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MTD: Pilots, partnerships and announcement plans

21st Mar 2017
Editor AccountingWEB
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At a face-to-face meeting with AccountingWEB, Making Tax Digital director Theresa Middleton sketched out more details around the government’s tax revolution – but as has often been the case with this most complex of projects, the get-together raised as many questions as it answered.

Partnerships

While the ‘complex businesses’ consultation document has yet to be published, HMRC were willing to share a little more information on how they will approach the thorny issue of partnerships.

According to Middleton, one of the simplifications that comes with MTD is that a partnership will do the updating, so the quarterly updates will not require an amount to be allocated to each partner.

“Updates are not about profits and not about distribution. At the end of year, [when the final report is submitted], the partnership will know what its profits are, and can decide how much each partner will get.”

Unanswered questions

  • If the partnership profit is not divided between the partners at each quarterly update, the partner’s tax position can’t be “updated” in their personal digital tax each quarter, so there is no reflection of the income back to the taxpayer. In that case what is the point of the quarterly update?

Free software eligibility

One of the key concerns expressed about the MTD project has been around the cost of implementation to the smallest businesses. To alleviate this, the government has guaranteed that there will be free software in place for organisations with the ‘simplest of structures’.

Current HMRC thinking is that to be eligible for free software businesses must be:

  • below the VAT threshold;
  • on the cash basis ( including for rental income);
  • and not employing anybody.

One question that remains unanswered is whether free software would be available to taxpayers with more than one source of income, such as rental income and a trading business. This is a point of concern for diversified businesses such as farmers.

Middleton told AccountingWEB that HMRC was not ruling out anyone with multiple sources of income at this stage, but would be clarifying this in the coming weeks.

Unanswered questions

  • Will free software be available to taxpayers with more than one source of income?
  • Will the free MTD software provided include facilities for taxpayers to authorise their agents to access their online data?

New businesses

The threshold for businesses to exempt themselves from MTD has now been set at an annual turnover of £10,000, but during the Budget speech the Chancellor announced a 12-month delay for  the next tier unincorporated businesses.

“Only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018,” the tax department said.

For those new businesses with no previous turnover history to go on, HMRC’s recommendation is that if the business expects to go over the turnover exemption threshold then it makes sense to join Making Tax Digital  when it starts to trade to avoid the transition later on.

“On the other hand”, said Middleton, “if a business is not sure, our plan isn’t to penalise anyone who records a higher turnover in the first year than they thought they would.”

‘User journey’

With the start of the MTD pilot programme fast approaching in April, there is a growing clamour for information surrounding the nuts and bolts of the scheme.

Middleton confirmed that those already on HMRC’s books as a known taxpayer won’t have to go through the process of identifying and registering. They will instead ‘subscribe’ to MTD via their Digital Tax Account, and will be automatically enrolled.

The taxpayer will then be directed to GOV.UK, where they will be able to see what type of software is available – free, low-cost or ‘all bells and whistles’.

Once the taxpayer has chosen software, with the help of their agent if applicable, they need to register this with HMRC.

“We have to know that software is registered with our system so that we can recognise it so that software can exchange data with us securely and authentically”, said Middleton.

Pilot programme

As covered in depth by AccountingWEB’s global editor John Stokdyk, taxpayers who join the Making Tax Digital pilot scheme starting in April won’t have to send HMRC a self-assessment return for 2017-18.

Recognising that partaking in the pilot then having to complete a separate SA return would be the “worst of all worlds”, Middleton said the plan was to let users send in details of other income through their personal digital account.

In a written clarification for AccountingWEB, HMRC explained: “It is not a question of opting out of the self assessment system. By subscribing to the pilot, and then complying with the conditions (sending in summary updates, End of Year activity, and where appropriate all other tax information) there will be, for the relevant year, no requirement to subsequently submit a self-assessment return because the taxpayer will have already met their statutory obligations.”

Unanswered questions

  • Agent access to the pilot scheme may not be available until sometime after the project has started. How will agents ensure the accuracy and completeness of the information provided if they cannot access it?

 

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Replies (32)

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By SteLacca
21st Mar 2017 12:24

It strikes me that there are so many unanswered questions, not because HMRC are being evasive, but because HMRC don't know the answers, either.

It just shows how ill conceived MTD in its current form is.

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By Tim Vane
21st Mar 2017 13:04

I am loving the bit about no tax return for 2018.

The user will just need to enter and/or confirm "all other tax information" that will be needed to complete their tax calculation. That could potentially include dividends, interest, pension payments and pension savings tax charges, gift aid payments, employment income such as lump sums or where no PAYE scheme in place, partnership income, capital gains/losses and chargeable event gains, and any other income, reliefs etc.

How is that going to be any different to a tax return?

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Tornado
By Tornado
21st Mar 2017 13:24

They are literally making it up as they go along.

What a novel way to introduce the most significant change to Tax Administration in 20 years.

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By CazzyT
21st Mar 2017 13:28

I wish HMRC would just start with all taxes in one business tax account that agents can access, this would be the best digital start in my opinion.
The lack of information about what will be required for MTD is frustrating to say the least.
The assumption that people will "just enter" the additional information is crazy.

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By GW
21st Mar 2017 13:36

To what extent will HMRC be accountable - from yesterdays update on the legislation:

under Secondary legislation "The regulations will provide for HMRC to make notices setting out the information, including categories of income and expenditure, which will need to be kept and preserved digitally."

Does this mean HMRC plan to have a free hand to change the rules whenever they like?

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Replying to GW:
By Rebecca Cave
21st Mar 2017 13:45

Yes.

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Jennifer Adams
By Jennifer Adams
21st Mar 2017 14:15

Tom's article took me back to the last Working Together meeting I attended in Exeter - remember those days? It was at that meeting that we first heard about MTD. I recall one accountant sitting back in his chair and saying to a HMRC rep... 'so you want to do my job now and make me go out of business? What about my staff?'
And he was absolutely right.
HMRC have ignored agents and according to John's latest article intend to keep doing so.
Those accountants who have clients already digitalised/cloud/using software will be OK- its the rest of us smaller firms that will be hit.
Hands up all those who think they will have at least the same number of clients post MTD? I'm one of the group worrying that clients will go - landlords in particular. The free software will be the draw.
Note the words in the article: "free, low-cost or ‘all bells and whistles' software and the side comment 'with the help of their agent - if applicable'.

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By NYB
21st Mar 2017 15:09

Frightening. All waffle and no substance other than instilling fear factor into many of us. Free software is actually NOT going to be free for the majority!. Recommended software? This will be like what they have now for tax/payroll "an accredited scheme". That will cost. No wonder Iris and Sage are already galloping ahead.
As an add on there was a webinar the other day "Everyone has smartphone - you only have to look outside to see people using them in the streets." So - are we all supposed to be entering our figures on the hoof. Will we have ANY spare time.

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By Eric T
22nd Mar 2017 12:29

Everybody DOES NOT have a smartphone.

And even those that do may not wish to use such a device for something as important as their financial and tax affairs.

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By youngloch
22nd Mar 2017 18:19

Let's get real about the risk of client loss....

At this moment many of our clients could submit their own self assessment tax return with "free software" called the HMRC website but they don't. All they would have to do is add up receipts and put them in the appropriate box online but they don't.....

So why worry about an exodus post MTD? And why is the consensus that everyone will use an accounting software package?

We are only recommending accounting software packages to those capable and confident of doing so because to point clients in one direction just because of MTD borders upon negligence in my opinion. Where we think accounting software is appropriate we are recommending it now, not in 2019.

My instinct is that spreadsheets and integration with, probably, our own MTD software will prevail as a far more sensible solution for many smaller businesses. Much more straightforward inputting, and often faster for those of us that know what we are doing.

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Replying to youngloch:
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By Peter-S
24th Mar 2017 11:42

youngloch wrote:

Let's get real about the risk of client loss....

At this moment many of our clients could submit their own self assessment tax return with "free software" called the HMRC website but they don't. All they would have to do is add up receipts and put them in the appropriate box online but they don't.....

So why worry about an exodus post MTD? And why is the consensus that everyone will use an accounting software package?

We are only recommending accounting software packages to those capable and confident of doing so because to point clients in one direction just because of MTD borders upon negligence in my opinion. Where we think accounting software is appropriate we are recommending it now, not in 2019.

My instinct is that spreadsheets and integration with, probably, our own MTD software will prevail as a far more sensible solution for many smaller businesses. Much more straightforward inputting, and often faster for those of us that know what we are doing.

I don't really anticipate significant client loss. Most of our clients have no desire to deal with this type of thing or are really not up to the task anyway. Which leaves the problem of how do we deal with all the extra work. Do I try to downsize our client base or gamble on taking on more staff. It's a ridiculous position to put smaller practices in.

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Replying to Peter-S:
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By youngloch
24th Mar 2017 17:12

.....and completely impossible to know what to do in the current climate of u-turns.

If the threshold ends up nailed to the VAT limit (surely the most sensible solution) then maybe we can cope or add 25% staffing capacity bearing in mind time pressures.

If threshold remains as planned then I actually foresee combination of more staff/let clients go that don't want fee increases and replace with more sizeable entities. Perhaps the type that will drop out of the tier of accountancy practices above us.

Key right now for us is trying to get as many clients as possible completely up to date and to get instructions sooner.

This year's tax return letter is updating re MTD to what we know and what might happen, warn of fee increases etc and also admit that the whole thing is subject to change.... what else can we do!?

I just pray on the one in a million hope that the one month filing window extends because that would allow us to dream of doing quality, meaningful, useful, productive work for clients/HMRC on the quarterly cycle and wave goodbye to January nightmares forever.

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By Elvis11
23rd Mar 2017 08:30

There is no way on earth that the MTD project will work. It is a completely flawed idea, that massively overestimates the ability of ordinary people to use software to navigate through our preposterously overly complex tax rules, massively underestimates the huge value of the work done by thousands of agents in turning often incomplete records into "proper" figures and massively underestimates the additional costs that will result.
Tax revenues will fall, the informal economy will grow and enterprise will be discouraged. In its own way, this will prove to be as misguided a policy as the poll tax, the Iraq war and HS2. We truly are governed by morons, aided and abetted by a grotesquely incompetent Civil service.

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Replying to Elvis11:
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By David Gordon FCCA
24th Mar 2017 13:46

No Elvis11
We are not governed by morons, or an incompetent civil service. It is far worse than that.
Those who we have elected to manage our governance have in the majority declined to go any where near dealing with the tax system.
Consequently the average civil servant does what any sensible servant does, when his master avoids proper supervision, a) He walks away from responsibility and b) he does only the easy bits.
Even Will Shakespeare knew this, and he did not have a smartphone.

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Replying to Elvis11:
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By David Gordon FCCA
24th Mar 2017 13:46

No Elvis11
We are not governed by morons, or an incompetent civil service. It is far worse than that.
Those who we have elected to manage our governance have in the majority declined to go any where near dealing with the tax system.
Consequently the average civil servant does what any sensible servant does, when his master avoids proper supervision, a) He walks away from responsibility and b) he does only the easy bits.
Even Will Shakespeare knew this, and he did not have a smartphone.

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Replying to David Gordon FCCA:
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By Elvis11
24th Mar 2017 14:32

I think we are saying pretty much the same things. Obviously a project such as MTD should not even have been contemplated without a massive and genuine simplification of the tax system. We all know HMRC have little understanding of the rules and I don't think the Treasury have a clue about much at all. Look at their hopeless forecasting.
Whichever way you look at it, the MTD plans in their current form will be disastrous for taxpayers and tax revenues.

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By debrahuzzard
24th Mar 2017 10:39

cash basis and losses? sorry if this is covered elsewhere but the push seems to be to use the cash basis, i.e. free software only for cash basis, but does this not still restrict the set off of losses? for instance in the first period of trading one would often see a loss made set against PAYE income from before the business started, can you do this with the cash basis?

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By Stargazer42
24th Mar 2017 11:13

Does anyone know whether Foster Carer's will be exempt from MTD?
Their total income from Foster Caring maybe over the threshold for MTD but the income will probably be covered by the exemptions available for Foster Carers or if there is a taxable element that could be under the MTD threshold.

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By itp3asso
24th Mar 2017 11:57

This takes me back 30 years as an inexperienced accounts trainee but with a fairly capricious bent.

Phone call to ( then ) Inland Revenue & Customs:

Me; what happens if my client has hidden offshore income and he decides not to declare it to you?

IR : He cannot do that .

Me ;Why ?

IR ; Because it is against the law and thus
not allowed .

End of conversation.
Speaks volumes about the " Hector the tax inspector" mindset ......which has not changed that much over the years.

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Replying to itp3asso:
Tornado
By Tornado
24th Mar 2017 13:01

These days, HMRC are banking on knowing everything by using their data farming software and sophisticated assessment techniques. What I think they are getting is millions of pieces of raw data that will simply clog up and corrupt their databases. I know from first hand experience that they can easily misinterpret such data.

There are still many 'voluntary' taxes such as Capital Gains and tax on catering staff tips taken in cash from tables. Perhaps MTD will sort this out, but I doubt it as it is still up to the individuals to declare such gains and income in the first place.

It would have been better to tighten up the administration of the existing Self Assessment System which I think does the job well and has produced record tax receipts to the Government this January.

http://economia.icaew.com/en/opinion/february-2017/hammonds-budget-tax-b...

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Replying to Tornado:
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By youngloch
24th Mar 2017 17:16

HMRC data farming software recently allowed a client we took on (by then under enquiry) to claim a CIS refund of £15k when the HMRC systems knew he'd only had CIS deductions of £8k!

HMRC internal systems were so strong they paid out the cash to him, picked it up 3 months later and put him under enquiry by which time he'd spent the money.

If that's what their systems are capable of only 9 months ago then, well, say no more.

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By Jamesm2705
24th Mar 2017 12:15

Just a thought but it might by handy to know what information will need to be submitted when next April comes around.

Is there any point in putting clients with tried and tested meticulous manual systems onto cloud software if it turns out that we can simply submit summaries extracted from their existing system. Then again, if this is not the case, there will not be enough time to change everyone over at the last minute.

We're told again and again that there will be free software available but how long do we wait to see what these other options look like.

Surely at this stage the powers that be should be able to say exactly what needs to be submitted, by who and in what format. If they can't do that, which, they can't, then it's ever so slightly worrying.

The extract from the above article says it all:

"If the partnership profit is not divided between the partners at each quarterly update, the partner’s tax position can’t be “updated” in their personal digital tax each quarter, so there is no reflection of the income back to the taxpayer. In that case what is the point of the quarterly update?"

Give me strength.

Well, article read, rant over. That's another half hour I can write off to MTD.

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By North East Accountant
24th Mar 2017 12:29

When SA came in HMRC produced 2 printed books, SAT1 and SAT2, called The New Current Year basis of Assessment and Self Assessment - The Legal Framework which set out everything as an agent you needed to know in relation to SA. They were excellent.

HMRC - I know you are making it up as you go along but something similar for MTD (albeit now an online PDF) would be great. It needs to be in one/two guides and not scattered far and wide over multiple docs/announcements/notes etc

Oh and by the way publishing it on 31st March 2018 is no good it needs to be done now or at the latest by say 31st July 2017.

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By John R
24th Mar 2017 12:33

Cash basis will be the default for property income. Will the Revenue warn taxpayers of the extra one-off tax that will arise due to not making the prepayment adjustment? This is a sneaky way of increasing the tax take from honest taxpayers.

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Replying to John R:
Tornado
By Tornado
24th Mar 2017 13:06

It will be possible to use the Income and Expenditure basis for Rents if it is elected each year (presumably by ticking a box in the Personal Tax Account Declaration).

Dumbing down tax to the MTD team level by specifying Receipts and Payments as the default method is not particularly helpful to Landlords and Loan Providers so I will not be doing that. What a stupid idea.

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By David Gordon FCCA
24th Mar 2017 13:34

This whole MTD business is constructively dishonest.
Fortunately I hope to retire before it really kicks in. One of the major parts of this constructive dishonesty is that HMRC is interposing commercial software companies between themselves and the taxpayer.
The consequence will be that when, not if, your client's affairs go skew-wiff:
An HMRC jobsworth will inform you, no doubt with a smirk on his or her face, "Not our fault guv'nor go see the bloke who sold you the program".
In this way HMRC will claim the innocence of Mother Theresa and all angels.
Similar to those dodgy guarantees we all inadvertently buy from time to time.
You take the expensive non-w0rking gubbins back to the shop, only to be told "Sorry sir, not our firm's liability, we (Name witheld to avoid libel claim)sell you a guarantee from (Name witheld in case of libel claim). Then you find that either said firm is no more. Or, you find (This is a true story about a national retailer, H****y F******re) that the guy who assesses the liability is also the same guy who will charge for the repair if the firm is found not liable, and guess what?

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Replying to David Gordon FCCA:
Tornado
By Tornado
24th Mar 2017 19:49

As far as I am concerned, HMRC are designing the whole system, from their own internal software through to the commercial/free offerings and we are not playing any part in this at all, (we have not been consulted on this).

It is therefore ENTIRELY the responsibility of HMRC to ensure that this all works flawlessly and if does not, then that is not down to us at all, even for the commercial software. The software developers are working to HMRC specifications in order to provide MTD compliant software, and they cannot really be held responsible either if the various parts of the system do not talk to each other properly.

My approach to MTD is now very clear. HMRC will be taking full responsibility for the whole project from system design through to full support for everyone (software, taxation and accounting) and I hope they are going to be ready for the massive consequences of their actions.

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By Mr J Andrews
24th Mar 2017 17:05

Is it now time to start formal complaints against this continuing radical experimental whim.
So many MORE and MORE unanswered questions. No steps forward two steps backwards.
How many hours - non chargeable - has been wasted in TRYING to keep clients informed as to what is happening - or not happening or may be happening with MTD . Writing the script , as the farce bumbles along is no way to operate any business. I see a record fine has just been imposed upon Thames Water for allowing raw sewage into the river. What about all this **** being dumped on my clients ??? Who in this government department is accountable for such weak , ill thought out , doomed ideology.
The best advice I can offer my clients so far is to adopt the beliefs of the Plymouth Bretheren.
I've had enough . Formal complaint lodged.

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By youngloch
24th Mar 2017 17:22

Right now, all of us at the sharp end can only really focus on a few things:

1. Make some kind of representation to the powers that be (anyone that hasn't already needs to quick)

2. Update clients of what MIGHT be happening but beyond that there's nothing we can really do unless existing clients are suited to full cloud software in which case do it anyway, sooner than later, as it's "best advice".

3. Get stuck in to the 2017 tax window ASAP because that's the best avenue for our energies right now.

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By C.Y.Nical
24th Mar 2017 18:09

"In that case what is the point of the quarterly update?"

That has to be the biggest question of all. It doesn't apply only to partnerships. It applies to the whole of MTD and I still haven't been given a convincing answer. Why are they doing this? At the moment it doesn't make sense.

For me the question is now rhetorical because as discussed in another thread I am rearranging our affairs so that my wife and I won't be caught by MTD. But it still bugs me that I do not know what the point of MTD is.

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By taxbakbristol
25th Mar 2017 01:30

What an utter joke! Laughable ! The Laughing Policemans MTD Squad?

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Catincupboard
By Rose1962
29th Mar 2017 10:23

HMRC staff answering Qs in their latest webinar repeatedly stated that the £85k turnover limit for early start is combined trade + rent. I've looked at draft legislation - can't see where this is - maybe it will be in the regulations. If this understanding is correct, does this mean that if someone has trade turnover of £65k + rents of 30k, then they start MTD from April 2018. Is this for sure or are we waiting for draft regulations to clarify ? thanks

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