HMRC sent out a clear message with its response to Making Tax Digital consultations. Despite widespread misgivings about the practicalities and timetable, digital tax will be launched in 14 months’ time. John Stokdyk and Richard Hattersley explore the technological feasibility of meeting this deadline.
HMRC’s Making Tax Digital director Theresa Middleton told AccountingWEB on Tuesday that she expected to see end-to-end MTD software in the next couple of months that will be able to keep digital records digitally, categorise expenses and produce a summary submission for HMRC. HMRC will record the details and present them to the taxpayer in their personal tax accounts.
Now the timetable has been set for unincorporated businesses to go digital from April 2018, developers can start designing, building and delivering these new tools, she said.
According to Middleton, HMRC had been working with 18 developers in a private beta test programme, and expected five of them to have products ready for testing by this April. While HMRC decided to let businesses continue using spreadsheets for record keeping, but they will have to ensure the spreadsheet can handle the requirements to submit MTD updates.
That leaves just two months before public testing is due to begin. This 12-month lead-in complies with the principle that new systems should be properly tested before they are officially launched and will allow the MTD mechanisms to go through a full cycle before taxpayers are forced to use them.
Three weeks ago, the Treasury select committee questioned whether HMRC will be equipped to deliver Making Tax Digital to its “over-ambitious” original schedule. HMRC’s summary response attempted to placate those fears, some within the software industry are unconvinced.
TaxCalc’s Steve Checkley commented in the AccountingWEB’s live panel that HMRC has been doing a lot behind the scenes to meet the April 2017 deadline for public beta testing to go live, but added that the “timeframes are very, very pushed”.
What needs to happen, when
Mark Purdue from Thomson Reuters told AccountingWEB that the profession was looking for two basic answers from HMRC this week:
- Which of my clients are affected by MTD in 2018?
- How will my clients’ taxable profit be calculated?
With the conditions for exemptions and basis periods left unspecified, the answers will arrive “later this year” in secondary legislation - “which isn’t really good enough at this relatively late stage”, Purdue said.
For the test programme to go live this April HMRC needs to specify what information needs be reported, and ensure the MTD systems can carry data back and forth between taxpayers and the central tax computers.
Word reached us from other developers of problems dealing with the team working on the application programming interfaces (APIs) that will make all this data transmission possible. With the help of a number of industry insiders, we set out to assess whether the infrastructure and systems are in place for MTD to work as envisaged by HMRC’s deadlines.
Third party information
HMRC’s consultation response on “better use of information” gives further background on an important ingredient in the whole process - how relevant data will be collected and displayed to taxpayers in their online tax accounts.
In some cases the tax department is already getting information from third parties and it will build on this experience with new standards and processes to improve security and visibility for taxpayers.
The consultation response points out that Making Tax Digital is moving away from Self-Assessment principles where customers report their information themselves and can change it. The new system will be based on information provided by a third party.
In HMRC’s new stance, if data belongs to the third party, it’s up to them to change it. This will increase the burden on taxpayers - and potentially increase volume of queries needing to be resolved by information providers and HMRC. Some of the consultation responses raised concerns that HMRC lacked the resources to deal with queries, the paper noted.
One of the information sources of most concern is HMRC’s own Real Time Information environment for PAYE and the way that payments into the system are allocated according to mysterious algorithms rather than the taxpayer’s intentions.
AccountingWEB member and expert PAYE contributor Kate Upcraft continues to warn that all is not well with RTI data. If the government insists on pumping dodgy data into personal tax accounts, the current problems will escalate significantly when live taxpayers are added to the online mix.
If this scenario plays out as Upcraft anticipates, taxpayers and agents could have to go back to employers to resolve recurring errors in tax calculations and codes. The problem will be even more acute for people receiving universal credit, Upcraft warned, should any erroneous data filter through to the Department of Work and Pensions’ system.
In response to some of these concerns, HMRC acknowledged there are complex scenarios and complaints that will require HMRC intervention, “where it will be appropriate for the customer to contact HMRC to resolve the issue.” They will be able to do so via their personal tax account or as yet unspecified alternative routes where necessary.
API progress report
HMRC’s API hub currently lists seven beta APIs and one “stable” version. These APIs form part of a self assessment structure that currently includes; trading income, property income, UK interest and UK dividends. According to Purdue the content and layout of this API mirrors the SA103 and SA105 (excluding interest and dividends) and will provide the backbone of the public beta testing in April.
But will that information match the income, expense and benefit types envisaged for MTD quarterly updates? According to Checkley, extending the option for three-line accounts complicates the picture, as “how something is submitted depends upon the software interface. It may not be as simple as a replication of the SA103S.”
Elsewhere in the industry, we struggled to find five, let alone 18 developers who were involved in the private beta programme. The feedback on how things are progressing with the actual software development was patchy. A picture of what has been happening emerged in a blog from API team leader Lee Hawksworth in December, who listed eight key positions as part of the department’s recruitment drive. What he didn’t mention were a number of departures noted by external developers.
Can they deliver?
Despite the squeezed timeframe, Xero’s Gary Turner is one of several software executives who is confident HMRC will release the APIs in time. Turner is less concerned with the software part or HMRC’s technical engagement than with the department’s ability to convince small businesses to adopt software in a compressed timeframe.
“I am not sure the availability of a selection of new MTD products that are either free or low cost will change the fact that driving adoption is a very difficult thing to do,” he warned.
The emotions we encountered from those working on MTD ranged from the soothing assurances of Theresa Middleton and her colleagues at HMRC to predictions of chaos and doom in both the software industry and wider accounting profession.
The more closely involved with the project, the more confident companies were about MTD’s progress. IRIS, Sage and Receipt Bank confirmed their involvement in the private beta programme and all were bullish about moving into the public phase of testing in April. This is what they told us:
- Sion Lewis, IRIS: “It's just a case of getting the final API puzzle together and continue to plough forward with our own plans.” IRIS has been working with HMRC on the MTD API definitions and expexts to integrate then into KashFlow and its accountancy suite by October.
- Matt Perkins, Receipt Bank: “We have been liaising closely with HMRC and have put 50 of our 1Tap users through the private beta.” Perkins confirmed that 1Tap is likely to be the first, free MTD-compatible product to hit the streets. When asked if 1Tap was the MTD product that would be ready in February, he laughed nervously, “We hope so.” 1Tap can be used by individual taxpayers who want to file updates themselves, but also feeds data through to an accountant’s dashboard for those clients who want professional help. Currently 1Tap only shares the data it collects with the in-house dashboard, but the company has been modelling its own prototype tax calculation engine so that it is ready to plug in when HMRC’s data exchange mechanisms are confirmed.
- Sage: Having participated in the private beta testing programe, Sage is planning tweaks to Sage One and Sage Expenses so they will be able to take large numbers of customer into the public beta testing programme.
Even developers who chose not to HMRC’s private testing programme are confident in their ability to cope with the deadlines. As a small, technology-focused software developer, Forbes Computer Systems prides itself on being able to turn around code quickly. As well as an Android Record Keeper already listed on HMRC app page, he has developed a cloud accounting system that will allow accountants to file on clients’ behalf under MTD. “We’ll have it ready by April,” said David Forbes.
On behalf of Thomson Reuters, Mark Purdue commented: “We are confident that we can support all of our existing users who wish to take part in the public beta from April with a solution based around Onvio Tax. This is progressing well. We will be able to provide ‘show and tell’ and product demos at our user event in March.”
But there’s a potentially bigger issue than software requirements and deadlines here. Regardless of HMRC’s grand plans, tax purists are worried that HMRC software developers are effectively devising tax law.
The idea that software developers and HMRC are inventing the information types that are being filed conflicts with the accepted practice that politicians decide what kind of tax is paid and on what basis
This week’s public announcements mean that MTD is no longer a private playground for cloud API evangelists. As a UK government tax policy (as yet unlegislated), MTD has entered the public domain and the questions it poses will rise significantly when taxpayers are forced to adopt the system. This article set out to find answers to some of the technology questions that will arise. It will be the first of many such articles as we travel towards the new digital tax horizon.
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