TaxCalc director Steve Checkley is one of several observers anticipating a “digital” Budget on 8 March.
“I would be surprised if there wasn’t,” he told AccountingWEB this week. “To meet the Making Tax Digital (MTD) timeframe, HMRC has done a lot of work that hasn’t been enshrined in legislation, so we’re expecting regulations to firm those things up.”
Just like accountants, their software suppliers have to be on the ball at this time of year to ensure any changes of rates and allowances made at Budget time are accurately implemented and communicated. As the person responsible for TaxCalc’s product strategy, Checkley has to make sure that any new measures can be accommodated in time for the next release date.
“Things that affect accountants affect us in the preparation of the software they rely on. If something affects the processes of a practitioner or taxpayer, we’ll need to look at it. The bigger the change in the regime, the bigger the change in our software,” said Checkley.
“For example, when the dividend allowance was announced, we immediately knew that was going to be a certain amount of work. At least it wasn’t for the immediate tax year, but for 2016-17, so it didn’t affect [2015-16’s] development.”
Like many accountants – and the crew that assembles at AccountingWEB HQ in Bristol – Checkley and his team spend their lunchtime on Budget day watching the speech. But they aren’t able to draw any material conclusions from what the Chancellor says. It’s only when the detail is released in the Budget documentation that they are able to assess the full impact of any announcements.
How Budget proposals turn into software
When the legislative paperwork and tax information notes land on HMRC’s website on Budget afternoon, the software development wheels start turning.
The TaxCalc developers concentrate on the big taxes - income and corporation - that are the main drivers of their products. Starting with draft legislation, they build up the software model in a sequential process, mapping out their understanding of the basic requirements in detail and corroborating their specification with HMRC.
The tax department determines how the legislation is interpreted in software and usually publishes a technical specification document by mid-summer. “That’s what we base TaxCalc on, because when you submit a tax return, HMRC performs the same calculations at their end. If there’s any difference, the return will be rejected,” explained Checkley.
During the development process, the commercial programmers will sometimes point out things to HMRC that they don’t think are right. “Feedback we have provided in past has resulted in calculation specifications changing. Tax is complicated, so quite often it’s a joint effort between software houses and HMRC to make sure the engines we all use are correct,” he said.
Once the specification is settled and the company can confirm its approach is correct, it will push on to get the programs ready. Later in the development process, when HMRC opens its online test filing apparatus, the software goes to beta testing. The testing will confirm whether the calculation engines work, but isn’t just about the legislative technicalities. New features also need to be put through their paces.
“The specs aren’t just the calculation and the forms. There are many other technical aspects such as the data structure that HMRC expects. The tax department can change anything it likes up to 6 April. That’s why most software suppliers do their main release sometime in March, because they don’t want to have to do another update in case something changes,” Checkley said.
So while the tax software community doesn’t get too exercised about the Budget day ritual, product managers and programmers will be keeping their eyes out for any inconvenient late surprises.
Spring Budget predictions
From Checkley’s perspective, MTD is likely to dominate next week’s Budget: “We’re expecting the deferment and exemption limits to be disclosed.”
Beyond that, the TaxCalc team will be looking out for anything that affects its “What if?” tax planning tool. This module projects liabilities into the years ahead based on current data and impending tax rule changes - which can be affected by Budget tweaks.
“A rate change here, or allowance change there... If the Budget affects anything for 2017-18, that will affect our what-if development planning.”
That aside, the digital tax workload will take centre stage over the next year as TaxCalc, HMRC and other software developers go into the MTD pilot public beta and implement the programming interfaces that will connect tax and practice software to clients’ digital tax accounts.
For the next few years, Checkley and his customers are going to have to manage two tax regimes in parallel.
“Tax software is always produced in arrears and these days Budgets are usual a year or two in advance,” he explained. “However when MTD starts for real [after April 2018], there will be a year in arrears to close off and the current year will be live. Tax software will have to deal with both.
“MTD creates one set of requirements during the year, but if there is non-business income, you still effectively have the self assessment timeframe for that. It’s a bit, ‘Self assessment is dead, long live self assessment’ because it continues for non-business income streams.”
It will be a challenge to support two tax systems in parallel for individuals and companies, but Checkley remains unflustered by the prospect. “Like any problem, you break it down into blocks and find a solution. That’s what software development is all about.”
About John Stokdyk
John Stokdyk is the global editor of AccountingWEB UK and AccountingWEB.com.