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The problem with 'Making tax digital'

15th Dec 2015
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The government has launched ‘Making tax digital, outlining its long-term play to digitise the UK tax system. But its ambitions could be too much for small businesses to cope with.

Since the Chancellor’s announcement in March heralding the death of the tax return, HMRC has received a £1.3bn boost to make his digital dream a reality. “This government is bringing the digital revolution to Whitehall – ensuring that the services it provides are similarly transformed. The tax system is no exception,” wrote Treasury secretary David Gauke in the introduction to the latest policy paper.

AccountingWEB member Steve12321 responded in terms that will be very familiar to small business owners and their accountants: “How is it better to have to produce accounts and calculate tax four times a year instead of once?”

He’s not the only person asking the same question. “If you have to update quarterly what will the deadline be? We’re almost going to give the information in real time. It will be impossible to run business because you will always be reporting to HMRC,” said Rebecca Benneyworth.

“Businesses won’t be able to cope. There’s essentially going to be four self assessment deadlines”, continued Benneyworth. “That’s going to be horrific, especially if we lay the existing penalty regime on top of it.” [NB: Since making these comments Benneyworth has been named as HMRC’s lead consultant on digital for small businesses - see belowEd]

Accountant and tax campaigner Richard Murphy also bristled at HMRC’s perceived misunderstanding of accounting. “What HMRC seems to think is that accounting is just an exercise in totting up the books,” Murphy wrote.

“It’s assembling the data to populate the return that takes all the time. HMRC’s claims utterly ignore that fact and want to increase the time-consuming part of the job fourfold. That they do not seemingly understand this is deeply troubling.”

Not all of AccountingWEB’s members were negative, though. “Once it comes in and becomes second nature, I think it might be a positive,” wrote Cstwragby. “Clients will HAVE to give us their records once a quarter rather than this nightmare every December and January chasing up disorganised people to bring in their records.”

“It’s still self assessment,” said SteLacca, referring to page 10 of the ‘Making tax digital’ document, which reads: “Of course, taxpayers will still be responsible for ensuring that their tax bills are right and telling HMRC about information that is not reported through other means. But digital accounts will make this much easier, quicker and simpler.”

On behalf of the software trade body BASDA, chairman Kevin Hart responded: “Yesterday’s document both consolidates numerous separate pieces of information that have entered the public domain and confirmed speculation in the industry with regard to timeframe. It is, however, rather light on detail, such as how the many complexities of tax are to be addressed.”

Hart added that one of BASDA’s primary aims will be to balance the department’s aspirations with the regulatory burden it imposes on the tax/accounting software industry and its customers.

Personal tax accounts

Ahead of the digital strategy paper, HMRC launched the trial version of its newly renamed personal tax account (PTA) on 1 December. The system relies on the GOV.UK Verify identity management system to control access to the system. Verify uses third party companies like Verizon, Experian, the Post Office and a Dutch company called Digidentity to verify the identity of the user.

Set-up is supposed to take 10 minutes, but that flies out of the window as the user faces a series of tricky questions, some not answerable off-hand. In the case of Digidentity, the user needs to download an app to their smartphone.

The service is certainly secure. Steve Checkley, director at TaxCalc, observed on TaxCalc's blog: “The nature of the hoops that I had to jump through would suggest that it could only have been me that was trying to gain access to the account.”

But the worry is that many accountants’ clients could find Verify too difficult to navigate. “Despite providing my passport details, address details, bank account and credit card details, the Experian software also wanted answers to ‘lifestyle’ queries such as my mobile phone supplier/contract,” wrote Hugo Fair on Any Answers. “Not only does this feel invidious… but it brought my attempt to register to a dead end as I’ve never possessed a mobile phone.”

Gauke told delegates at the HMRC stakeholder conference on Monday: “By 2020 HMRC will be a world-leading tax administration that is efficient, effective and easier for customers to use, enabled by £1.3bn of extra investment announced in November’s Autumn Statement.”

HMRC may be ready for its digital revolution, but many normal Britons might not be.

Replies (160)

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By MartinLevin
16th Jan 2016 12:10

CSV format - part 2

OK, so Peter, "you can use it as long as the fields are the same as that required for the bookkeeping software".  I am still puzzled.                           Clients might use other sources of payments for their bills that do not appear in the bank statements.                                                                          What is the accountant supposed to do with a client who assumes that a downloaded comma separated variable (="csv") file was all that would be necessary.  We should still have to remind clients that we do not possess crystal balls, and that good book-keeping is the foundation stone of preparing Financial Accounts.                                                                                                                                                                Over to you as to how you get the secondary (and further) sources of payments from clients to input into such promoted "wizard" software.

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By petersaxton
16th Jan 2016 12:46

Why are you puzzled?

MartinLevin wrote:

OK, so Peter, "you can use it as long as the fields are the same as that required for the bookkeeping software".  I am still puzzled.                           Clients might use other sources of payments for their bills that do not appear in the bank statements.                                                                          What is the accountant supposed to do with a client who assumes that a downloaded comma separated variable (="csv") file was all that would be necessary.  We should still have to remind clients that we do not possess crystal balls, and that good book-keeping is the foundation stone of preparing Financial Accounts.                                                                                                                                                                Over to you as to how you get the secondary (and further) sources of payments from clients to input into such promoted "wizard" software.

IF you can get CSV files of data then that can be used to import into the bookkeeping software.

IF you can't get CSV files then CSV files can be created from the original information or the data can be entered into the bookkeeping software like it has been done for many years.

Obviously if the client is under a misaprehension the accountant has to explain. This is what accountants have always had to do and it's nothing new.

Who is saying anything about "wizard software"? As far as I can tell you are the only person to call it that.

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Teignmouth
By Paul Scholes
16th Jan 2016 15:27

Wizard bookkeeping

Martin, just to expand on Peter's comments, at their heart, the modern Cloud based bookkeeping systems are very similar to the deskbound cumputerised systems we've been used to since the early 80s they have bank, cash, credit card accounts, sales, purchase and nominal ledgers, TB, P&L, Balance Sheet and countless other reports.

Where they become wizard, is in being better designed for non-accountants, being available to anyone with an internet connection (even on their phone), 24 hours a day and in being able to link (integrate) with other facilities, also residing on the Web.

For example, the use of a CSV spreadsheet of your bank (or credit card) transactions to update the books is not new, you've been able to do this for years with Sage & Quickbooks desk systems, but what is new is the ability to cut out the CSV spreadsheet altogether and get your bookkeeping to link directly, or via a 3rd party, with your bank account meaning that the bank entries appear in your books either automatically, without any action on your part, or by pressing a couple of buttons and entering your bank login and security codes.

Even with a lot more automation than is available on the older systems one of the most time consuming parts of any bookkeeping is the entry of supplier bills or expenses but now all I do is send all mine to a web based facility for them to create a bill entry for me that I can then import into my books, along with a PDF or JPG scan of the bill meaning I can throw away the paperwork.

Previously I'd enter say half of my bills manually and enter the other half as bank payments, whereas now all my bills and receipts (including train tickets or Cafe Nero receipts, that I photo and send from my phone) end up the same day being imported into my books en mass in seconds, to be paid off from bank, cash, credit card or director's loan account

There are many more examples of such integrations susch as EPOS systems for shops, Stock Control systems and credit/debit card and direct debit payment systems.

So, when thinking about my own tailored "Accounts Book" or spreadsheet I used to give to my clients, those same clients can now raise their invoices and email them to their customers, from the books and can promt/chase them for payment and, if applicable, can prepare and send directly to HMRC, from the bookkeeping, their VAT returns, payroll RTI and CIS returns as well as handle their bank reconciliations and expense entries above.

Probably more importantly though, rather than having to ask the client to bring/send me their books every 3 to 6 months, or even waiting till the year end, I can now look at their books at any time and from wherever I am to check them out or correct them meaning that when the year end comes their annual accounts are sometimes only 30 minutes work away, compared to hours or days.

Finally, in anticipation of your question, these are not big businesses, they are sole traders and husband/wife Ltd companies, the sort of people who just managed to keep one of my books or spreadsheets but who would have been lost with Sage/Quickbooks.

Compared to what I did 5 years ago, I think wizard sums it up. 

 

 

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By petersaxton
16th Jan 2016 15:42

Magic

"Compared to what I did 5 years ago, I think wizard sums it up."

Sounds like magic to me.

 

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By Jamesm2705
20th Jan 2016 10:18

I see that the petition titled Scrap plans forcing self employed and small business to do 4 tax returns yearly is to be debated in parliament on Monday 25th and can be watched live at Parliament live.tv. 

You can submit your views via Twitter using #HoCpetitions until 10am on Thursday 21st January. A summary of the tweets will be provided for MPs ahead of the debate.

I know that the poor wording of the petition has already allowed the Government to effectively sidestep the issue with their official response and the cynic in me thinks that they will go ahead regardless of public opinion but surely if you feel so strongly about this issue as I and thousands of others do, then there is no point just bleating on if you are not prepared to do anything about it. With this in mind, tweet away.

One other thing, (and this depends on just exactly what is required when all of this comes to fruition, and forgive me if this has already been said) If quarterly submissions are to be implemented as of April 2018, we would need to prepare annual accounts and tax returns for all clients for the tax year ending 5th April 2018 and then also deal with the new quarterly submissions for the 2018/19 tax year effectively doing 2 years work in one year give or take, all while coping with all of the logistics of the transition.

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By petersaxton
20th Jan 2016 14:08

Possibilities

Jamesm2705 wrote:

One other thing, (and this depends on just exactly what is required when all of this comes to fruition, and forgive me if this has already been said) If quarterly submissions are to be implemented as of April 2018, we would need to prepare annual accounts and tax returns for all clients for the tax year ending 5th April 2018 and then also deal with the new quarterly submissions for the 2018/19 tax year effectively doing 2 years work in one year give or take, all while coping with all of the logistics of the transition.

If you are allowed one month to complete the quarterly submissions then the two sets of accounts (one a year and one of three months = 15 months accounts) would need to be done in four months. Maybe HMRC would only want P&L a/c's for three monthly submissions so in theory you may not need to know the previous years accounts before doing the three monthly submissions.

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By elaine39
07th Mar 2017 13:26

I think I'll find a new job.

I already have enough problems getting paperwork and information from my clients. I do not wish to submit tax returns I prefer to leave that to an accountant, so how will that work four time a year ?? and will I be able to go on holiday, ever ?? I'm a sole trader/book-keeper so there is no-one to cover me whilst I'm away, so with all these extra deadlines I doubt it.

Rant over, now time to re-think my future :-(

Or to increase my fee's 10 fold :-)

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By elaine39
07th Mar 2017 13:26

I think I'll find a new job.

I already have enough problems getting paperwork and information from my clients. I do not wish to submit tax returns I prefer to leave that to an accountant, so how will that work four time a year ?? and will I be able to go on holiday, ever ?? I'm a sole trader/book-keeper so there is no-one to cover me whilst I'm away, so with all these extra deadlines I doubt it.

Rant over, now time to re-think my future :-(

Or to increase my fee's 10 fold :-)

Thanks (0)
avatar
By elaine39
07th Mar 2017 13:27

I think I'll find a new job.

I already have enough problems getting paperwork and information from my clients. I do not wish to submit tax returns I prefer to leave that to an accountant, so how will that work four time a year ?? and will I be able to go on holiday, ever ?? I'm a sole trader/book-keeper so there is no-one to cover me whilst I'm away, so with all these extra deadlines I doubt it.

Rant over, now time to re-think my future :-(

Or to increase my fee's 10 fold :-)

Thanks (0)
avatar
By elaine39
07th Mar 2017 13:27

I think I'll find a new job.

I already have enough problems getting paperwork and information from my clients. I do not wish to submit tax returns I prefer to leave that to an accountant, so how will that work four time a year ?? and will I be able to go on holiday, ever ?? I'm a sole trader/book-keeper so there is no-one to cover me whilst I'm away, so with all these extra deadlines I doubt it.

Rant over, now time to re-think my future :-(

Or to increase my fee's 10 fold :-)

Thanks (0)

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