MTD: Taxpayers must make six submissions to HMRC

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Close reading of the draft Finance Bill 2017 has uncovered another annual submission which taxpayers will be required to send to HMRC.

What we were told

In March 2015, when George Osborne outlined the new concept of “making tax easier”, he said it would herald the death of the tax return. All the tax information relevant to an individual would be gathered into the taxpayer’s digital tax account, and the annual paper tax return would be consigned to history. 

This was sold as reduction in the administrative burden for taxpayers, but by the end of 2015 we were told that Making Tax Digital (no longer easier) would involve sending HMRC four updates per year. Accountants started to grumble that this would mean effectively four tax returns per year instead of one.

I have now discovered that the tax return is not disappearing; it is merely changing its name, and that MTDfB will involve five additional submissions per year, not four.

Quarterly updates

The requirement to make periodic updates to HMRC is set out in a new schedule A1 to Taxes Management Act 1970 (TMA 1970), which is introduced by FB 2017, cl 121. The financial information required to be transmitted in those updates will be specified in regulations, and Sch A1 para 7(4) says:

The regulations may not require financial information about the business to be provided more often than once every 3 months.”

Those regulations have not been published yet, but HMRC has made it clear that the maximum period an update can cover is three months. Although a taxpayer may submit more frequently updates if they wish, anything more than quarterly updates will not be required.

It is worth noting that a set of quarterly updates will be required for each trade or business undertaken by the taxpayer. Thus, a self-employed individual who also has some rental income will have to submit a set of quarterly updates for their self-employed trade, and another set of quarterly updates for their lettings business.  

End of period statement

The updates are not required to include any accounting adjustments, as those adjustments are to be included (if necessary) in an “end of period statement”. This is the fifth submission to HMRC, which is required by TMA 1970, Sch A1, para 8.

This end of period statement (EoPS) is the point at which the taxpayer declares they have submitted complete and correct information regarding their trade. Regulations will define the timetable for providing the EoPS (TMA 1970 Sch A1 para 8(4)). HMRC has said this deadline will be set at the earlier time of 10 months after the accounting period end or the next 31 January.

Note that a separate EoPS will be required for each trade or business undertaken by the taxpayer.

Final declaration

In addition to submitting the end of period statement the taxpayer will be required to make a “final declaration”. This is the new name for the annual tax return (see new TMA 1970, s 8(7) - introduced by FB 2017, sch 25 para 3).

The final declaration is needed to report any income which has not been reported to HMRC through an EoPS, such as savings or employment income, and to make any necessary claims. The deadline for submitting the final declaration is set by TMA 1970, s 8(1HA) as on or before; 31 January in the year after the end of the tax year, or if later, the last day of the period of three months beginning with the date of a notice issued by HMRC.

Example

Pete has a sole-trade business with a year end of 30 April, which has a turnover of £90,000 per year. He will start making quarterly reports under MTDfB from the accounting period that begins 1 May 2018. His quarterly updates must be submitted within one month of the end of each three-month period that starts on 1 May, and the other declarations and statements must be submitted as follows:

table311


Conclusion

We are still waiting for sight of the regulations which will specify the deadlines for submitting updates, statements and declarations to HMRC. It is possible that those regulations will change the deadlines from those outlined above.

What is clear is that a self-employed taxpayer will have to interact with HMRC at least six times a year to submit or confirm the following:

  • 4 updates (per trade)
  • 1 End of Period statement (per trade)
  • 1 Final Declaration.

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

Replies

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By Locutus
04th Apr 2017 18:36

I have a great tax simplification idea.

Why don't we just file one annual tax return that covers all trades and sources of income and a final declaration that you have included all income?

Sound familiar?

I seriously wonder what planet the civil servants in the Treasury and HMRC are living on.

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to Locutus
05th Apr 2017 11:00

The same world in which it is considered normal to christen a child *Constantine or Gideon!

* presumably 20 years or so ago - as was one of the Oxbridge rowers on Sunday

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By Tornado
to Locutus
05th Apr 2017 11:20

"Why don't we just file one annual tax return that covers all trades and sources of income and a final declaration that you have included all income?"

Steady on ....... that might not work.

The fact is that Self-Assessment does work, and very efficiently as well having pulled in record revenues in January this year (2017).

There are elements that do not work as well as they could and could be improved with some thought, and at a fraction of the 1,300 million pounds that has been allocated to MTD.

The biggest problem with our current Self Assessment system is, of course, HMRC itself.

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By Joy_
to Locutus
06th Apr 2017 16:51

I could not agree with you more

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04th Apr 2017 21:54

Scaremongers including Practice Gurus say compliance work is dying. Is it?

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to FirstTab
05th Apr 2017 07:46

As a sole practicioner I will end up doing nothing BUT compliance work.
Which I don't mind at all, but it's laughable how these gurus say we'll won't need to do it any more and have time for lots of cups of teas with our clients for business planning!

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By kdbr
to SpreadsheetUser
05th Apr 2017 10:16

But there will be so much of it to be done you won't be able to service all existing clients with current resources. Something has to give.

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to kdbr
05th Apr 2017 12:53

kdbr wrote:

But there will be so much of it to be done you won't be able to service all existing clients with current resources. Something has to give.


..and as a micro practice ourselves, when do we take our holidays? I already have to work around monthly payrolls.
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By RobertD
05th Apr 2017 11:41

I'd be interested to know why HMRC feel it's acceptable to lie and deceive about MTD. Why are the costs to businesses not being published? Why are these 6 returns and others for rental not being publicised? How many are involved in the pilot, 400,000 or 90 at last mention? Why is MTD not being advertised, businesses have 12 months to prepare? Why is HMRC's impact assessment so low? Why are HMRC allowed to use lies and spin to keep this monstrosity moving?

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to RobertD
05th Apr 2017 09:49

Simple: because that's exactly how their political master and main ideologue rolls! (won't name any names, but the lies and deceit of that person are amply documented on our website)

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05th Apr 2017 07:44

What is the haste about bringing this system in? Electronic P35s was spread over many years and with a cash incentive to boot! RTI submissions were also brought in gradually.
And both of these involved work somebody was already calculating weekly/monthly so there was no change in frequency, simply the method of reporting.
The whole MTD thing stinks, it is being brought in by stealth to people outside our profession and then it will be too late to change. How did George Osborne dare stand there that time, grinning proudly that there would be no more tax returns. It's no different to saying "no more P35s"!

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05th Apr 2017 08:52

Surely in your example the filing date for the EoPS is 29 February 2020. Per HMRC's own guidance notes:

"The statement will need to be provided using compatible software by the earlier of:

10 months after the end of the period to which the statement relates, or
the 31 January following the tax year in which the relevant period ends"

29 February 2020 is the earlier in the example shown.

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to SteLacca
05th Apr 2017 09:27

Any HMRC guidance released before 31 January 2017 should be ignored as the draft legislation has changed significantly since that date.

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to Rebecca Cave
05th Apr 2017 09:45
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to SteLacca
05th Apr 2017 11:16

Page was updated 20 March, but refers to 31 Jan draft clauses, which exclude eg new Para9 re filing portal, and refer to Partnership EoPS; cf new SchA1 per s120 FB(No2)2017, which references Partnership Returns at Para10 (equivalent to old Para9). Read in conjunction with Sch25 (and 26) amendments to TMA1970, esp s8, it appears that HMRC's intentions for the process have changed significantly.

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By Tornado
to Jason Piper
05th Apr 2017 11:26

Are you sure about that ?

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to Jason Piper
05th Apr 2017 11:31

Ahh, missed the reference to 31/1 draft. I stand corrected.

Typical, HMRC update guidance, but actually update nothing.

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to SteLacca
06th Apr 2017 21:40

tbh, I'm not sure what the 20/3 update did add. The page still says there *will* be FB clauses on exemptions for T/O and insolvency - but all I've found is SchA1 Para 15 (2): "Regulations under sub-paragraph (1) [further exemptions beyond digital exclusion] may in particular make provision for exemptions based on income or other financial criteria."
Altogether far too much of this legislation is being deferred to regulation; flexibility is all very well, but that shouldn't be a substitute for getting important stuff like this right first time in primary legislation - and if that means slowing down the timetable to allow for proper consultative review, then the timetable should be slowed down.

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By Chris Mann
05th Apr 2017 08:53

The more I read about MTE/D (Making tax easier, now difficult) and, the more I come across the various inconsistencies of staff capability, within HMRC, I become more convinced that, generally, this Government Agency is incapable of delivering such a high spec migration in tax systems.
Go back to 1995, when self-assessment was beginning to be introduced and many of the (more) capable staff went off to work elsewhere.
The imposition of MTD, in the form prescribed by HM Government (after all HMRC is only an agent of that body) simply forgets that many many sole practitioners, SME's etc, don't include the question of tax in their daily work routines. Does the Government honestly believe that through some magic wand effect, carrying further penal add-on's, that Joe Bloggs will, overnight, become more capable and responsible for his affairs?
None of the proposals even consider that the UK's broadband connection is at best average and, in many cases, downright useless and frustrating.
Subsequent events have made clear that; George Osborne (how many balls can i really juggle at any one time) has simply no idea of how people operate in the real world and, David Gauke really has no understanding of the pressures and anxiety that such enormous changes bring.
To have any real effect such dramatic alterations should have been tested over a minimum period of five years.

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to Chris Mann
05th Apr 2017 09:56

Oh, Gauke does understand the pressure and anxiety this all brings. The fact is that he is an ideologue who believes in bullying, brute force, and "the end justifies the means" methods (cf. APNs, etc). This is why HMRC seems to have morphed into a lawless free-for-all in just a few years.

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By Tornado
05th Apr 2017 09:28

Thrown into jail for using a Simplex Book?

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05th Apr 2017 09:49

My former neighbour lost his job a while ago and now makes a living from ad hoc work linked to former careers and hobbies:

1. Renting out spare rooms;
2. Doing some website and graphics design;
3. Doing some photography/video work;
4. Doing some handyman work;
5. Doing some project management work.

I do his tax return as a favour because he finds it too difficult. Each of the above businesses will need 5 submissions a year meaning in addition to his tax return/final declaration in theory he should do 20 quarterly returns and 5 End of Period returns for a total of 26 filings a year, for someone who barely scrapes over the personal allowance some years. I suspect that mass non-compliance will be the order of the day.

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By Chris Mann
to AndrewTall
05th Apr 2017 09:54

In other words he lives "in the real world", where people simply get by? A situation which many of our politicians and HMRC management simply can't comprehend?

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to AndrewTall
05th Apr 2017 10:03

A.K.A "black economy", which is what productive people ultimately and universally revert to when the bureaucratic and fiscal pressure become too much to bear!
(which, by the way, is why there is such a huge push for electronic payments and "cashless" everything of late, but that is another story...)

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By Tornado
to AndrewTall
05th Apr 2017 10:12

" I suspect that mass non-compliance will be the order of the day."

That is inevitable .... not just because people will rebel, but also because the requirements will simply be impossible for many to comply with.

We once had a Civil Service that was the envy of the World and was the model for many other other countries to use.

Now we have a department of the Civil Service that only cares about itself and to hell with the people it is meant to serve. A computer with artificial intelligence that has decided that it has the power of control over all.

There will either be a mass self-destruction of HMRC or we will find the power socket and turn it off. Either way I refuse to be dictated to in this way by people who are there to serve us.

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05th Apr 2017 10:32

The analogy of what is taking place is a simple one...one that goes back many years with a repeat time and again.

In the USA world cup (1994 I think) - this fancy thing happened for injured players....they used buggies to take them off (guess it is a throwback from American football and their treatment of injured players).

What a wonderful idea everyone said....stops time wasting..indeed some players made immediate recoveries at the prospect of getting treated off the pitch. Fast forward to today....players get treated on the pitch....but then have to go off the pitch to erm get back on the pitch....a crazy addition which in principle was a good idea.

Welcome to the 'multiple tax returns are better than one' regime....under the inference that as its done on computer it will be a piece of pi$$....

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05th Apr 2017 10:33

If Pete employs one member of staff on a weekly earnings basis he will have a further 53 online filings to do. Being VAT registered, presumably he will also have 4 quarterly filings to send. And if he is a contractor in the construction industry and engages any subcontractors he will have a further 12 filings to submit.

So that's 6 per year for his business under MTD, 53 for RTI, 4 for VAT and 12 for CIS = 75 electronic submissions to HMRC per year.

And if he happens to rent out a property he will have another 6 MTD filings per year = 81.

Not forgetting his auto-enrolment duties and pension contribution filings too! Another, presumably, 52 online filings a year for a weekly paid staff member.

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to DK Simpkins
05th Apr 2017 11:34

That is brilliant.
Everyone should write to their MP pointing this out.

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to Comptable
07th Apr 2017 10:44

The trouble with all this is that the public, including clients, are unaware of these proposals. Our representative bodies like the ICAEW should mount a publicity campaign and get the press involved. Writing to MP's won't be enough.

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05th Apr 2017 10:41

It sounds great from the Governments point of view but HMRC could get bombed out with reports and returns, and thats just the correct ones.

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05th Apr 2017 10:51

There is an additional factor that has not been aired.....David Gauke is by training a Solicitor and worked as such between 1997 and 2005.
To say he hasn't a clue about the UK tax system is simply a comment on a generic (and genetic?) reality. His mismanagement simply follows his complete ignorance.

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to edmundwright
05th Apr 2017 11:26

And from 2010 he was in charge of..."Tax Simplification"
You couldn't make this up.

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By Locutus
05th Apr 2017 10:56

The irony is that if we already a system that required multiple returns throughout the year to calculate the annual tax liability, then there would eventually be a push to make this process more efficient by consolidating it into one annual tax return.

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05th Apr 2017 10:56

I am a sole trader, with 50 Clients and I also work Paye, I have had to take a member of staff on, in anticipation of the extra work this is going to generate, just so we can hit the ground running. Most of my clients are sub contractors, who I am lucky to get a screwed up bag of receipts from once a year, I cant charge them even double what they pay now for what I see as a lot more work and chasing up deadlines. We have only just got to grips with AE and the added work this has brought with it. How many people are going to need extra staff to cope with this work? and where are these staff going to be coming from, there is not an endless pool of qualified people out there.

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By John R
to joolzjbs
05th Apr 2017 12:18

Assuming the vast majority of your clients have 31 March or 5 April year-ends, what are your extra staff going to do in the eight months of each year when there will be no quarterly updates?

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to John R
05th Apr 2017 14:26

A few years ago, in a move to fill the Feb/Mar SA void, we decided to make our ltd co clients have December year ends, on the basis that the client isn't bothered when their year end is. This approach has worked well. However, when MTD for ltd co's kicks in, it looks like those year ends will change to October or November.

We also staggered VAT quarter dates to spread out our workload, but it looks like these are going to be in line with the year ends so as to minimise submissions.

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05th Apr 2017 11:03

This story to me is an invitation for getting stressed but doesn't really change anything in my opinion.

It's the quarterly updates that remain the problem with MTDfb

You might as well say that we make 3 submissions already for someone who is self employed with a rental income:

1. Basic tax return
2. Land and property pages
3. Self employed pages

So, in my opinion, this is not an invitation for further blood boiling and I would assume our tax software will just deal with things in much the same way as we currently do.

The issue remains that it's the quarterly updates that are the problem with the biggest mistake of all simply being that there is a one month window to submit and then, and this is the crazy bit, 10 months to file the annual submissions.

In other words 1 month four times a year for, in theory, our clients to make their best effort and then 10 months for us to sort out the almighty mess they made of it!

Is there anything in the small print that defines what a proper submission is though e.g. if a client makes a dogs dinner of it because he/she is no good with numbers what happens then?

That to me is very important in defining just how precise (because it's in our nature to be so) the quarterly submission should be e.g. what stops us getting our basic staff just pushing these quarterly submissions in and then the more senior staff being involved later.

Our definition of a proper quarterly submission will undoubtedly look far different to that of John the plumber who tries to do it himself

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By observe
to youngloch
05th Apr 2017 15:34

youngloch wrote:
It's the quarterly updates that remain the problem with MTDfb

Does HMRC not realise that almost all small businesses rely on their accountant's annual audit to give proper consideration to capital expenses & depreciation, exclusion of those items which are tax deductible elsewhere & their knowledge of the specific changes in legislative rules restricting or allowing deductions?

To submit half-baked data and then have to correct & adjust afterwards will be a huge burden for small businesses & their accountants alike.

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05th Apr 2017 11:07

Pretty clear which party will win the next General Election!

Yes the party that has "cancel MTD" in its Manifesto!

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05th Apr 2017 11:24

Rebecca, there could be more filings. If a mistake is made in one of the filings an amendment has to be put through to correct that filing. What if the Accountant finds that a mistake has been made in each 1/4 (I'm assuming client submits 1/4 figures) when they do the adjustment filing? What happens if HMRC have a glitch and the amendment goes in before the original?
Na Na Na Na, Na Na Na Na, hey hey hey, gooodby.

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to johnjenkins
05th Apr 2017 11:30

We'll answer for HMRC since they are 100% deterministic:
"HMRC does not have 'glitches'"
"The software will take care of it".
No worries.

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By kdbr
to DotasScandalDotOrg
05th Apr 2017 14:48

That'll be the software that can't do an accurate tax calculation for the 2017 returns...

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to kdbr
05th Apr 2017 14:57

There's me thinking that was an April Fool scenario.

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By Tornado
to johnjenkins
05th Apr 2017 11:42

What about the people who try to deal with their own submissions, possibly because they simply cannot afford professional help, and get it hopelessly wrong and are fined hundreds or even thousands of pounds.

Many of these would fall into Theresa May's JAMs (Just About Managing) category, which does not really fit in with the picture she painted of helping people like this.

I note that other than the promise of not having to submit a 2018 Tax Return for anyone who takes part in the MTD Pilot, none of the £1,300 millions MTD budget seems to be allocated to helping those that need it outside of HMRC.

Some subsidy towards professional help seems like a good idea to me or general assistance in the form of tax discounts would be welcome along with doing away with the mandatory aspect of the project.

At the moment it is difficult to come to any other conclusion than the £1,300 millions is being used just to feather the nest of HMRC and requiring mandatory use of commercial software at a not inconsiderable cost will simply earn software developers £billions.

This goes much, much further than just being unfair.

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to Tornado
05th Apr 2017 12:09

Tornado wrote:

requiring mandatory use of commercial software at a not inconsiderable cost will simply earn software developers £billions.

You're onto something... follow the money trail and you might find that it leads to a small number of Conservative pockers.
Create the problem. Sell the solution. Old as the hills.

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05th Apr 2017 11:27

Here's how to do quarterly submissions with less stress.

Take the last completed finalised figures. Divide by four. Submit those figures quarterly. Job done.

At the end of the year when the bank statements and the receipts piles come in, make any necessary adjustments and submit final figures.

HMRC don't have the resources to even check whether the submissions are accurate or not, and certainly not within the timescale before the finalised figures are done.

Of course, this only works for the non-computerised clients (of which there are many!). Those already using computer systems are a bigger problem as previosuly we could make all the necessary adjustments once a year, now we're looking at resolving issues within a month.

I've not really broken Making Tax Difficult to most of my clients yet, they have enough issues to deal with without having to worry about another set of moving goalposts where the introduction dates keep changing.

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By Tornado
to Ian McTernan CTA
05th Apr 2017 11:48

With respect, I do not think you fully understand the MTD proposals.

What you suggest could well end up being illegal. Quarterly submissions will have to be made using MTD compliant software into which every transaction has been entered.

HMRC will have a computer system that can check all submissions and will soon pick out offenders.

There are umpteen pages on AWEB about all of this which make interesting reading.

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to Tornado
05th Apr 2017 12:12

The MTD software may be compliant but if small businesses not registered for VAT do not enter all transactions properly because they forget some or mislay the paperwork, the quarterly submisions will be rubbish compared to the final set of figures once the accountant has been through them properly. What will HMRC do with this information anyway? Payments on account of tax are based on the previous year and the final payment based on final figures. It will not stop bookkeeping errors being made or those who choose not to disclose all their income. Do HMRC really think that those who fiddle their tax enter the information in their accounting records and then only declare part of it? (Apart from those keeping 2 or more sets of books of course!) HMRC have no idea of the ability of intelligent business people to make a complete mess of their accounting or how much those people rely on their accountants to straighten it all out at the end of the year. Maybe, give it 5 years, HMRC will charge penalties on the difference between tax on the quarterly figures and tax on the final figures. Or stop asking for final figures and open enquiries instead to see what the quarterly figures should have been.

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to Tornado
05th Apr 2017 14:54

The submissions are the totals (and not all the transactions ) The totals could be transmitted by a different piece of software from that keeping the records.
However you can be fairly sure the first thing the hmrc do if there is an investigation is to demand the transactions and check they add up to the quarterly total.

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05th Apr 2017 11:29

From my understanding HMRC will do nothing of substance with the quarterly submissions anyway. Go figure!

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