Director of Tax www.rossmartin.co.uk
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MTD: Let’s have simplified expenses

9th Feb 2017
Director of Tax www.rossmartin.co.uk
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Nichola Ross Martin has a refreshing view: “Let's be more positive about MTD: quarterly reporting can work. You just need to simplify the process.”

Four returns

Under HMRC’s current plans for Making Tax Digital (MTD) the self-employed and landlords will, with some exceptions, be mandated to submit an additional four online tax returns per year. A year-end submission will be used to tie up loose ends, make tax claims and adjustments.

Concession

Following consultation HMRC has climbed down (a little) on its proposal that taxpayers will have to submit their sales and expenses data each quarter electronically.

Appreciating that the app and MTD-compliant software market is as yet underdeveloped, HMRC has conceded that it will allow the use of spreadsheets for bookkeeping, and the option of simplified reporting of income and expenses, as we have currently under self assessment. I note that HMRC has not yet published its data sets and so we don’t even know what data they really want to be submitted under MTD.

This concession does not survive scrutiny, as the major issues for most of our three million clients and the more than two million unrepresented taxpayers likely to be affected by MTD, are that HMRC is expecting everyone to:

  1. learn to use new apps and software
  2. do all their bookkeeping on a daily basis

It will work

I like disruptive technology and MTD can work. In time, decent broadband, Wi-Fi and battery life permitting, most folk will learn to operate a smart phone or PC, and apps and software will improve (I’m actually working on that). However, what is it with the requirement to do daily bookkeeping? Only large companies do that.

Most people understand that it is easier and quicker to enter data in batches and this is why so many bookkeepers work part-time. I can record 365 receipts faster in one batch than I can record one receipt per day in 365 different batches (even using a spreadsheet with macros). What logical or economic reason is there that leads HMRC to ask a self-employed individual to do all their bookkeeping daily?

Focus on sales

Recording of sales is different to the recording of expenses. Tax fraud, or in HMRC speak, ‘the tax gap’ is made up between the difference between that what is reported, and what is really earned but not reported. The real mischief in the case of the unorganised tax criminal is not the expenses mis-claimed, it is the income undeclared.

It therefore follows that in designing a fool-proof system for MTD, we should focus on income and not on expenses. This element of MTD will make the biggest impact on the UK economy.

Most people can manage to add up their sales or income. For most small business this will be one total per quarter, unlike expenses which are split into different categories with different rules for tax, all which will need to be reviewed when it comes to the fifth return under MTD,  for the year end.

Two steps

I suggest a two-step new alternative proposal for MTD reporting:

1. Reporting of sales income quarterly, in summary (as currently anticipated) 

2. Reporting of expenses by allowing a choice of two options, either:

  • Reporting expenses quarterly in summary (as currently anticipated) or
  • Allowing a NEW option: no quarterly reporting of expenses, you make one claim annually on the year end return

Step one requires a total of invoices raised or cash received, whether originally kept as a hand-written list or on a spreadsheet. This one act of reporting will focus attention on record keeping, it will serve as a nudge and hopefully reduce that tax gap.

Step two gives those who are less numerate or not technologically savvy the option of annual expense reporting. Ideal if you are slow at data entry, lose your phone, prefer to keep your receipts in a big bag, want to report expenses as an annual event on a spreadsheet, or even do this in a paper cash book.

VAT model

In terms of reporting, we already have an easy to use template: it is called VAT online filing.

Less than 8% of VAT registered businesses use their own accounting software to file their VAT returns. HMRC’s VAT online is easy to use. One later issue for MTD (when it rolls out to include VAT) is that a lot of software is currently incapable of making the adjustments we need for VAT and so we have to calculate our VAT returns on spreadsheets anyway.  

Simplified MTD reporting, using a system like HMRC’s VAT online will be a painful experience for most non-VAT registered business. If you only have to report the top line and not worry about the expenses until the year end, life will be much easier, and rather than becoming a nation of bookkeepers we can focus our resources on growing our businesses.

 

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Replies (56)

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By Jo Nokes
09th Feb 2017 14:06

Much too simple; HMRC will never go for it!

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joe
By Smokoe Joe
09th Feb 2017 16:42

It still wont bridge the tax gap, cash to pocket will never go on the system, whether daily, weekly, monthly or annually.
The two most effective ways of stopping unreported sales are
1 - get rid of cash, all transactions will be traceable (and is pretty much possible now, phones can be used to take card payments etc.)
2 - reduce tax rates so that less incentive to evade. In London £42k barely pays the mortgage of a modest semi.

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Replying to Smokoe Joe:
Stepurhan
By stepurhan
10th Feb 2017 16:21

Smokoe Joe wrote:
1 - get rid of cash, all transactions will be traceable (and is pretty much possible now, phones can be used to take card payments etc.)

This idea has been mooted before. Ignoring for the moment any resistance to this move, there are two main barriers.

1) Not everybody has a phone sufficiently advanced to take payments.

2) Even with such a device, you need a reliable signal to contact banks for authorisation.

Whilst uptake of smart-phones has spread, the first problem is still a major one. Some people don't have mobile phones at all. Many who do have deliberately stuck with basic models because they only want to use them as phones.

The second problem is the more serious one. Unless a secure signal can be guaranteed across the country, the plan is a complete non-starter even if you give everyone phones. My home town, which is a moderately large town, is still riddled with signal black spots.

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Replying to stepurhan:
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By EnglishRose
12th Mar 2017 09:27

Same here. Even where I am (outer London ) as no mobile mast near we have poor mobile signal. Cash will need to stay for many people.

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By NH
09th Feb 2017 17:52

This article sort of misses the whole point.

We all know that trying to remember what happened last week is hard enough never mind a year later. To be accurate and of any use book-keeping should be done each week or month. This is not a difficult thing to do using bank feeds etc.
Cloud based book-keeping systems are designed to be used every day, every week or every month, when they are used properly they give the business meaningful information, make them more efficient and yes, give them a better idea of what the tax bill is likely to be.
That is the point of the MTD project.

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Replying to NH:
Nichola Ross Martin
By Nichola Ross Martin
13th Feb 2017 11:03

NH wrote:

To be accurate and of any use book-keeping should be done each week or month. This is not a difficult thing to do using bank feeds etc. Cloud based book-keeping systems are designed to be used every day, every week or every month, when they are used properly they give the business meaningful .

I think you have missed the point of the article! Why on earth do your bookkeeping every day? Every bookkeeping systems is designed to be accurate and computer based ones are designed to automate the process. Whether you chose to do it each day is down to you and won't affect how the software works. It won't help you determine your tax bill, despite the hype.
So far I have found just one self employed individual who is enthusiastic for regular contact with HMRC, this is only because his income y0-y0s and he has difficulty finding work.
In the old days I would simply say to all my clients, save 20% of what you invoice and that will pay your tax bill and give you a little more for a rainy day. Will it be any easier if I look at my phone and see that this week I save £185.15, next week I save £352.63..etc? With daily bookkeeping you can save tax daily! What fun, what a joy! There will be a weird moving total. That would just muddle the hell out of me.

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Replying to Nichola Ross Martin:
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By EnglishRose
12th Mar 2017 09:29

Exactly. Everyone works in different ways. I do my accounting daily actually but don't do it digitally. We also have poor signal at times - something the NFU talked about at the recent select committee hearing on digital tax. Some people just can't - eg they may have a 3 week business trip abroad and be somewhere without signal. It should not matter how often people do the records as long as they submit the correct information ( particularly income) to HMRC.

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Replying to NH:
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By newby
13th Feb 2017 20:02

I have been using cloud software and find it slow and difficult to use. When self-employed individuals are working long hours the last thing they want to do is the book-keeping at the end of the day/week which is why they give it to other people to do. Business owners/self-employed should not be told how to run their business by government or NH.

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Replying to newby:
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By BryanS1958
21st Feb 2017 11:03

I agree, I have a very fast cable connection and cloud accounting is still much slower than the equivalent desktop product. There is a minor benefit with bank feeds, but in a lot of cases it is possible to import bank feeds to desktop too. Also desktop products such as QuickBooks have better switching between views, etc.

Thanks (1)
Replying to NH:
RLI
By lionofludesch
19th Feb 2017 11:17

NH wrote:

This article sort of misses the whole point.

We all know that trying to remember what happened last week is hard enough never mind a year later. To be accurate and of any use book-keeping should be done each week or month. This is not a difficult thing to do using bank feeds etc.
Cloud based book-keeping systems are designed to be used every day, every week or every month, when they are used properly they give the business meaningful information, make them more efficient and yes, give them a better idea of what the tax bill is likely to be.
That is the point of the MTD project.

I think you've missed the point that most small businesses can find out what they need to know on a day-to-day basis by sticking a bank card in a cash point. They don't need to write up their books every day and they won't do it.

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Replying to lionofludesch:
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By NH
19th Feb 2017 11:27

sticking a bank card in the wall doesnt tell you how much profit you have made or what your tax is likely to be.
I have lost count of the amount of clients over the years who have left the return to the very last minute only to find the tax bill is much more than they have budgeted for, the usual response is "how can I owe that I havent got anything left in the bank, I didnt make any profit"
MTD will stop that if it is used properly instead of finding workarounds as this article suggsts.

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Replying to NH:
RLI
By lionofludesch
19th Feb 2017 11:36

NH wrote:

sticking a bank card in the wall doesnt tell you how much profit you have made or what your tax is likely to be.
I have lost count of the amount of clients over the years who have left the return to the very last minute only to find the tax bill is much more than they have budgeted for, the usual response is "how can I owe that I havent got anything left in the bank, I didnt make any profit"
MTD will stop that if it is used properly instead of finding workarounds as this article suggsts.

They don't care. They just want to know if they've got enough money to pay Asda.

MTD won't stop anything of the sort. They'll still dispute the profit they've made.

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Tornado
By Tornado
09th Feb 2017 22:53

Why is there a need to report quarterly?

What is the reason for this?

One annual report, as with Self-Assessment, does the whole job in one go and is likely to be much more accurate than 5 reports that might aggregate to the correct result in the end.

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Replying to Tornado:
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By Eric T
10th Feb 2017 09:35

If only life were so simple. Unfortunately, people in business do things that require more complex accounting - such as -

entering into HP or lease agreements,
getting engaged in foreign currency transactions,
lending and borrowing money
signing complex legal agreements

The more complex areas of accounting reflect the more complex arrangements people make in their personal and business lives.

The only way to make accounting simple is to make life simple. Unfortunately, this is AD 2017, not AD 1017.

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Replying to Eric T:
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By ShayaG
13th Feb 2017 18:42

The interest payment on the HP has to be > £500 per year not to qualify as allowable under cash basis (assuming no other interest in the business).

All the items on your list are increasingly less common with lower turnover businesses. As business grows, so will the requisite administration.

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Replying to Tornado:
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By david5541
11th Feb 2017 12:47

Tornado wrote:

Why is there a need to report quarterly?

What is the reason for this?

One annual report, as with Self-Assessment, does the whole job in one go and is likely to be much more accurate than 5 reports that might aggregate to the correct result in the end.


he he he nicola ross martin can afford to cast judgement on the requirements of MTD how many small clients does she have? one drawback- "the software market is still relatively underdeveloped" clients most affected will just not play ball with this quangoistsic empire building idea of hmrc, when they should be putting the winners, who already use offshore tax havens under more scruitiny.....
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Replying to david5541:
Nichola Ross Martin
By Nichola Ross Martin
13th Feb 2017 11:16

On the topic of small clients, I showed HMRC the sort of bookkeeping that we deal with - a note book full of stapled receipts. Client's computer skills so bad that they tried and tried and failed to get their Government Gateway, totally unable to file online, smart phone - you are joking!

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Replying to Nichola Ross Martin:
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By ShayaG
14th Feb 2017 17:42

A book of stapled receipts can be summarised on an Excel spreadsheet - laziness is not the same as incapability.

As regards the genuinely computer illiterate (as well as those who don't speak English, or who cannot read), I believe HMRC should be sympathetic within the boundaries of what is fiscally possible - for example by offering a contract to local libraries or post offices to run drop in centers - but that ultimately the expectation by HMRC that the tax payer uses the internet is not unrealistic.

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By feelingthestrain
10th Feb 2017 12:04

I actually read Nichola's comments a few days ago on her website just before I emailed Jacob Rees Mogg and Andrew Tyrie who are both interested parties on the Treasury Select Committee.

My representations to them were not with the goal to destroy MTD (I think HMRC have gone too far to allow that to happen now) but rather to move the goalposts to make it workable:

1. My old chestnut of a preferred option is to allow three months to file the quarters update which is then more workable for accountants and, perhaps, would solve a lot of our December/January nightmares because we'd have decent data from clients by June/July leaving us a six month window to January.

2. To follow Nichola's approach that a minimum requirement would be to submit income data quarterly with the option to submit expense data annually. Again this is something which seems achievable.

3. To ensure that the threshold is lifted to the VAT registration level. At present we prepare VAT returns for about 70 clients - we could double that with extra staff because at least it's spread evenly and at that level of turnover most clients are running a "proper" business in the sense that they are more likely to work with us e.g. remove the carrier bag clients from MTD.

My overall conclusion was to ask what do HMRC really want? Is it accurate data that can be of some use or are they really looking to fill the alleged tax gap with penalties? I pushed the point that in my opinion (with our firm submitting over 300 returns last year) the current proposals are completely unworkable and will fail very very quickly.

I also added the fact that HMRC's view that perhaps agents would review the quarterly update within the one month window was unrealistic because if an issue then comes up there is no time to resolve it so what do you do then? Answer submit incorrect data - which is a complete contradiction to their alleged goal.

The proposals as they stand should, for our own sanity, paralyse us from believing we have any chance of proper and meaningful quarterly involvement with our clients meaning they submit "rubbish" (you could call it fake data for the value it would probably be), and then we have 10 months to re-work it e.g. business as usual for us and time wasting for our clients through the year.

My advice to all contributors is to be bombarding HMRC, the Treasure Select Committee and the Lords Economic Committee with our opinions - it takes no longer than writing a post on here.

Thanks (3)
Replying to feelingthestrain:
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By david5541
11th Feb 2017 12:56

i will use your suggestions when writing to my mp!

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Replying to feelingthestrain:
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By Red1960
03rd Mar 2017 10:26

feelingthestrain wrote:

My representations to them were not with the goal to destroy MTD (I think HMRC have gone too far to allow that to happen now) but rather to move the goalposts to make it workable:

I agree with you but I think the real point about this is why and how is it that HMRC were ever allowed to get to this point with MTD?

Anyone with even a minimum quota of common sense could have predicted that MTD would be a shambles for a variety of reasons:

i) duplicitous software developers making outrageously exagerated utopian claims for reason of personal gain.

ii) dishonest and willfully gullible bureaucrats who are only too happy to propagate the myth of enabling technology to tell their political masters what they want to hear.

iii) Politicians who are too intellectually removed from reality to appreciate that their utopian vision will result in a dystopian nightmare.

I'd predict that the tax gap is about to increase substantially through non compliance and I have to ask myself what conceivable benefit quarterly reporting will have to the treasury.

As a practice we are going to have a fees gap because I can't see how many small businesses are going to be able pay for quarterly reporting and I know they are not going to be able to deal with it themselves.

In practice the only solution I can see is locking an apprentice in a broom cupboard (unsupervised) with a mobile phone app, hoping that they dont spend the entire day on Facebook and submitting the raw (un-reviewed) results to HMRC pending the final submission which will contain genuine figures.

Of course I'll give my clients two options:

i) the apprentice option where they take their chances on penalties.

ii) the full option where we do the job correctly and charge appropriately.

I know which option they 'll go for and I'm still asking myself the question of what conceivable value any of this is to HMRC or the Treasury when all it's going to do ultimatley is double the size of the cash economy?

It's time someone took HMRC by the scruff of the neck and told them this idiocy stops now before it all ends in tears which I admit only trivialises the harm that is about to be done.

I'd suggest that at the same time government acts now to prevent HMRC egos from ever embarking upon such a lunatic project ever again.

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Replying to feelingthestrain:
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By david5541
10th Mar 2017 10:51

feelingthestrain wrote:

I actually read Nichola's comments a few days ago on her website just before I emailed Jacob Rees Mogg and Andrew Tyrie who are both interested parties on the Treasury Select Committee.

My representations to them were not with the goal to destroy MTD (I think HMRC have gone too far to allow that to happen now) but rather to move the goalposts to make it workable:

1. My old chestnut of a preferred option is to allow three months to file the quarters update which is then more workable for accountants and, perhaps, would solve a lot of our December/January nightmares because we'd have decent data from clients by June/July leaving us a six month window to January.

2. To follow Nichola's approach that a minimum requirement would be to submit income data quarterly with the option to submit expense data annually. Again this is something which seems achievable.

3. To ensure that the threshold is lifted to the VAT registration level. At present we prepare VAT returns for about 70 clients - we could double that with extra staff because at least it's spread evenly and at that level of turnover most clients are running a "proper" business in the sense that they are more likely to work with us e.g. remove the carrier bag clients from MTD.

My overall conclusion was to ask what do HMRC really want? Is it accurate data that can be of some use or are they really looking to fill the alleged tax gap with penalties? I pushed the point that in my opinion (with our firm submitting over 300 returns last year) the current proposals are completely unworkable and will fail very very quickly.

I also added the fact that HMRC's view that perhaps agents would review the quarterly update within the one month window was unrealistic because if an issue then comes up there is no time to resolve it so what do you do then? Answer submit incorrect data - which is a complete contradiction to their alleged goal.

The proposals as they stand should, for our own sanity, paralyse us from believing we have any chance of proper and meaningful quarterly involvement with our clients meaning they submit "rubbish" (you could call it fake data for the value it would probably be), and then we have 10 months to re-work it e.g. business as usual for us and time wasting for our clients through the year.

My advice to all contributors is to be bombarding HMRC, the Treasure Select Committee and the Lords Economic Committee with our opinions - it takes no longer than writing a post on here.

Thanks (0)
Replying to feelingthestrain:
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By david5541
10th Mar 2017 10:57

feelingthestrain wrote:

I actually read Nichola's comments a few days ago on her website just before I emailed Jacob Rees Mogg and Andrew Tyrie who are both interested parties on the Treasury Select Committee.

My representations to them were not with the goal to destroy MTD (I think HMRC have gone too far to allow that to happen now) but rather to move the goalposts to make it workable:

1. My old chestnut of a preferred option is to allow three months to file the quarters update which is then more workable for accountants and, perhaps, would solve a lot of our December/January nightmares because we'd have decent data from clients by June/July leaving us a six month window to January.

2. To follow Nichola's approach that a minimum requirement would be to submit income data quarterly with the option to submit expense data annually. Again this is something which seems achievable.

3. To ensure that the threshold is lifted to the VAT registration level. At present we prepare VAT returns for about 70 clients - we could double that with extra staff because at least it's spread evenly and at that level of turnover most clients are running a "proper" business in the sense that they are more likely to work with us e.g. remove the carrier bag clients from MTD.

My overall conclusion was to ask what do HMRC really want? Is it accurate data that can be of some use or are they really looking to fill the alleged tax gap with penalties? I pushed the point that in my opinion (with our firm submitting over 300 returns last year) the current proposals are completely unworkable and will fail very very quickly.

I also added the fact that HMRC's view that perhaps agents would review the quarterly update within the one month window was unrealistic because if an issue then comes up there is no time to resolve it so what do you do then? Answer submit incorrect data - which is a complete contradiction to their alleged goal.

The proposals as they stand should, for our own sanity, paralyse us from believing we have any chance of proper and meaningful quarterly involvement with our clients meaning they submit "rubbish" (you could call it fake data for the value it would probably be), and then we have 10 months to re-work it e.g. business as usual for us and time wasting for our clients through the year.

My advice to all contributors is to be bombarding HMRC, the Treasure Select Committee and the Lords Economic Committee with our opinions - it takes no longer than writing a post on here.

Thanks (0)
Replying to david5541:
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By david5541
10th Mar 2017 11:05

very sorry accounting web wont let me post my response at the same time:
keep up the good work feeling the strain, especially with andrew tyrie and jacob rees mogg, i wrote to my mp rory stewart he wont and hasnt replied i imagine........perhaps teresa may should appoint justine greening as the chancellor especially after the business rates climb down and impending furore over the self employed nic hike, so that expensive consultants and HMRC are not the "tail wagging the dog" of phillip hammond as it were over MTD and cost savings from massive redundancies at HMRC as a result

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By cfield
13th Feb 2017 10:57

I don't think it's possible to be "positive" about MTD. It's more a case of finding a way to limit the damage. We need to comply without spending ages on totally unnecessary work and racking up (to most small clients) huge fees. The only way to do this is to work on estimates, which is what I suspect most will do.

Yes it would be great if HMRC only require the income in the quarterly returns and leave expenses to the year end, but that's not going to happen, is it? Too much political capital has been invested in this project for them to make such a big concession now, and anyway, since when did common sense ever get in the way of politics?

We all know their tax gap figure is pie in the sky and it was cooked up as a way of justifying the sheer cost and hassle of this misconceived project.

Most errors on the income side of the P&L are just timing differences, such as not counting debtors and WIP, but they're always trying to make us use cash accounting anyway, so this is just a red herring. The cash in hand merchants are not going to suddenly start declaring it as income just because of MTD.

Whatever the tax gap really is, MTD will do little or nothing to reduce it. Nor will it reduce errors, which is the other stated aim. If anything it will increase errors as more will be "swept under the carpet" with the tight deadlines and the lack of agent involvement, and they won't get picked up at the so-called "year end".

Thanks (3)
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By Ian McTernan CTA
13th Feb 2017 11:12

To Quote:

I like disruptive technology and MTD can work. In time, decent broadband, Wi-Fi and battery life permitting, most folk will learn to operate a smart phone or PC, and apps and software will improve./end quote.

Wrong.

Most people have zero interest in dealing with things that way. Software is at the mercy of the client's input and it's the smallest businesses that will struggle to use any at all- and what they do with it will cause more work than if they hadn't bothered in the first place.

Most clients don't have either the time or the inclination to do these things themselves- if they did, they wouldn't need us to do it for them.

No idea what your solution is trying to achieve. Giving clients yet more confusion in terms of expenses and income reporting isn't going to help them at all- it's bad enough for some to give you one set of figures, your proposal seems to be to have even more figures getting thrown around.

Stick to the easiest solution. Divide last year by four, report that each quarter then do one set of actual at the year end. If HMRC want more accurate figures, they can come and do the figures for the client themselves.

Thanks (6)
Replying to Ian McTernan CTA:
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By ShayaG
13th Feb 2017 18:44

[quote=Ian McTernan CTA]

To Quote:

I like disruptive technology and MTD can work. In time, decent broadband, Wi-Fi and battery life permitting, most folk will learn to operate a smart phone or PC, and apps and software will improve./end quote.

Wrong.

Written on one of these new fangled internet sites, in 2017

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By steve 12321
13th Feb 2017 11:28

I think it is really important we have a mass concerted effort from all to stop this dead. It is a bad move for the UK.

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By PK Busness Services
13th Feb 2017 11:28

I totally agree with this solution using VAT principles and ensuring that all income is recorded quarterly is a much better option
After all HMRC aren't going to use these quarterly updates for TAX purposes ??
They have said that demands will only issued after the end of yr report has been filled
We need to encourage clients to use bank / BACS payments for all invoices / sales that way resolving the issue of non declared earnings making sure that sales invoices are numbered and in numerical order

the expenses look after themselves

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By John Stone
13th Feb 2017 11:53

Many of my clients are threatening retirement. And I am too (and I'm only 25).

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By Peter-S
13th Feb 2017 11:55

One of the things that annoys me most about all this nonsense is the blanket suggestion that some form of digital software will simplify the tax process for everyone. What can be simpler for an employed person who rents out a couple of properties than giving me his bank statements and a handful of receipts once a year. Or using the example mentioned above - someone who staples receipts in to a notebook and gives it to an accountant once a year, it can't get much easier for them. And if they are really not up to that level then chucking a computer or phone app in to the mix is not going to solve anything.
Just use Bank Receipt they say but these people don't have dedicated business bank accounts. Some is through a private bank account, some is on a credit card, some is on the wife's card, some is cash. There's no simple app that is going to make life a doddle for them however HMRC try and spin it.
At the moment many of us are undoubtedly trying to come up with some way of simplifying the reporting requirements perhaps by using estimates or a bare minimum of information updated at the year end which just makes a nonsense of the whole process. We need to keep extra costs and time spent to a minimum which surely suggests the level of reporting errors will increase not decrease as HMRC want. It really is an ill conceived fantasy.

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Replying to Peter-S:
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By ShayaG
13th Feb 2017 18:36

There is an irony in you posting this comment on digital software. Of course, you could have got out a typewriter, and write a letter to the accountants on this blog...

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By pauljohnston
13th Feb 2017 11:57

Just seen a new potential client. Previous chap had done her Ltd company accounts. The tax is more than 20% of total earnings. He had brought in credits received in respect of invoices from previous accounting periods and added to this years credits. Not sure how this is going to impinge on MTD but I would like to know well in advance HMRC

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By Mr J Andrews
13th Feb 2017 12:06

So , HMRC has conceded. Big deal . I venture to say the lack of MTD-compliant software / apps / cloud cuckoo isn't the reason for concession.
Walter Mitty aka HMRC Harra simply doesn't know what the next step is. The vision of MTD by a bunch of highly paid civil servants with no idea of the real business world, coupled with the correct opposition to such a proposals was meant for disaster. Sail on Titanic. Meanwhile MTD wishwash continues to detract Revenue resources from what they should be doing - tackling the black economy and tax fraud. Over compliance is, of course , much simpler to achieve a bong after 40 years in service .
Some of my self employed and property letting clients are getting a little ****** off with not knowing the basic starting point - ''WHAT'S THE LOWER LIMIT''.
Any progress here ????

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By Michael C Feltham
13th Feb 2017 12:26

Sigh..........

The conclusion of my eleven page submission to the Lords Select Committee:

"10. Fallacious Assumptions on which Treasury/HMRC based their MTD Policy:

i. Every taxpayer has access to a good ADSL connection:

ii. Every small business person is both computer literate and is a skilled bookkeeper:

iii Every small business person enjoys far above average income and has spare capital laying around to pay for professional services: Q.V.

iv. Every small business person has lots of spare time:

v. Professional Advisers will happily increases fees and have extant unused spare capacity to meet the extra work involved:

vi. MTD will save SMEs money:

Conclusions and Strategic Recommendations:

Clearly, the whole project strategy has been developed on glaring (and erroneous) assumption and almost total lack of real world experience of small business (99% of UK private sector by numbers).

Already small business in the UK groans under an unfair and excessive regulatory, cost and compliance burden. Such include:

Auto Enrolment Pensions: PAYE; VAT; COSHH; Data Protection; Statutory Sick Pay; Maternity/Paternity Leave; Health and Safety Compliance; Flexible Working Hours; et al.

Perhaps the single most critical issue herein, is the current dire state of HMRC’s taxpayer-facing service level; where contact is only possible by untrained staff manning enquiry centre lines who simply refer a case topic to another officer who despite an undertaking that such officer will return the call, this rarely happens. Response to letters often take two months!

When rolling out such a paradigm shift in process, where multi-dynamic factors impact desired achievement of objectives, it is suggested a Step Change Plan should be used instead. Such would allow pre-introduction training and learning time and a re-education of SME users. Without this, then the programme is bound to fail.

Thereafter, impose the new regime, in series of changes.

For example, spreadsheet-based records could be “tagged” with iXBRL taxonomy, prior to demanding a digital accounts set only, solution. iXBRL spreadsheets are already recognised by HMRC for Corporation Tax filing, online.

Perhaps the best way to sum up is to suggest, MTD is:

Too Much: Too Bold: Too Quickly."

Thanks (3)
Replying to Michael C Feltham:
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By ShayaG
13th Feb 2017 18:52

I have some sympathy for the points you raise here. However there is a Canute like quality to your complaints.

i. Every taxpayer has access to a good ADSL connection:

According to the ONS 82% of adults use the internet daily. HMRC's site could be optimised for fast loading / slow bandwidth.
(https://www.ons.gov.uk/peoplepopulationandcommunity/householdcharacteris...)

ii. Every small business person is both computer literate and is a skilled bookkeeper:

Computer literacy - I have some sympathy with this, much as I have sympathy for those people who are illiterate and had to file tax returns in decades gone by. Society does need to function. A drop in center would be good.

The law already requires every small business person to keep his tax affairs in order. (Self Assessment) - or to hire an accountant.

iii Every small business person enjoys far above average income and has spare capital laying around to pay for professional services: Q.V.

A taxpayer can do their own books if they don't want to pay.

iv. Every small business person has lots of spare time:

A taxpayer can hire an accountant if they don't want to do their books.

v. Professional Advisers will happily increases fees and have extant unused spare capacity to meet the extra work involved:

If you don't want the extra fees, someone will.

vi. MTD will save SMEs money:

Unlikely, I grant.

Thanks (1)
Replying to ShayaG:
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By Michael C Feltham
14th Feb 2017 12:58

ShayaG] <p>I have some sympathy for the points you raise here. However there is a Canute like quality to your complaints.</p> <p> [quote]</p> <p>Complaints? What complaints!</p> <p>It was a cogent strategic analysis; which is what I have been doing, mainly, for over 30 years!</p> <p>And, after all, the Lord's Committee requested learned responses; not complaints.</p> <p>[quote wrote:

i. Every taxpayer has access to a good ADSL connection:

According to the ONS 82% of adults use the internet daily. HMRC's site could be optimised for fast loading / slow bandwidth.
(https://www.ons.gov.uk/peoplepopulationandcommunity/householdcharacteris...)

So all the multitudinous customer complaints to ISPs and to Ofcom are an illusion. then?

I am so glad to learn this. Just wish my ADSL would work properly 90% of the time. I am clearly imagining it when it doesn't! Clearly, my recent re-boot of the WiFi router was totally unnecessary.

For the record, I am keeping a log of my ADSL performance.

Just an extract:

Jan 13th @12.30PM 2015: 1.13 Mbps + Email not functioning - again!

Ditto @ 1.35 PM.7.1 Mbps; still no email!

Ditto: 16.08 6 Mbps; still patchy email

14th March 2016: 0.35 Mbps!!! No Email.

Shall I go on?

Quote:

ii. Every small business person is both computer literate and is a skilled bookkeeper:

Computer literacy - I have some sympathy with this, much as I have sympathy for those people who are illiterate and had to file tax returns in decades gone by. Society does need to function. A drop in center would be good.

A Drop In Centre?

What for? To teach an increasing majority how to read, write and count?

Quote:

The law already requires every small business person to keep his tax affairs in order. (Self Assessment) - or to hire an accountant.

Tell Philip Green this!!!

Quote:

iii Every small business person enjoys far above average income and has spare capital laying around to pay for professional services: Q.V.

A taxpayer can do their own books if they don't want to pay.

Your comments become more amusing by the minute!

Quote:

iv. Every small business person has lots of spare time:

A taxpayer can hire an accountant if they don't want to do their books.

Assuming two realities: .i. They can afford to; & .ii. They are willing to do so.

Quote:

v. Professional Advisers will happily increases fees and have extant unused spare capacity to meet the extra work involved:

If you don't want the extra fees, someone will.

Indeed.......and all depends whether or not that "someone" actually knows what they are doing, too!

Additionally, you also (as does Government) assume, most qualified and successful SMPs have bundles of spare capacity...

Quote:

vi. MTD will save SMEs money:

Unlikely, I grant.

How gracious of you!

Thanks (1)
Replying to Michael C Feltham:
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By ShayaG
14th Feb 2017 17:32

Internet access is a reasonable expectation from most taxpayer, as is an ability at reading and writing. This has been established in various vat tribunals, apart from certain edge cases in which it was held that HMRC should provide special facilities.

There may be complaints about the quality of internet provision from time to time and in certain geographical locations. These should be looked at sensitively by HMRC. As a rule, however, society expects adults to be able to use web pages.

I am sorry your email isn't working. It's clear to me that is nothing to do with your internet access. The speeds you are quoting would load HMRC's pages (which are less than 0.1MB in size each including JS and CSS which would likely be cached anyway) in less than a second. Clearly your internet connection is working fine, unless you couriered your answers to AWeb. I suggest you speak to an IT specialist.

Drop in Centers

I was suggesting that libraries or post offices or some similar suitable facilities could be granted a contract to assist the computer illiterate to manage their tax affairs digitally.

You conflate making tax digital with the existing law on self assessment. It is already the tax payer's responsibility to file tax returns, albeit on an annual basis. No change of principle is engaged. I think this law is perfectly proportionate, as I really don't believe that society at large, or the state, should bear the cost of an individual business' tax compliance. There is no requirement to engage in double entry book-keeping or to produce a balance sheet, and I do not believe it is beyond the ken of a reasonably engaged individual to make a good stab at totting up income and expenses.

Thanks (0)
Replying to Michael C Feltham:
avatar
By ShayaG
14th Feb 2017 17:32

Internet access is a reasonable expectation from most taxpayer, as is an ability at reading and writing. This has been established in various vat tribunals, apart from certain edge cases in which it was held that HMRC should provide special facilities.

There may be complaints about the quality of internet provision from time to time and in certain geographical locations. These should be looked at sensitively by HMRC. As a rule, however, society expects adults to be able to use web pages.

I am sorry your email isn't working. It's clear to me that is nothing to do with your internet access. The speeds you are quoting would load HMRC's pages (which are less than 0.1MB in size each including JS and CSS which would likely be cached anyway) in less than a second. Clearly your internet connection is working fine, unless you couriered your answers to AWeb. I suggest you speak to an IT specialist.

Drop in Centers

I was suggesting that libraries or post offices or some similar suitable facilities could be granted a contract to assist the computer illiterate to manage their tax affairs digitally.

You conflate making tax digital with the existing law on self assessment. It is already the tax payer's responsibility to file tax returns, albeit on an annual basis. No change of principle is engaged. I think this law is perfectly proportionate, as I really don't believe that society at large, or the state, should bear the cost of an individual business' tax compliance. There is no requirement to engage in double entry book-keeping or to produce a balance sheet, and I do not believe it is beyond the ken of a reasonably engaged individual to make a good stab at totting up income and expenses.

Thanks (0)
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By Joss
13th Feb 2017 12:56

Responding to "It therefore follows that in designing a fool-proof system for MTD, we should focus on income and not on expenses."

I understood the objective was to assess our clients' individual tax positions quarterly so they don't get a surprise at the end of the year - which presumes we aren't already doing this for our clients!? OK. Putting my wounded pride aside, let's say it is aimed at unrepresented taxpayers but it catches all and will force those taxpayers already paying an accountant annually for this predictive information to do additional work that they don't need to do.

If HMRC are only given a turnover figure, how can they assess the tax position? Either the taxpayer or HMRC will need to provide a figure for expenses.
I have heard others suggest the idea of estimated expenses for the 4 quarterly returns. That could work. Maybe last year's net profit percentage before depreciation could auto-populate into the expenses box?

You could NOT guesstimate tax for this year by applying last year's ratio of SA tax: turnover . Why? Because, ironically, people are rapidly diversifying and shifting income streams as they try and hedge against a future increasingly being taken over by technology! In any one year, one low income individual may have: self-employment; various employments, some through Umbrella companies with expenses; rental income and even their own company paying dividends.
I have a number of clients like this. They don't have 5 minutes to sit down let alone do books every day.
This happy prospect of a sole trader who only has one source of income is fast becoming a myth.

Thanks (3)
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By BryanS1958
13th Feb 2017 16:11

By far the simplest option is to say NO! No business is asking for MTD (Making Tax Daft). All the professional bodies should be saying NO NO NO to HMRC as loudly as possible instead of coming up with alternatives and compromises.

Thanks (3)
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By ringi
13th Feb 2017 16:12

As a landlord I would like a hybrid,

Reporting rent, management agent costs, and mortgage interest every 3 months is EASY, as they can be read of the statements from my agent and my bank account. (Provided cash accounting is allowed)

It is the small bits that need to skill of an accountant… (What is capital and what is a repair for example.)

I would therefore be happy if I had 18 months to submit additional expenses, with the income being submitted every 3 months, and getting a tax refund at the time I submitted the additional expenses.

Thanks (0)
Replying to ringi:
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By Joss
13th Feb 2017 16:30

Mortgage interest for most mortgages appears every 12 months as a single annual figure on the annual statement of account, usually made up to 31 December.

Alternatively, you can obtain a certificate of interest for the tax year ended 05 April, usually for a fee of £20 but this can take some months to obtain and usually is not automatically supplied - it has to be requested from the lender.

For accurate MTD, all lenders would have to provide quarterly interest figures aligning with the tax year. This would be a new requirement. Perhaps it is already under discussion?? Anyone know about this?

Thanks (1)
Replying to Joss:
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By ringi
14th Feb 2017 16:50

Most landlords are on interest only mortgages so can just read the number from their bank statement. Lenders also write to everyone saying what the new interest payment will be each month whenever rates change.

For repayment mortgages I would like lenders to be required to take two payments one for the interest, another for the capital, using a different description on each. Additionally I would like to see a requirement for the property address to be listed as part of the direct debut description on the bank statement.

Let’s move to a world where the bank statement becomes close to a full accounting ledger… (E.g. banks allowing customers to add comments to transactions etc at the time they are made.)

As cash accounting will be allowed, there is no need to allocate interest payments based on the number of days they cover in each quarter, just allocate to the quarter they are paid in, insuring that each quarter gets 3 payments.

Thanks (0)
Replying to ringi:
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By Joss
14th Feb 2017 17:58

Ringi, you have a different experience to me. I have only been trading for 22 years. Maybe I missed a trick. All my rental clients get annual mortgage statements. And even for the small percentage who have online access, I only have one client for whom interest is calculated and shown monthly on their statements. For all the others, the lender only calculates it annually.
On my most recent completed tax return, the client had 5 mortgages and only one of them calculates interest daily. The others were all annual.
In respect of showing the property address, that would be great if the scenario only involved one BTL mortgage secured on one rental property but, in reality, taxpayers often have multiple mortgages and re-mortgages and often the loan to buy their first rental property would have been secured on their home. This means the property address on which the loan is secured may be irrelevant.

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By Gary Stevens
13th Feb 2017 20:11

MTD is completely unnecessary pain clearly inflicted by the lobbyist cloud software providers. I say this as somebody who runs a firm where 99% of our clients are using cloud software. But unnecessary pain is mood of the moment (a la Brexit).

Thanks (2)
Replying to Gary Stevens:
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By ShayaG
14th Feb 2017 17:39

HMRC are pushing this out for exactly the same reason that larger companies are making their suppliers upload invoices and do their book-keeping for them on the large customer's systems. I do not see any conspiracy of lobbying - I see a convergence of new technology, a balance of power, and a constricted fiscal environment driving the need for cost savings in the public sector. In fact HMRC's latest move has been to disenfranchise the Cloud suppliers, by mooting a spreadsheet based system. and if they were really keen, they'd offer their own free to use basic internet based reporting system themselves.

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By North East Accountant
14th Feb 2017 08:41

Don't want to shoot down the "divide last years by 4" plan but it depends on the legislation.

If this is allowed then great but if not then filling a return like this is a breach of the law, and I'm sure no accountant would advocate that.

How then to comply, that's the question?

Thanks (2)
Replying to North East Accountant:
By cfield
14th Feb 2017 09:19

Of course it won't be allowed. The proposed legislation is perfectly clear. They want actual expenses. For many lines, however, they will be the same or similar to last year, and there are bound to be estimates anyway for accruals, so the trick will be to present them as robust figures rather than the same numbers every quarter which would be blatantly obvious.

They've already said they won't be basing tax on the quarterly figures so why make more work for yourself? Just play their little game and humour them. As ever, if you stay under the radar, they won't go sniffing around you.

Thanks (1)
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By Myshkin
14th Feb 2017 14:29

Ms Ross Martin needs to pay a visit to the real world.

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