MTD: The legislative road ahead
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Rebecca Cave is now retired from 35 years in the tax world, including eight years as AccountingWEB's consulting tax editor.
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I can see massive partnership issues. On Saturday I got my first tax enquiry for 15 months. According to HMRC my client's self-assessment 2013-14 tax return contained "discrepancies" with the 2013-14 partnership tax return.
So 2.5 years after submission of these returns, HMRC launch an enquiry. The "discrepancies" can be analysed thus:
1. HMRC failed to process box 17 - losses brought forward - on this tax return.
2. HMRC failed to process box 22 - partnership losses on a bed and breakfast due to high repairs in this year.
So this is what we get currently, two and a half yeard down the tracks. Utter utter drivel by a system designed and run by incompetent fools.
Making Tax Diabolical will just make things worse. I currently score HMRC a 1 out of 10 tax service, under MTD I will have to go negative or build in grade inflation.
HMRC have a touching faith in technology. If we are getting this number of data mis-matches now (see RTI & PAYE payments) what will it be like when they downsize the workforce still further? The computer writes and says there is a discrepancy, you write back and say there isn't; who reads your letter?
HMRC have a touching faith in technology.
I guess they are in for a shock after April with a mass Exodus of freelancers from the public sector as a result of the new rules for the application of IR35. It's already happening.
There's nothing touching about using modern technology. HMRC's issues are to do with integration with legacy systems.
Here are our issues:
This year we produced 320 tax returns in the window
Of those perhaps 20% maintain their own records and perhaps 25% of those I would describe as complete. Accurate - not so sure
We have a handful of cloud clients but the records in the main were appalling - one classic example where the client has his own bookkeeper and uses Xero has errors of around £10k - too much reliance on auto bank feed and auto analysis with errors galore and accounts not even balancing
Most clients deliver us all records to process in house most not last minute but the volume takes time to deal with
So, what will we do? Let the clients loose and let them prepare quarterly rubbish (if anything) and then we use the ten month window to resolve?
Or do we consider dealing with the quarterly reporting somehow
Complete and accurate in a 30 day window four times a year is impossible - and with clients just not up to the task then is our up to now highly successful firm doomed? I represented to Hmrc that a 90 day window for submissions was the solution here but that seems to have been ignored. They clearly want clients submitting quarterly and us using the ten month window to correct the nonsense - but why? The very fact there is a ten month window is contradictory
There seems no obvious solution to this right now
But I recall reading that Hmrc were only going to be treating the annual year end submission as being the submission by which they would judge
What to do?!?!?
Certainly clients leaving the nest I do not anticipate. We will forewarn them of the potential spikes in fees if we were to have to deal with everything for them but where would they go? Alternatively if they do the quarterly submission themselves then we are probably going to end up re-working everything (almost as we do now) for the year end update..... what a waste of time.
I foresee more work not less - but we are all working close to capacity already aren't we?
Depending on the level of penalties -v- extra cost you do wonder whether paying the penalties and submitting the year end accurate submission would be cheaper for them? Alternatively if quarterly updates went in with, at least, the right turnover and a reliable estimate of expenses then what's the difference compared to the client entering figures we'll change at the end of year anyway!?
I am truly in a complete quandary but aware that 2017 returns (and don't forget 2018 returns) need to be hit early - really early!
You pretty much said everything we are all thinking. I don't think I could have said it any better.
I think the nail in the coffin of all this is the requirement to have cloud based accounting software along side submissions.
Hmrc have said that they won't hold you to any figures submitted during the year and any adjustments can be made throughout up to the final submission.
So in theory if the need for accounting software were removed what's to stop anyone in putting 1/4 of the previous years figures in each quarter, then make the final adjustments at year end.
The fact software is required but their response was some data doesn't matter is a contradiction in itself.
All in all the whole thing is one big pointless exercise at everyone's expense.
Why is there this need to do 4 updates a year which have to be captured by HMRC systems which we all generally acknowledge have a history of unrealiability . It just seems to me that they are creating 4 possibilities for problems and on top of this trying to change the habits of taxpayers that have to be chased to do it once a year let alone 4 times a year . Do small businesses really need to be treated this way ?? What purpose will it serve ?
Ken, the answer is simple.
HMRC want small business on PAYE (RTI). 1/4 figures is just the first step to that.
feelingthestrain
You talk complete sense and replicate my practice and clients (just over 400 2016 returns filed) in so many ways.
This whole thing scares the life out of me. Dealing with HMRC is awful now (are their staff trained at all any more?) and under MTD it will only be worse. If the lower threshold for quarterly reporting is set "low" (if we ever find out that is!) I do not see how we'll cope and we can't plan properly now as we're still largely in the dark. I wish I was a few years older and could sell up!!
I agree completely, as I've set out below I see the solution as being a quarters window to file a quarterly submission.
Right now I look at a big picture and think we need to get clients doing more themselves but then I stop and picture the faces of those clients and realise that they come to us because they can't or don't want to do it in the first place. I've been informing our clients about this since April last year and they all just look back at me with blank expressions.... only 1 of 300 responded to our offer of helping them use software.
Would I employ any of my clients as bookkeepers working for me? Would you?
I close my eyes and think "double the bookkeeping staff to cope" and then I remember the filing window and realise it's almost impossible.
I then think "change year ends across the client population to stagger it"
...and then I think - this is getting crazy
I would love to sell up but I'm 43 with a successful business, busy and stressful life and a large mortgage.
Perhaps I could escape with the 25% top clients though and hide in my study at home and be one of those you see on the software advertising campaigns who has a smiley conversation on the phone with my client whilst looking at a large ipad screen.
Never before have accountants felt so stressed during the first week of February!
We too made a representation that the 30 day reporting window was too short, given that the first two weeks will be taken up by the client doing their bit, in whatever form that takes, leaving only 15 days to actually achieve our bit. This yoyo of time commitment is wasteful. At least a 45 day window would enable the first two weeks to still be utilised usefully on the previous months submissions. This still requires 2/3rds of clients having their yearends changed by 1 or 2 months to stagger the quarters which we plan to do in the coming 12 months. 90 days would make that upheaval unnecessary.
When you say "accounts not even balancing" do you mean that the cash books do not reconcile to the statement; or that the TB does not sum up to zero?
If the former - you need to teach clients how to reconcile banks. Having discharges that duty, if the bank doesn't reconcile your client has a problem - a problem they could likely solve by giving you more money - not you.
If the latter, you have an IT problem.
This is a new way of working. You will have to engage with your client throughout the year, and not just at year ends - albeit less intensively. Managed properly this is an opportunity.
The draft legislation on record keeping is frankly sinister and puts enormous power into HMRCs hands by way of regulations that as Rebecca says will be subject to no effective Parliamentary scrutiny. All tax professionals must read and understand what the law on keeping and submitting records will mean. Those who really believed that all you would have to do was send in details of your current records are plainly wrong - the draft legislation allows for detailed prescription of what is and is not acceptable to HMRC. And one concerning point among many is that records submitted in a way that HMRC doesn't like can be deemed not to have been submitted at all - which will of course entail penalties against which there will be no effective appeal. There are also provisions that allow for computational and non-records information to be submitted. The 'thin end of the wedge' has long gone. The fat end is being hammered home right now. We have never been told clearly why HMRC want this information but it is now easy to infer the answer. This is and always has been a compliance-driven project intended to eradicate incomplete records and to identify small businesses for compliance checking. It's about time HMRC started being honest about that, now that this very aggressive legislation is in draft. There should be huge push-back from professionals and businesses to try to get some element of sense and proportion into these oppressive proposals. Otherwise we have to rely on HMRC exercising good judgement and restraint in the yield-targeted environment they operate in. Little or no chance of that happening I fear.
@ By feelingthestrain
The solution is simple. Report 1/4 of the previous year's figures each quarter.
Then adjust to the actual figures when the client sends the yearly information within the ten month window.
Although HMRC may want this shiny new system and believe everyone is capable of producing perfect quarterly figures and have nothing better to do, in reality we know different.
HMRC seem to think clients have nothing better to do than do reports for HMRC all the time, when we know they are busy running their businesses.
And we also know that the current crop of 'automatic input of receipts' type software give us more work correcting errors than if the client had just given us a paper bag full of them.
Classic client comment 'I made payments for the last two months and then noticed the software had already assigned payments, this won't be a problem will it'? Well, you mean apart from the fact I now need to go through every single transaction for the last two months and undo them (around 1,000 a month)??
I think the people coming up with MTD should be forced to work in 'micro' firms. Then we'd see how quickly they change their minds about bringing in MTD.
On record keeping, HMRC can issue regulations on the format of them until the cows come home. It's not going to change client behaviour.
Clients will use whatever method suits them, and will then pass this on to us to process and submit in a Return of some type.
Clients are generally focused on making sure their business is making money, not on complying with some strange dictac from HMRC on how they should keep their receipts and expenses.
Tribunals would be snowed under and HMRC buried under penalty appeals if they tried to enforce any arbitrary record keeping formats. Remember record keeping checks?
I have signed the 'Stop MTD' petition, even though I doubt it will do any good. There are currently only 418 signatures, so I guess most people feel it's a waste of time. However, surely if enough people signed it, it might get the sentiment debated in Parliament.
I suppose few businesses yet appreciate just what is going to hit them.
I tried doing a new better worded one on Friday, but they rejected it as there was already one the same. I can only think that Businesses are not aware of this. I tried to find the original consultation documents to see where they were published but I can't find them now. Did HMRC write to every tax payer and tell them about these changes?
Is this the petition created by Kevin Ringer? Ive just signed it. I only realised it existed because of reading this thread. Thanks everyone for expressing lots of things that have been worrying me. I am at full capacity with my work and can no way deal with 4 even basic Returns for my clients each year. But the majority of them will not cope either. The bulk of my clients are sole traders under VAT threshold. Many still do handwritten books. The whole thing is a nightmare.
I can see automatic reporting of false figures via accounting software and an increase in client fees correcting the mess. After all, I am struggling to see how I will cope without employing someone and so im forced to increase fees to cover it.
I really despair about all this, one of my clients downloads from Lloyds bank every month and about every 15th transaction figure for the amount is displaced and replaced by -210 irrespective of whether or not it's a debit or credit, this means that I have to reconcile the bank and manually correct every error. This is just one example of what can possibly go wrong. How would HMRC deal with this? The other thing which is constantly a puzzle is why the transactions appear in reverse order with reference to the balance figure for each date, so the balance is unusable. So what could possibly go wrong?
To me this whole MTD is an abuse of power and a massive breach of the human rights act, viz the right to quiet enjoyment of life without excessive interference from the state.
The thing that worries me is the talk of aligning VAT filing requirements so VAT due at the end of the following month, not 7th of the next month. The current window is enough of a scramble, without losing a week, given many businesses are to be forced on the standard VAT accounting (away from FRS) which will put a bigger strain in time to complete VAT returns, not to mention cost! That is before we have the MTD deadline to meet too.
I am being stretched thinner and thinner, first RTI, that has put extra time on payroll, then AE, even more time.
IT helps, but will still have to cross check and reconcile to make sure everything is correct.
That's a ridiculous, massive abuse of the concept of "human rights". If you run a business it is just and reasonable to expect you to pay tax and to keep adequate records to establish the tax liability within a reasonable deadline of 1 month and 7 days.
If you are telling me that you filed hereunto quarterly VAT returns routinely for clients without reconciling the business bank account I would be shocked.
MTD need not add to workload - it just involves more professionalism. Tighter deadlines do not equate to more work, and, by encouraging efficiency, may involve less.
That's a ridiculous, massive abuse of the concept of "human rights". If you run a business it is just and reasonable to expect you to pay tax and to keep adequate records to establish the tax liability within a reasonable deadline of 1 month and 7 days.
If you are telling me that you filed hereunto quarterly VAT returns routinely for clients without reconciling the business bank account I would be shocked.
MTD need not add to workload - it just involves more professionalism. Tighter deadlines do not equate to more work, and, by encouraging efficiency, may involve less.
Shaya I really think you ought to lie down in a darkened room. No-one is saying MTD will not work but everyone is saying more time is needed to build a robust infrastructure and make this avaiable for free to all affected. Your high and mighty attitude (which is the way you come across) should not be applauded.
I have said it before and say it again - this is all MADNESS. How dare those hiding behind the initials "HMRC" have the total audacity to impose their ill thought out ramblings upon the taxpayer who, they seem to forget, pay their over-inflated salaries. Not only that, they use stupid language to try to bamboozle everyone into thinking that these rules and regulations are being created by clever people. I think not. They have no idea of the real world and I challenge them to show me that they do. We really must try to work together to bring a "class action" against them. It appears to me that the first thing to be done is to protect the role of agents in acting for clients by our being allowed to access their digital accounts. I may be a bit behind but have to admit I'm not sure how everyone will know they have a digital account. None of my clients have the faintest idea of what I am talking about when I ask them if they have one. As far as they are concerned I am their gateway to HMRC. Answers on a postcard please.
I seriously doubt I will be able to deal with this. It is closure time probably. Jam Roll anyone? (or is it Universal Credits now - it harder to get some cockney for that). Or a maybe cardboard box time - good job it will be summer soon. Loonies at the helm.
Unfortunately we need a high profile MP to really take on this case.
Trouble is none of them understand what is going on. Gauke fobbed them all off when the first petition was submitted.
It appears that no-one in real authority wants to know, especially not our "bodies".
I have said this before, there is no way MTD in its present form could possibly work. My guess is that HMRC will set the threshold at £50k (just to show that they have "listened" to our fears) to start with. Umpteen millions wasted.
MTD is the blind leading the blind. HMRC have no idea how many SME's operate and certainly don't know the first thing about sole traders, the majority of which believe in the receipts in a box accounting system which is then given to the poor accountant on 30/1.
Unless we all get free reliable software to operate the system it's a non starter as far as I'm concerned. I'm heading for the sunset.
RPTAS
In fear of repeating myself but the only solution I have come up with, which is not ideal I know but at least potentially workable is:
**A 3 month window to make a quarterly submission**
This makes it a real possibility for agents to undertake the work that many (most?) clients would want us to do and we could then do it properly first time. This makes the data better for the client, HMRC and us. We can then undertake the year end confirmation within the window up to 31 January when the tax is due (we have to keep the quarterly ticking along in the meantime and I like seeing some post year-end data when doing so).
Make the above the rule for any business with a turnover below that of the audit threshold.
I can only think of one reason why HMRC would object to this.............. THEY WANT THE PENALTIES. (If you are reading this HMRC then please PM me to justify why my suggestion is not a good one?)
Either that or they think that people not trained as accountants/bookkeepers make better accountants/bookkeepers than us and would prefer to rely on their data.....
They also miss the point that, often, we are the ones making our clients see sense and submit proper details of profit/tax. Believe me if the business owner is having to do things himself and is struggling for time/money he's going to be tempted to make his taxes lower and not higher - whereas we make sure (as far as possible) that we just get it right.
After all isn't this all supposed to be about creating useful more accurate data?
It is my experience, talking to perhaps upwards of 250 business owners in the region that one of the biggest reasons that there has been no backlash from the business owner community is that very few accountants have actually bothered to tell them.
The number of people blissfully unaware of the impending doom is as much down to lack of common media debate as it is our not informing clients IN DETAIL of what this means to us and them.
"My accountant hasn't mentioned any of this" is all I ever seem to hear. Do more to help the cause - tell everyone you meet, not just clients and then, maybe, there might be a sudden realisation before it is too late.
I've mentioned it to clients, and the response so far is mainly unprintable once I have explained what it means in terms of fees if we are to comply to the letter of HMRC's wild imaginings on MTD.
Most (if not all) business owners have better and more important things to do (like making a profit!)than worry about the latest garbage coming out of HMRC- which is what they pay us to deal with so they don't have to!
Informing them 'in great detail' is wasting their time and ours, most are completely uninterested.
I tell clients changes are coming (but no hard rules as to exactly what, when , or how) and as a result my fees may have to rise to cover the additional work. Their response is always the same 'let me know nearer the time/when the rules are settled/how much when you know the whole story'.
Tell them what?
Somethings going to happen, don't know what.
Need to make quarterly reports, of what we don't know.
Some firms may be exempt, which we don't know
There will be software to use, what it is or how it works we don't know?
Not a lot to tell them yet
RTI was badly conceived and a PITA, AE even more so, MTD is the biggest load of [***] they have come up with yet.
Tell them what?
Do exactly what HMRC/government are doing to us - tell them what you know now and how little meat there is on the bones. Point out the changes every chance you get so they know this is being made up as they go and why you can't say with certainty what this does mean for them.
Explain that whilst government once worked quite sensibly in working out what it planned to do, how to do it and then announced it, this changed because the a***holes in the civil service believe they have to have something to say to keep the press quiet. So they simply announce what they want to do and then hope they can find a way to do it.
This has found sympathy and understanding among our clients who appreciate being told the truth, even if it is a load of bullocks. They often see similar things in their compliance regs.
MTD is just the latest edition of made up on a Monday and announced on a Tuesday garbage, just like changes to Employer Allowance and taxation of dividends were announced before the detailed guidance was thought up.
I despair of a nation that'll go out in their drives to moan about Trump but sit on their [***] when something really affects them.
Yes, It's a grumpy Monday
All well and good, but so busy dealing with RTI and AE, advising clients about FRS VAT following the bombshell, after having spent last couple of months in SA hell doesn't leave a lot of time to sit and write and then communicate everything I don't know to clients!
RTI, I can sympathise. Due to the hours spent calling, a couple of contacts in the resolution team and I are getting to know one another quite well!
If you have clients like mine, they're always on the phone or dropping by (good that they ask first before doing something rash) and so that's when I have a little convo about it. Takes 5 mins on top of the FRS bombshell and saves posting letters that they never read through anyway.
A comment earlier, suggested that all of HMRC's quite frankly ridiculous plans, are predicated on agents using cloud accounting software. I haven't seen anything to suggest this, other than from software suppliers and I really hope this is not the case, as agents like myself who are rurally based and do not have easy/regular access to broadband or anything as fancy as 4G (we're lucky to get 2G - no exaggeration), will not be able to continue.
Has this requirement been confirmed anywhere?
Like another commenter, I am really deeply concerned about HMRC's plans - I cannot see how they can possibly work in so short a space of time. We know that RTI doesn't work and that's been in place for some time!
I've contacted my MP who is going to discuss the matter with his group - his response was that there have been murmurings, but Brexit is overruling everything else.
There is a debate in the Lords this afternoon - 3.35 on parliament.tv. I doubt it will make much difference, but we need to make as much noise as possible. I have had several people ask me about it (not clients), because they listened to Radio 4's Moneybox last Wednesday. That seems to be the only publicity this whole mad scheme has received!
I'm certain I've read that hmrc want cloud based accounting software so it's accessible at all times. By who? Probably hmrc when they ask to "see the books".
So I use VT transaction and they want cloud accounting. VT isnt cloud based. Paper based clients are to be told £30 a month for something like Clear Books. Are the revenue insane. I really can't believe this nonsense.
I think we can take the attitude that nothing works without our help.
SA a relevant doddle.
RTI Still not working
AE pinch me I'm laughing too much.
MTD Now you gonna have to knock me out before I stop laughing.
Have just emailed Sky News and ask them to look into the whole shambles
Can we all please have the same email address and we can all send them a request. The more they get the better which may persuade them to run the story.
What about Martin Lewis. he likes taking on the establishment.
I tried Farage but he's not interested.
Let us just relax and enjoy a quiet month.
We will start to panic from next month.
Raju M
Mind you if anyone did want to report all of this they would probably be slapped with a D notice.
I don't think it has to be cloud based software but rather software that is going to be able to "talk" to the Revenue's MTD interface.
Last year I exchanged emails with Steve Checkley from TaxCalc and he confirmed he was pushing HMRC to allow spreadsheets to continue and they were developing a solution which would work along the lines of the way "we" work with our clients e.g. we are not fortunate enough to only act for firms of a "certain size" with tech savvy owners.
I don't foresee any problem with how we get the data onto the MTD platform - it's getting it from the clients and processed that is the impossible task.
A task I would suggest that HMRC are intending for our clients to do and not us
See this: https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
In particular read pages 36-38 (too long to quote here)
HMRC's view is: The month’s submission period is not intended to be a lengthy window of time in which a business starts to enter all its transactions in the digital records from paper. If a business has been keeping digital records ‘as they go’, the update should be straightforward to generate and send.
In other words agents are not expected to be doing the entering............ (because that's the real world isn't it).
HMRC see all business sitting down of an evening (every evening) to update their income and expenditure. That way there are no errors (I see no ships).
Let's all sing that noble song. "I do it my way".
HMRC DO NOT want any Agent input each quarter. they are not interested.
The only spreadsheet concession is that it must be able to be linked to software that will send the info to HMRC.
It's not a concession it's bullshit like the rest of this nonsense.
I am so worried about this. Clients are going to be fined for not doing it correctly. They don't see why it needs to be done and I don't blame them. Why do they need quarterly figures?