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Jim Harra and Rebecca Benneyworth

Tax admin: HMRC CEO Jim Harra explains

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At the AccountingWEB Live Expo earlier this month, HMRC chief executive Jim Harra spoke with Rebecca Benneyworth and took questions from delegates on a range of tax administration issues, including Making Tax Digital, the basis period reform and the tax authority's relatonship with agents. 

13th Dec 2021
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Rebecca Benneyworth opened the session expressing relief on behalf of the whole accountancy profession that MTD ITSA has been delayed for one more year to April 2024. However, both Benneyworth and Harra agreed that this time needs to be used wisely; the entire tax profession (HMRC, software developers and agents) need to keep their foot on the pedal in preparing for MTD.    

Benneyworth also pointed out the delay is much less than a year for businesses who use a 31 March year end. Those businesses would have entered the MTD ITSA regime on 1 April 2024, with a 6 April 2023 MTD ITSA start date, but because of the change to the tax year basis the digital start date for all sole-trader businesses is now 6 April 2024. General partnerships (not LLPs) will have a digital start date of 6 April 2025.    

Basis period reform

Harra said the transition to the tax year basis will be difficult, but it will produce a simplification for taxpayers over time. He said the greatest difficulties will be experienced by those businesses who do not use a 31 March accounting year end.

The basis period reform consultation stated that one third of partnerships use an accounting period which is different to the tax year or 31 March.

In an earlier Live Expo panel, Paul Aplin calculated that 578,000 businesses will have to apportion amounts of income and expenses into order to report their accounts on a tax year basis. Of those businesses approximately 278,000 will have to estimate their figures every year, then correct the position on their tax return when the second period of accounts is completed.     

Overlap profits

Benneyworth made a plea for HMRC to find a way to get the overlap relief figures to agents and taxpayers easily and quickly.

A delegate asked if HMRC could lead by example and pre-populate the relevant tax returns with the taxpayer’s overlap relief, and also include all CIS income and CIS tax deducted.

Harra said HMRC does not use pre-population of tax returns as much as many other countries. However, it is unlikely that overlap relief figures will be pre-populated on to tax returns.

Harra confirmed that HMRC is working to find a way to get the overlap figures to people who need that information easily.  

New penalties

Benneyworth introduced the topic of the new penalties that will apply to submissions under MTD, for VAT from 1 April 2022, and for ITSA from 6 April 2024.

She had explored the implications of the new penalty system on a panel with Paul Aplin on the first day of the Live Expo. For quarterly submissions the first three late reports will generate a point, but on the fourth late submission a £200 penalty plus another point is awarded.

Aplin hopes that technology will be available to help people avoid clocking up penalty points. Benneyworth would like to see an interactive app on a smart phone which would warn the business owner of penalties due to accrue for late submissions, before the next submission is due.

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Replies (123)

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Replying to johnjenkins:
RLI
By lionofludesch
16th Dec 2021 16:07

johnjenkins wrote:

I and Rebecca were at the first seminar of "agent strategy". We were both impressed and thought Wow, HMRC want t0 interact with us. The HMRC guy (can't remember his name although I should) actually said if this doesn't work HMRC is down the drain. Looks like he was right.

Looks like it.

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Replying to NotAnAccountant2:
By Charlie Carne
15th Dec 2021 13:43

deleted

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By GHarr497688
13th Dec 2021 18:39

client owed £17000 Vat refunds since July 2021 and no reply to recorded delivery letter.
Instead of [***] footing around he should start to get out on the ground and see the issues people have with HMRC. This really is a disgrace.

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Replying to GHarr497688:
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By JacquiMBurns
23rd Oct 2023 14:09

HMRC 'lost' a payment of over £60K for well over a year because they kept sending out a tracer with the wrong details on it despite receiving them by phone, numerous emails & even by recorded letter. They thus hung on to later reclaim moneys until I found someone answering the phone with a bit of a brain who sent out the correct chaser &, gee whiz, found the money paid. NB. The client had accidentally entered one digit incorrectly in the sort code which was still an HMRC account (PAYE) & which I pointed out to them each time I sent them details of the payment. They had, however, correctly quoted the VAT Reg number as the reference & so it SHOULD have been an easy matter for their own staff to pick up that this wasn't a PAYE payment & transferred it immediately to the VAT bank account OR even contacted the client or ourselves to ask what it was for. I have since tried to claim interest for the monies they held onto until they found it & have been told they will pay my client £4.32 for the last return they were late paying out for.

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By justsotax
14th Dec 2021 15:09

'Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
• more effective
• more efficient
• easier for taxpayers to get their tax right'

Just to remind everyone of what the original intention was.....sorry Charlie, but you are falling into the trap of accepting this BS because you think your client base may not be too affected, when the reality is what we have been presented with ticks none of the above boxes for which it was to be introduced.....

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Chris M
By mr. mischief
14th Dec 2021 18:37

Could HMRC not put Fred the Shred and Gerald Ratner jointly in charge of this project? I mean, they can't make it any worse can they?

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Replying to mr. mischief:
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By johnjenkins
15th Dec 2021 09:38

I thought they already were.

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Replying to johnjenkins:
RLI
By lionofludesch
15th Dec 2021 09:54

johnjenkins wrote:

I thought they already were.

Fred the Shred has definitely been working on those CWF1s.

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neand
By neanderthal
15th Dec 2021 10:29

thank you accountingweb and rebecca cave for standing up to the HMRC for your portal members!!!

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By Hugo Fair
16th Dec 2021 22:42

Ah, go on then! The 100th response - partly because I'd hate Jim to think we don't care about him, but mostly just as another pointless post (which somehow seems appropriate to a thread on MTD)!

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Replying to Hugo Fair:
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By johnjenkins
17th Dec 2021 09:09

Boris had a taste of people power for him in the general election. Last night he had a taste of people power against him. Let's hope he learns the real lesson of people power and stops this QU nonsense.

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By Charlie Carne
24th Oct 2023 14:59

I have received numerous update emails from AWEB today linking to new posts on this old thread so, as people are clearly reading it again, I thought I would make the following point, though I am aware that I appear to be in a tiny minority (unless those that agree with me are just too scared to put their heads above the parapet, having seen the criticism levelled at me over the years for my views on MTD).

It seems to me that most of the comments from the profession miss the entire point of MTD and are similar to the criticisms of the HS2 railway. In the case of HS2, critics complained that the cost was excessive for the sake of saving a few minutes on the journey between London and the North. But the purpose of HS2 was not to reduce journey times but to increase capacity. Therefore, arguing that the time saving will be minimal is a straw man fallacy. The same is true of arguments that MTD won't improve accuracy.

The purpose of MTD is not to increase accuracy (though HMRC confuse this issue by waffling on about reducing the tax gap which it almost certainly will not do). Its sole purpose is to encourage uptake of digital accounting systems, like the widely praised Estonian system. See my posts elsewhere in this thread for my detailed reasoning.

The straw man fallacy can be shown as follows. Arguing that MTD for IT requires time-consuming preparation of accurate accounts quarterly is nonsense, because accuracy is not required. Arguing the pointlessness of filing inaccurate in-year figures is also nonsense because the purpose is to demonstrate that the business is digital, not to inform HMRC of the profits to date. Arguing that filing the digital data once a year is as good as once a quarter is also nonsense, as it does nothing to demonstrate that the digitisation is ongoing throughout the year (I'd argue that quarterly is not frequent enough and a flag should be filed monthly or weekly). The only argument against MTD that is valid is if you disagree that digitisation has benefits for society. To make that case, look at systems like Estonia or France's proposed B2B e-invoicing requirements and argue against them. The world is moving to digital and, in my strongly held opinion, we should not be left behind.

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Replying to charliecarne:
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By johnjenkins
24th Oct 2023 15:25

I'm sorry Charlie but it is you that has missed the point of MTD being non workable.
If HMRC's sole purpose of MTD is to get business on a digital footing then all the other extras like QU shouldn't be mandatory. All business will no doubt eventually be digital in some form (spreadsheets are digital) but in their own time and not forced into the cloud or whatever replaces it. The digital age is moving too quickly for many. I am fully digital but see the problems a lot are having. Unfortunately the Government and HMRC choose to ignore those problems at their own peril.

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Replying to johnjenkins:
By Charlie Carne
24th Oct 2023 18:29

Your initial argument doesn't make sense. QU is mandatory because, if it weren't, there'd be no stick to force business to go digital. And, as for doing it "in their own time", the point is that government doesn't want them to take their time about it; they want it done asap. It's valid to argue that the timescale is too fast or that it is not required at all but, if we are to go digital, we need deadlines and multiple in-year checks or it becomes just some vague desire that many will not adhere to.

Your point that "the digital age is moving too quickly for many" is perfectly valid but I've not seen any reasons to back this up beyond the fact that some people find technology difficult. There are exemptions for those who are legitimately digitally excluded and, for the others, how difficult is it to connect an app (or have your accountant do so) to your bank account, where you (or your accountant) can code the transactions? If they are turning over more than £85k, then they are already using an MTD-compliant system for VAT and the IT filing will just be a push of a button (zero additional work will be required until the end-of-year final submission). And if they turn over less than £85k, three-line accounts on the SATR mean that they need merely code items as income or expenses or personal. At the end of the year, they or their accountant can check that none of the expenses should be capitalised, but there's no need to do this in-year unless you wish.

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Replying to charliecarne:
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By johnjenkins
25th Oct 2023 09:39

"Your initial argument doesn't make sense. QU is mandatory because, if it weren't, there'd be no stick to force business to go digital".
You could simply have a box on the tax return that states the figures in the tax return have been produced digitally.
Now I know your argument to this is we might not be not telling the truth. There you have it HMRC don't trust us and we certainly don't trust them. In a situation like that the whole thing will become unworkable.
A lot of people find the way technology is going to be difficult not just in Accountancy. The clever dickies will be ok but not Joe public.
Again I say forcing people into the digital technology that is never the same from one month to another is a recipe for disaster.

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Replying to johnjenkins:
By Charlie Carne
25th Oct 2023 19:25

You are proving my point for me. You are saying that HMRC don't trust the taxpayer to tell the truth about whether they are recording data digitally and that is what makes it unworkable. Why? Straw man arguments again. Filing a simple, digitally-linked form at HMRC on a regular basis (initially quarterly, but in years to come it will be gradually go to monthly to weekly to daily to real-time) is what removes the requirement for trust. You say it won't work because there's no trust, but I say we don't need trust as we have evidence and it is the ability to provide that evidence throughout the year that is at the heart of the MTD in-year filing requirement.

And I'd counter your first two lines with the observation that, when the government wanted to make drivers wear seat belts to save lives 30 years ago, they could have simply asked drivers to tick a box on their annual road tax application stating that they always wore a seat belt. They didn't trust drivers any more than taxpayers, so they imposed penalties for non-compliance which they checked initially by vigilant police and then by cameras.

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Replying to charliecarne:
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By johnjenkins
26th Oct 2023 09:39

QU won't prove that the business is recording their income and expenditure digitally. As you say HMRC aren't interested in the content so a lot of business who do not have the time or inclination to do QU will just put 3 figures on a digital form. We will do the normal accounts at the end of the year and HMRC will have a load of tosh to sort out.
As for safety belts and Kiddies seats and not drinking alcohol, these are all measures to "save lives". The concept is right and that's why it works (mostly).
The concept of mandatory MTD with QU for under vat threshold business is totally wrong as there is no benefit, it just creates more work and unrest and probably many small business will either not bother and join the ever growing band of a presumed tax gap. The concept of IR35 is wrong and just look at the problems that has, and will continue to cause.
Charlie it's no good any government saying "we want to do this because of this" when the cos of this has been proved to be incorrect and unworkable.

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Replying to charliecarne:
Tornado
By Tornado
24th Oct 2023 16:47

The world is moving to digital and, in my strongly held opinion, we should not be left behind.

This sounds more like a fear of being left behind than a reason to go digital.

I am not sure that Estonia that has a population of 1.331 million is a reasonable comparison with the UK which has a population of some 67 million.

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Replying to Tornado:
By Charlie Carne
24th Oct 2023 18:33

The fear of being left behind IS a reason for going digital, as other economies will overtake us. And I'm not comparing Estonia to Britain; rather I'm looking at them as a pilot exercise that shows how it can be done (albeit rollout will be slower and more complex in a larger economy like the UK, with a significantly greater population).

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Replying to charliecarne:
RLI
By lionofludesch
24th Oct 2023 18:41

charliecarne wrote:

The fear of being left behind IS a reason for going digital, as other economies will overtake us. And I'm not comparing Estonia to Britain; rather I'm looking at them as a pilot exercise that shows how it can be done (albeit rollout will be slower and more complex in a larger economy like the UK, with a significantly greater population).

I'm not seeing the link between quarterly updates and our economy being overtaken by Estonia. Nor am I seeing the benefits of HMRC being able to check a trader's output tax against his customer's input tax. HMRC have quite obviously given up on checking.

It's an expensive waste of space which the poor old accountant will be left to sort out, largely at his own expense, no doubt.

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Replying to charliecarne:
Tornado
By Tornado
24th Oct 2023 19:31

OK, you may have a fear of being left behind, but I have no such fears. Your reasoning is just your opinion as I see the situation in a completely different way and fear does not come into it. Being driven by the fear of misssing out is not a valid reason to do anything.

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Replying to charliecarne:
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By BryanS1958
31st Oct 2023 14:25

Marvellous, so British businesses will be so busy trying to be digital that they will be too busy to actually be productive and generate sales for UK plc!

Basically, all businesses will be employed by Gov.uk and Gov.uk will be too busy making a mess of things, so UK plc will become increasingly uncompetitive.

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By BryanS1958
30th Oct 2023 15:23

"However, both Benneyworth and Harra agreed that this time needs to be used wisely and the entire tax profession (HMRC, software developers and agents) need to keep their foot on the pedal in preparing for MTD."

Why does Benneyworth agree? Surely she should be representing the views of most taxpayers and those in the profession, which is that MTD is an expensive waste of everyone's time and resources,and the funds could be much better spent elsewhere e.g. pre-populating overlap relief, manning helplines, etc. MTD seems like another HS2 - perhaps even less useful for most of the population.

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