ITSA yet.

TBF, he knows more on the topic than most of my clients

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By Twickers Call
07th Jul 2022 10:09

What is the point behind MTD ITSA? No gain no loss to Revenue. Waste of time. Neither tax payer nor HMRC gain.

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By Twickers Call
07th Jul 2022 10:09

What is the point behind MTD ITSA? No gain no loss to Revenue. Waste of time. Neither tax payer nor HMRC gain.

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By martinf81
07th Jul 2022 10:50

Just listen to accountants that work in the real world, make the threshold £85,000 and then they can save face. Most of us know what we are talking about......

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Replying to martinf81:
Tornado
By Tornado
07th Jul 2022 14:17
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By Mr J Andrews
07th Jul 2022 12:38

And let's carry on pretending that countless 'customers' don't do digital.

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By Mr J Andrews
07th Jul 2022 12:38

And let's carry on pretending that countless 'customers' don't do digital.

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By tedbuck
07th Jul 2022 14:29

HMRC are very good at raising fines for being late but not much at getting things done on time -So - why not level the playing field? Fine them for delays over say 6 weeks in replying to letters, failing to deal with CT assessments, incorrectly amending tax returns and then not responding. At £100 a throw I should think we would all be good for a thousand or so in refunds for clients. My current record is two letters to the complaints department via the Chancellor (probably had other things on his mind in view of subsequent events.) and separately over a period of about two months and still no reply. Mind you they were pretty prompt with the penalty notice.
As a service it isn't fit for purpose either for HMG or for the taxpayers who pay for it. If it was a private Company it would have gone bust years ago. MTD won't make it better just easier for people to befuddle HMRC which shouldn't be difficult anyway as they have few trained staff and their computer analytics are daft.
Only thing they are good at is being PITAs about minimum wage enquiries and they don't even get them right.

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By tedbuck
07th Jul 2022 14:29

HMRC are very good at raising fines for being late but not much at getting things done on time -So - why not level the playing field? Fine them for delays over say 6 weeks in replying to letters, failing to deal with CT assessments, incorrectly amending tax returns and then not responding. At £100 a throw I should think we would all be good for a thousand or so in refunds for clients. My current record is two letters to the complaints department via the Chancellor (probably had other things on his mind in view of subsequent events.) and separately over a period of about two months and still no reply. Mind you they were pretty prompt with the penalty notice.
As a service it isn't fit for purpose either for HMG or for the taxpayers who pay for it. If it was a private Company it would have gone bust years ago. MTD won't make it better just easier for people to befuddle HMRC which shouldn't be difficult anyway as they have few trained staff and their computer analytics are daft.
Only thing they are good at is being PITAs about minimum wage enquiries and they don't even get them right.

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Replying to tedbuck:
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By Jimess
07th Jul 2022 16:47

Yep - just been chasing up response to a letter to HMRC from December 2021 that contained a copy of a letter not dealt with from December 2020. So I had 25 minutes waiting time on the phone with that terrible music, then was told the letter had gone over to the "technical department" and HMRC call handler would try and put me through - another 15 minutes wait and I got cut off! It simply is not good enough.

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Replying to Jimess:
Morph
By kevinringer
07th Jul 2022 19:35

HMRC published the following on the Agent Forum this week:

"In terms of our performance, we made solid progress in 21/22 and this will carry on in 2022/23.
We aim to answer all calls to the agent dedicated line (ADL) within 10 minutes and our data shows that we rarely exceed this. If any agents are facing specific problems, then I would appreciate a bit more information so that we can investigate what has gone wrong.
We are reviewing the ADL position, ahead of a bespoke RBSG to discuss this over the next few weeks.
In terms of our other tax lines, our average call wait times (year-to-date) have fallen by seven minutes between April 2021 to February 2022 and we are continuing to improve these services, by recruiting and training extra staff.
We have also increased the proportion of correspondence cleared within 15 days by more than 20 percentage points between April 2021 and February 2022. Our overall customer satisfaction has remained above 80 per cent but we know that there are areas we need to renew our focus to make sure our service levels are where they it should be."

We all know the above does not reflect reality. HMRC are asking for information which we need to supply: there's no point moaning amongst ourselves. We can supply the information to our professional body's IOG member. Contact details are at the end of https://www.gov.uk/government/publications/agent-update-issue-96/agent-u....

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Replying to kevinringer:
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By BryanS1958
08th Jul 2022 00:04

1. Does answer and then cut off get included in the 10 minutes?
2. Have fallen 7 minutes from what baseline - 7 hours?
3. Have increased clearance of correspondence within 15 days by more than 20% from what baseline - 1%??

The HMRC figures are meaningless without context. I have asked my professional bodies (ICAEW and CIOT) to ask HMRC for clarification.

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Replying to Jimess:
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By sammerchant
08th Jul 2022 16:53

It also happened to me. I rang again and made a Subject Access Request which they have promised to respond to. I want to see what excuses appear to justify their behaviour.

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By monkeypuzzle
16th Jul 2022 10:43

What is the actual point of this complete waste of time

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By monkeypuzzle
16th Jul 2022 10:43

What is the actual point of this complete waste of time

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By monkeypuzzle
16th Jul 2022 10:44

Sick of this nonsense! What is the actual point of this!!

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By monkeypuzzle
16th Jul 2022 10:44

Sick of this nonsense! What is the actual point of this!!

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Replying to monkeypuzzle:
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By Hugo Fair
16th Jul 2022 12:27

To what do you refer?
MTD ITSA? This thread (or even site)? Life in general?

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