Roadmap needed urgently for MTD ITSA
Time is running out to adequately test MTD ITSA and there is still no agreed roadmap to mandation, but Andrew Jackson has five alternative solutions to this conundrum.
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Shame - a cogently argued article ... but not what I was expecting from the title.
"Roadmap needed urgently for MTD ITSA" is undoubtedly true (and urgently overdue) ... but the missing roadmap isn't the one whereby an agent plans the introduction/migration to her/his clients.
It's the one where HMRC publish a detailed and unequivocal specifications of the complete lifecycle (including error correction, late adjustments, etc) + together with all the underlying assumptions & interpretations (evidenced by copious examples) of how compliance can be demonstrated across multiple income scenarios and using all the permutations of allowed software routes.
Oh and it would be handy if they stopped using 'agile' as an excuse to keep foisting late changes to their API library on developers (which is why some of them have given up).
In short ... it's not just a roadmap that's missing, it's any sense that there's an agreed destination (outside of the usual ministerial-style soundbites).
Its a zombie project.
As you point out the Q reporting has absolutely nothing to do with tax filing. It has no purpose other than for selling software. Its dead end data for the sake of it.
The new tax return on the other hand is a real system that matters as it involves the real payment of taxes. It dwarfs by a huge margin the VAT and income tax which are a side show in comparison. The suggestion that this will quickly follow the quarterly reporting 12 months down the line is laughable to the point of destroying any credibility HMRC have left on the timeframe.
The chances of that happening inside of 10-15 years is very low, so all we will get is the dead end Q reports with some rubbish tax numbers coming out of it which will confuse tax payers by being hugely different from the real tax return and cost a fortune to produce.
See the previous failed iXBRL project for CT which was quietly shelved at the initial stages and is just a weird filing anomaly fulfilling none of its original aims.
This is totally disgusting to have so many unanswered question or systems in place to even try and make this farce work. Most Accountants I am listening to have had enough of HMRC's shocking and negligent behaviour and will be retiring sooner rather than later. HMRC need to realise who supports their tax system and saves them mountains of wasted time - yes us Accountants. I will be leaving Accountancy anyway thank god !
No a thousand times no!!!
We should have tighter reporting for small businesses, not less.
Why? Is there evidence of widespread reporting errors? And how will MTD improve this. On the contrary, we know MTD VAT has actually increased the tax gap. That proves MTD is not the solution. The existing SA regime gives HMRC all the tools it needs to tackle reporting errors. It is up to HMRC to use those tools.
If something is not workable, or perceived to be not workable by those who are expected to use it, it won't work. No matter how many good reasons their might be for it, it won't work. No matter how big the stick, it won't work. MTD ITSA is way beyond the capability of the typical small private landlord or subcontractor etc. If it is beyond their ability, no matter of shouting will make them able to comply. It is doomed to failure. If businesses don't have the ability to comply (because they're not bookkeepers), they will either be fined or disappear. By disappear, I mean they could close down, or just remove themselves from HMRC's radar. MTD has to be workable if there's to be any chance of it working.
quarterly reporting has no benefit, its creating work for works sake
I'm all for digital record keeping, and I can see the benefit of potentially better records, and more advisory work for accountants.
my solution would be to keep self-assessment, move to quarterly payments on account and promote the benefits of using software, but dont force it on people - younger tech savvy clients already use it, the older generation who struggle with tech will naturally phase out over time and you'll get to the same point without the hassle
if HMRC really want to force digital records, then drop the VAT threhsold, clients seem far more willing to adopt software for VAT purposes than for tax, and better records for tax will be a natural by product
or perhaps another solution would be for a major HMRC overall - better training for staff, more staff, actually doing records checks before assuming that most tax payers are getting wrong and forcing them to keep records another way.... oh and actually pursueing those who remain outside of the system and pay no tax at all
or perhaps, protect the accountancy profession (like legal profession) and remove the self-assessers and their errors and be assured that the vast majority of accountants are trying to help their clients pay the correct amount of tax
Pretty sure there's only one suitable end to the 'roadmap' and it's something akin to Thelma and Louise hopefully...
"Core reason for quarterly reports
Thus, the main benefit of quarterly reports is that obliges the business to use accounting software."
what is the BENEFIT in being forced top pay for software when an individual has no need - with unavoidable material cost of living increasing adding "sketchy" nonsensical logic for something not necessary for "organised"individuals" is kinda crazy.
HMRC would be better served demading clients keep proper records in real time - including demanding every cash transaction must be logged real time (and backed up) - anything but this nonsense of 3 monthly filings for NO proepr logical reasons.
This has prompted me to write to my MP and point out how suicidal this would be in what will more than likely be an election year.
Perhaps others should do the same - they might rethink this whole shambolic policy
Yes, we can all moan on this forum, but do we think anyone (eg our institutes) is taking note of our concerns and taking them up with HMRC or the Govt? I doubt it very much. We should write to our MPs and our Institutes putting pressure on them to represent us properly.
I'm not sure I totally agree with Andrew.
There is no argument that MTD for ITSA is a "good thing". It will make small businesses improve their reporting, which must be a good for them. I assume that nowadays no accountant still has clients using spreadsheets. We should have moved all clients, however small, onto the cloud by now. I'm a small practice and all my clients are on the cloud - if clients want me to work with them, then they have to be on the cloud. No argument. Having everything on the cloud has advantages for me as well as the clients - I don't need to have any staff :)
Moving to MTD for VAT was very easy (thank you, Xero!) and I have no reason to think that MTD for ITSA will not be equally easy. C'mon, fellow accountants, look for the positives in this and not the negatives!!
Well, you (and HMRC) have had plenty of time to "look for the positives" ... so how about listing them here for us naysayers?
FWIW I don't agree with you about the Cloud (pros & cons, yes - but good for all without exception, you are joking?) ... but let's stick to the topic:
* Benefits of MTD ITSA mandation for taxpayers? And benefits for their agents?
@Patrick, it sounds like you have 'selected out' all the client who would benefit from spreadsheets and other record keeping with your 'one size fits all' cloud policy and therefore have skewed idea of other types of clients and their requirements.
We pick up a lot of clients from a local firm who has gone in that direction, but its not suitable for them, so they leave. Typically small transactional volume clients and landlords.
I have plenty of clients on software - but only the right ones.
Just done the Tax Return for a small landlord. Rent goes into their personal account (which is perfectly legal): £895 a month. They give me their annual mortgage interest and a list of other expenses: literally 3 items. Takes me minutes to complete the Tax Return. MTD ITSA they will have to send me that quarterly and it will all have to go onto software. The mortgage statement is annual so extra work trying to get the correct figure for the year. In fact there will be more work to complete just one quarter's MTD than there currently is to do the whole 12 months SA. So my time will go up by at least a factor of 5. Do I increase his bill by a factor of 5? Going on the cloud has no benefit at all, other than extra licence fee for the software. Please explain how MTD ITSA will be a good thing for my landlord client.
"we should have moved all clients, however small, onto the cloud by now"
As a first step to enable staff to work from home, I purchased the cloud version of our software. It works great in the office but at home (<3 miles from the office as the crow flies) it doesn't work as we can't get fast enough broadband. How do you reconcile your statement with this?
Do you really feel confident having all that data in the cloud?
https://nypost.com/2022/06/18/seattle-woman-paige-thompson-convicted-in-...
Here you have an Amazon employee using their access to the cloud servers to access third party data.
5 cany solutions to the MTD ITSA problem and there's tons of others.
But HMRC aren't listening.
The MTD ITSA Tsunami is coming....HMRC are creating it.
IMHO........get your own ark in order to make sure you don't take on any water and everything and I mean everything is shipshape.
Ask to leave/throw overboard anyone who won't stick to your ark way of life. You can't risk the whole boat for the mavericks.
When MTD ITSA hits rescue and help those you can pleading for help but be aware too many people in a boat will sink it.
Feel real sorry for all those caught in the MTD waves who you'd love to help but can't.
Remember HMRC have created this, HMRC didn't listen and HMRC will have to deal with the fallout.....it's not our fault.
Theresa Middleton announced the launch of the MTD ITSA pilot starting April 2017. 5 years later and the pilot appears to have shrunk to the point it has all but ceased. The purpose of a pilot is to test the system. The system is MTD but HMRC have only been focusing on the APIs which are a tiny part of MTD. HMRC have distanced themselves from the actual third party MTD software, or whether their "customers" have the knowledge/capacity to handle it and here is the crux of the problem. If HMRC were to test MTD as a whole across a sampled cross-section of their "customers", they would soon realise that their "customers" won't be able to handle it. We know our clients and what they are (and are not) capable of. HMRC have closed down all their local offices and have next to zero "customer" contact so HMRC have lost sight of the digital-competency (and lack thereof) of their typical "customer". No matter how big HMRC's stick, it won't work if taxpayers can't handle MTD.
I completely agree, Kevin. But how much work, stress, worry, anxiety AND penalties will we and our clients have to go through, before HMRC realises it won't work?
Geoff, we can use the very recent example of 30-day CGT. It was not fit for purpose and we told HMRC, but they did not listen and launched anyway. Because it was not fit for purpose it has massively increased our workload and HMRC can't cope either so they've had to change the rules to 60 days but this is little more than a sticking plaster: it's still not fit for purpose. This experience tells me HMRC will launch MTD ITSA whether it is working or not and they'll fire-fight it afterwards and we'll be stuck with it no matter how unworkable it is.
The glaringly obvious solution to every single issue with the implementation and timescale of MTD for ITSA is, as hinted at by your point 3 but not explicitly stated, to bring it in but not have it be mandatory.
This new change to the tax system we will all be using for years to come is something I want to try and use as soon as possible. I have many clients using software that will, when the time comes, allow us to switch over to MTD for ITSA and learn the ins and outs of things relatively painlessly.
How great it would be if we could determine those clients to whom this applies and switch them over, use the new system, then when it becomes mandatory in a few years time, bring on board the rest of our clients giving them the help they need.
Is it just me or is this so obvious it's ridiculous any other approach is even being considered, let alone adopted?
< Remember, those taxpayers will have to report income and expenses under MTD on the tax year basis from 2024/25, whether they like it or not – and whether or not the software and systems are up to the job.>
Andrew - I disagree wholeheartedly with your statement. The courts of this land until now apply the test of reasonableness. IF HMRC and their software buddies do not provide the tools in a reasonable state and in a reasonable time frame and with a system that a "reasonable" business person can understand and use there will be a test court case when the first HMRC fine is sent out. When the courts determine that it was unreasonable for HMRC to put upon hard working people of this land a poorly thought through and poorly constructed system which serves no purpose other than their own then hopefully the newspapers will take the government to task. I will not kow tow to Civil Servants putting a gun to my head saying do it or else. When 12 million small businesses stand up with one voice and tell HM Treasury where they can shove MTD then we will have true democracy and the MPs and CS will be put back where they belong - they are the SERVANTS of the people NOT their Lords and masters as they now believe.
If HMRC had set the MTD turnover threshold at £100,000 (VAT and ITSA), it would be more practical because it means that the businesses are of a size where they might begin to benefit from software and will have sufficient volume of transactions so that clients might learn how to do some of it themselves, it rules out all the MTD-no-hopers such as subcontractors, small landlords, part time self-employed etc, it places less demand on accountant resources. It also means most of those businesses would already be used to submitting quarterly reports (VAT returns) whereas the current £10,000 threshold means loads who don't submit quarterly reports will have to. This might have resulted in less objection and more co-operation from agents. I'm not saying I would then support MTD, because I still don't see the point of it even for larger businesses (why would quarterly reporting benefit any business?). But I do think it might possibly be achievable whereas the current MTD ITSA plans are not.
A few thoughts from an old accountant
Being old enough to have started with pen and paper ( "on no account ever use a pencil as this can be erased - and if you are auditing a client's entry in pencil overwrite it in ink" ) I am constantly bemused as to how over 50 years we got from there to here.
If the real reason for MTD was explained - "we need some more money and we want your taxes very regularly, at least quarterly, and if you do not comply we will issue penalties" we could all then take a deep breath and say "okay we will pay quarterly instead of every six months". Sorted.
A wonderful guy called Neil Postman once said that a really good question to ask when ever something wonderful and new was being brought in that the question should be asked
" To what problem is this new thing the solution? ".
I think he asked that question of the guy who was trying to sell him a new car when the 20 year old one that he had been using very well only needed a repair.
Anyway back to where we are - we have just come out of a biological war with Covid that I believe is still not over and its long term effects physically , mentally and economically have not as yet been ascertained. We are right in the middle of an economic war where the real issue is that inflation is eroding our asset value as we sit and breathe. This country is hurting economically.
The other problem is a third war which is embroiling most countries in the world whether they like it or not. Three wars - why make things more complicated right at this moment ?
So now is not the time to overhaul everything in such a big way especially when the stakeholders - taxpayers and their agents who will take the brunt of this - have little say in or ability to mould the project.
Remember the "NHS Connecting for Health project " ? Commenced on 1 April 2005 ( I told you I was old ) initial cost to give the NHS a single computer system of "electronic care" Initial cost estimated at £2.3bn it ended 8 years later with many believing the cost had exceeded £ 20bn. Let's not have another huge and unwieldy system where the costs may well be forever hidden as they are passed on directly to us as agents and our clients ( if they will stand for it )
There are far better methods of simplifying the tax system - the question is " are those who we place in government actually listening?"
If we were French we would be out on the streets protesting about a totally unjustified system with no objective declared. If its about making monthly payments just use the prior year and balance up.
'HMRC see the key reason for requiring quarterly reporting (for any tax) is to ensure that the accounts are digitised. Thus, the main benefit of quarterly reports is that obliges the business to use accounting software.
This may or may not be a good thing for small businesses. Using accounting software would, in my view, impose a discipline on the business’s tax reporting, but it is not necessarily the best way to provide assurance that their tax returns are complete.
This objective could be better achieved by broadening the obligation for businesses to show they have a robust accounting process. '
So the person renting out a small flat for say 1k/month really needs this system to help with their 'book keeping'?
'robust accounting process' required? Really? Couple of entries on the bank statement a month, but will now need at least 5 reports, doesn't tie in with their other quarterly reports, system won't match up various income sources and requires this person to 1. buy software and 2. use it properly.
What HMRC fail to realise is most people have zero interest in this.
''Using accounting software would, in my view, impose a discipline on the business’s tax reporting, but it is not necessarily the best way to provide assurance that their tax returns are complete.''
Respectfully I would strongly disagree and can point to many clients who have excellent paper records (folder with bank statements and invoices properly filed) which they completely understand, can assess where there business is and have a good idea of their tax position. Equally I can point you towards clients that use software, nearly all of whom make a complete mess of it (including their book keepers) and rarely understand even the basics of what is in front of them.
MTD will not add discipline, only cost and complexity to the day to day conduct of a small business. However, Government will only listen, if at all, when the small businesses themselves start to see the purveyors of expensive shine new software for what they really are.
This road map seems to overlook the fact that utter idiots like Jacob Rees-Mogg are pressurising HMRC to cut 20% of staff willy nilly. And that current performance from HMRC - both in terms of basic service provision like phone calls and letters, and being arssed to carry out enquiries - is by some margin the worst I have seen since qualifying in 1991.
The car is 6 feet away from the level crossing going at 60 mph. The train is 3 feet away and doing 120.
Well at least the engine-driver should survive then (which is probably equivalent to the calculation made by those 'in charge')!
But the car is going AWAY from the level crossing!
Got you there.....
Not necessarily.
As MTD for ITSA is now effectively running backwards, the car is actually heading for the crossing backwards as well.
Are we getting into the realms of tax relativity here, all this discussion of trains bringing us to the question of "who is the observer and where are they placed?"
What's the panic, in trying to find solutions to something that isn't going to materialise ?
HMRC haven't a clue where to start so why bother ??
What's the panic, in trying to find solutions to something that isn't going to materialise ?
HMRC haven't a clue where to start so why bother ??
In short, this is the way I see it myself.
Home Information Packs.
Audit Regulation.
NHS Single system IT Records.
All the best thing since sliced bread and all now scrapped.
RIP MTD
don't forget:
TSR2 (for those old enough to remember)
Fire Brigade regional HQ's
and my plans to become a 'rock god' - abandoned in 1973 when my mom wouldn't let me fix my scooter in the kitchen....
HMRC see the key reason for requiring quarterly reporting (for any tax) is to ensure that the accounts are digitised. Thus, the main benefit of quarterly reports is that obliges the business to use accounting software.
This may or may not be a good thing for small businesses. Using accounting software would, in my view, impose a discipline on the business’s tax reporting, but it is not necessarily the best way to provide assurance that their tax returns are complete.
This objective could be better achieved by broadening the obligation for businesses to show they have a robust accounting process. Adopting accounting software is an easy way to demonstrate this, but allowing alternatives that meet the same quality assurance criteria would remove many of the problems associated with MTD while still achieving the goal.
This misses the point entirely. MTD stands for Making Tax Digital. Whether or not we believe that digital accounting is necessary for accurate tax declarations is irrelevant. You cannot make tax digital if the accounting is not conducted via software and so alternatives, no matter how robust, would not meet the stated goal.
It's not about imposing discipline or wanting estimates of tax liabilities to be made quarterly or a path to quarterly payments (which could already be achieved, if they wanted it, under the current system of payments on account by doubling the frequency), but about checking at multiple points during the year that the business is using and updating its digital systems.
The reasons, I suspect, for wanting systems to be digital is so that, in the long term, HMRC can interrogate the data both easily and remotely, eventually allowing algorithms to automatically check all data and even potentially cross-referencing the supplier and customer's record of the same transaction. This would not be possible with a manual system (eg like the US, where the IRS demands a different paper form every time a business draws breath).
MTD stands for Making Tax Digital. Whether or not we believe that digital accounting is necessary for accurate tax declarations is irrelevant. You cannot make tax digital if the accounting is not conducted via software and so alternatives, no matter how robust, would not meet the stated goal.
I disagree:
1. I have been filing digital Tax Returns since 1998. In my opinion, tax is not truly digital now and won't be when MTD ITSA starts because MTD ITSA does not digitise any of tax processes (eg SA Marriage Allowance which is processed manually by HMRC now and will still be manual in MTD ITSA).
2. What MTD actually is is Making TRANSACTIONS Digital. And this is the crux of the problem because most of our clients are incapable of reliably digitising their transactions so who is going to do it for them? Us. And will our clients be happy to pay us? No.
3. The implication that software will improve accuracy is incorrect. None of the mainstream software has any intelligence nor uses any of the prompts and nudges that HMRC said would form part of MTD. Some software requires the user the select a VAT category. Joe the Plumber thinks he's being presented with a choice as to whether he wants to claim VAT or not, so he selects standard rate even if the transaction is exempt, or personal. Some software defaults to standard rate eg Sage which defaults to T1 on everything. I've seen clients reclaim VAT on wages, insurance, drawings, even the VAT payment itself. Yet all software could be programmed to identify to avoid these mistakes. And spreadsheets rely on the client's Excel skills. I've seen clients create a formula in the VAT column where VAT=GROSS x 20%. And the client copies that to all rows and claims it on everything. No wonder the VAT gap was widened since the start of MTD VAT.