Twelve days of MTD Christmas

Twelve days of Christmas
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On the first day of Christmas, my true love sent to me, a letter about MTD. Wendy Bradley has found 12 false assumptions to challenge about MTD.

Fact check

It wasn't actually at Christmas but on 9 November 2018, or to me but from HMRC's Ruth Stanier to the House of Lords Economic Affairs Finance Bill Sub-Committee, but that really doesn't scan.

Gifts of MTD

Making Tax Digital (MTD), keeping digital records and uploading the required totals to HMRC four times a year, will become mandatory three days after Brexit. It's the mandation that's the problem. If HMRC had said "this is a better way: try it and see" we could live with it. It's supposedly an agile system, after all. But, no: mandation for MTD is – allegedly – the gift that keeps on giving.

Costs not savings

Stanier’s letter explains how HMRC calculate the administrative burden of MTD, now that it has moved away from saying there would be a net saving to businesses.

Apparently, the original "saving" came from the very smallest businesses. Those businesses under the VAT registration won't be mandated to join MTD in 2019, so won't feel the "benefits". Now MTD is estimated to cost those businesses mandated into MTD an aggregate total of £37 million a year.

How did HMRC work this out?

First it divided businesses into two categories - those which are in MTD for VAT versus the smallest businesses which are not. It then divided the VAT registered business category into those which use tax agents, and those who handle the VAT return in house.

Three business sizes are in the "in scope" category of the first segment: "small" businesses with 85k-10m turnover (1.15 million of them), 30k "medium" businesses with turnover between £10 and 200m, and 2.5k "large" businesses with turnover over £200m.

Those businesses are assumed to undergo four types of change to comply with MTD:

  • From paper-based record keeping to digital MTD

  • From spreadsheet to MTD filing via bridging software

  • From spreadsheet to full-on MTD enabled software

  • Those already using software which then introduces MTD compatibility.

Then there are six different set up costings, ("Transitional Software setup cost assumptions", table 2) from £126 for a business moving from a paper-based system to full-on MTD to a generous estimate of £19 in total for a business with a turnover of over £200 million with their VAT processes outsourced to their agent. The steady state burden estimate (ie what it will cost businesses year on year once they are up and running with MTD) is estimated at £30 per business. My favourite part of Stanier’s letter is the bit where HMRC adds on (or is it subtracts?) five per cent from the number it first thought of to adjust for "optimism bias".

Dirty dozen

There must be a dozen false or at least questionable assumptions in Stanier’s letter. A plum example: it will only take an hour to install and familiarise yourself with new software sufficiently to operate MTD.

There are nearly as many bad or at least mildly dodgy statistics, such as - the cost of software licenses maxes out at £120.

There are statistical sleights of hand, see table 1 where the estimate of £120 steady state costs for the very smallest businesses is averaged out with the nil and negligible burden on larger businesses to come to an average of £30 across the piece.

It’s all a fairytale. You are as likely to find ten Lords a Leaping in your Christmas stocking as you are to find mandation for MTD three working days after Brexit, surely?

To put it another way, we have, to the tune of Twelve Days of Christmas;,

  • 12 false assumptions

  • 11 bad statistics

  • 10 sleights of hand

  • 9 dodgy data

  • 8 vanished savings

  • 7 kinds of process

  • 6 set up costings

  • FIVE PER CENT (optimism bias)

  • Four types of change

  • Three post-Brexit days

  • Two categories

  • And mandation for MTD

Merry Christmas!

About Wendy Bradley

Wendy Bradley is a retired tax inspector, now working as a freelance journalist.

Replies

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21st Dec 2018 17:21

If its true what Ruth Stonier says then surely she should be sacked as she clearly has no knowledge of the system she advocates .

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to GHarr497688
22nd Dec 2018 13:50

More likely to get a damehood.

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By DJKL
22nd Dec 2018 17:08

I am really sorry, of the total HMRC budgeted for to cover all business entities I have already hogged £5k for the software I have purchased (will cover the three main "group" entities- they are not part of a group but three distinct entities owned by the two families I work for managed by one team re the three) with a further £1k a year ongoing.

Actually only one is vat registered but I am not going to set up different ways of operating for each entity given I need staff who are not accounts staff to be comfortable with what they need to do and my eventual successor only having to get his/her head around one suite of software.

Now I admit what I have bought comes with some bells and whistles, an overall property management database tagged on to three distinct business entities, so my property staff /the system will create all rental invoices/ allocate costs to properties, within one software suite, and this will then flow into respective PL/SL/NL for each entity, and I then sort the back end.

The great thing is that if MTD progresses into other taxes over time then frankly HMRC , if trying in years to come to follow what the software does, will likely find it even more difficult to follow /more opaque than my previous systems - imho that would be a result.

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02nd Jan 2019 08:52

HMRC seem to have no idea of what things cost. I am in the "small" category above and keep impeccable paper records, paper in the sense that I type them in Word on my computer and print out the invoices etc. (I don't use or like excel).

I have not spent anything so far but I am obviously going to have to soon. I was hoping to find a free product that is bridging, non cloud and works with excel. I was also hoping HMRC could issue an easier to use list of software providers rather than a massive list. I had a quick look at the HMRC ilst and picked the first which had the word bridging in it and when I clicked it was for farmers. I do not have time to plough through a list of 150. At some point once I have tackled my tax return I shall have to have another look.

MTD for VAT, bridging software, free. Could be my websearch. I am resigned that it cannot bridge to a Word document so will have to key some stuff into excel although no way am I risking moving all my records over like that at once in case it goes wrong so I will have to keep identical duplicate sets.
(If not free I could live with a once only charge - I rarely pay for much monthly if I can help it).

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to EnglishRose
02nd Jan 2019 08:55

This is what I don't have time for. I went back to the HMRC list after writing the above. I see they do say bridging on more than I remember from before. So I clicked on the first one as HMRC is not paying me my hourly rate to find software presumably
https://www.123efiling.co.uk/
So immediately that is taking too long. I cannot see right away the cost per month which is the main first thing and I cannot immediately see if is cloud storage which I don't want. Also I don't like the idea at all of being tied to one software supplier in order to pay my VAT. What if I want to change software supplier every few months? I will be in a sense handcuffed to them presumably because of some kind of tie up.

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