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MTD for ITSA
BrianAJackson

MTD for ITSA: ‘The worm that turned’

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In the biggest Any Answers thread ever, AccountingWEB members shared their thoughts on the difficulties of implementing MTD for income tax (MTD ITSA) ahead of April 2023.

2nd Sep 2021
Community Assistant AccountingWEB
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MTD ITSA has been a black hole looming on the horizon for many in the profession since 2017. Faced with a massive expansion of online filing and digital record keeping, countless accountants are threatening to hang up their calculators for good to avoid implementing the new MTD regime with their clients.

During the past week, AccountingWEB members took to our Any Answers in their hundreds to vent their frustrations. A recent straw poll post attracted the most comments and votes from members planning to retire or scale back their operation rather than having to deal with the oncoming MTD storm.

“Enough is enough”

In what AccountingWEB historians believe to be our biggest ever thread, member jon_griffey declared that enough was enough. “Time to do something about the MTD ITSA fiasco,” he wrote.

“As a profession we have put up with all the stupid initiatives heaped on us over the years, but really MTD ITSA is the final straw,” he said. “I am loathe to say trade union, but is it now time that some sort of professional accountants association was formed that takes a more confrontational approach and loudly and rudely calls out this BS?”

Raking in over 350 comments in less than a week, it’s clear that MTD ITSA has gotten under the profession’s skin.

Vive la resistance

Among the overwhelming number of responses were many frin accountants who agreed on the need for an MTD overhaul. “I think that now the only thing that would actually make HMRC listen would be an accountants’ strike (say on 31 January) or if enough small practitioners refused to do quarterly filing for MTD,” said Bluebaron.

“If you want to get the attention of those in power (politicians or civil servants like HMRC) then you have to withdraw what sustains them - votes and tax respectively,” agreed Hugo Fair.

“We really need someone of Nigel Farage standing to champion the cause. I think we all agree that the quarterly submissions with a final amendment is both ludicrous and has no foundation or purpose. I don’t even see the need for clients to be digital as long as we do it for them once a year,” added Johnjenkins.

Client confusion

Countless comments speculated about the plausibility of clients being able to turn around the necessary information within the new MTD timeframe. “How are you going to train the average small self employed individual to give you information quarterly when it's often extremely difficult to get it annually?” asked Bernard Michael.

“No software can do the work by magic wand! You need time and staff and resources and clients co-operating to do the actual work writing the books before they hand them over to your bridging software,” added Neanderthal.

“The MTD returns are going to be pretty similar to doing the normal tax returns using Excel, so it could be five, 10 or 15 extra returns [a year], so saying four times the time is a conservative estimate. And with all of them with the same deadlines, it’s simply going to be impossible for us to do it,” commented Kenny achampong.

“It is not just a case of keeping things moving every month/quarter - it is scaling that process up by however many clients need to submit MTD for ITSA returns, juggling it with other work in the practice all of which is already deadline driven, bringing clients on board with the quarterly reporting that have never had to deal with their accounts more than once a year previously and dealing with their questions and issues as they grapple with the software,” chimed in Jimess.

Make the most of ITSA

However, some members disagreed with jon_griffey, claiming that with the MTD train rolling on at full speed, there may be no other option than to get onboard. 

“Well, good luck with that,” said Lionofludesch. “Your professional bodies don’t support you. The only response we can make is, ‘We told you so’ after the entire system goes teats up.”

Creamdelacream chipped in: “To me this whole thing is a storm in a teacup, it’s really not a big deal and there could be many benefits to requiring businesses to complete their bookkeeping more regularly. If it’s going to be mandatory, why don’t we focus on the positives the benefits can bring rather than just being outraged and complaining?”

Peter Saxton struck a similar note: “It seems like several people who don’t like MTD for ITSA are coming up with straw man arguments. They claim that accountants who think that problems can be overcome are saying things like, ‘Bank feeds will solve everything’, or ‘It’s only five submissions that are needed.’ We would be better off discussing real problems and real solutions.”

Behind the HMRC-enes

Some were sceptical about the reasons behind the MTD onslaught, with one member hatching an HMRC conspiracy theory.

“The more I think about this the more I think that what HMRC are actually looking for is everybody's income (hence why they don't seem to care about expenses). They’re thinking this will expose the black economy. But I don't see how it’s going to make any difference at all. They could have got legislation to have the banks report all credits to everybody’s bank account but they’ve presumably realised that this is going to be utter rubbish because people move money between current accounts and savings accounts. But I don't see how asking the taxpayer to do it is going to make things better,” said NotAnAccountant2.

“Now you are seeing the full consequences of HMRC's slippery slope,” added Justin Bryant. “There is something called the Tax Professionals Forum Group that regularly meets with HMRC and are supposed to keep things like that in check, but guess what? Yes; that’s right, they are all appointed by HMRC (like the supposedly independent GAAR Panel). It will be the mother of all fiascos. How will HMRC and the FTT have the capacity to deal with all the penalty appeals etc? It has been commented elsewhere here today that the ICAEW etc are effectively only run by and for the benefit of the Big Four, so don’t hold your breath there.”

DKB-Sheffield responded: “I don't believe for one minute there will be an entire backtracking (or even a delay) by HMRC on what they see as the answer to their problems (albeit not - in many cases - a simplification of problems for their ‘customers’). It’s HMRC’s pet project and like it or lump it, we’re stuck with it.”

For the sake of balance and to defend the professional bodies in this instance, Rebecca Cave reported on 20 August that the ICAEW, ICAS, CIOT, ATT and LITRG had come together to publish a joint letter calling on the government to delay MTD ITSA to prevent the resulting chaos and disorder from disrupting the tax system. Like several recent MTD-related posts, this article generated another 100+ comments.

Simple solutions

With so many fixes flying around such as raising the threshold and increasing fees, I’msorryIhaven’taclue pulled together a checklist to guide firms through the fundamental overhaul that the next phase of MTD will require:

  • Profitability: Back to basics by using timesheets to measure the wheat and identify the chaff
  • Collaboration: Encourage client participation in preparing books to whatever level they desire, beyond which work becomes chargeable
  • Graded labour: Hire very junior clerical staff to chase up clients for their records, and match invoices to bank feeds
  • Annual contracts: Issue fixed period 12 month contracts, with no auto-renewal, to avoid client dependency and facilitate fee reviews.

Member Winnie Wiggleroom also cleared up some confusion around practical points raised, including:

  • You don’t have to prepare accounts four times a year now instead of one
  • Banks feeds will not solve all of the problems
  • You will have to find a way to capture cash purchases, for example with a suitable smartphone app
  • All the work does not need to be done within a month
  • It is not going to be quadruple the work
  • Communication with clients is key to getting the information four times annually.

What do you think of the MTD for ITSA changes? Share your thoughts below or feel free to post in our Any Answers forum.

Replies (25)

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By Paul Crowley
02nd Sep 2021 16:18

The MTD thing is unworkable for so many clients
We have been discussing consequences for the clients with agents
I have so far not yet discussed MTD with a client that had heard about MTD from any source other than me
The unrepresented taxpayers are being thrown off a cliff by HMRC and HM Gov

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By bluebaron
02nd Sep 2021 17:16

It's a disaster, especially bringing in every single affected client all at once in April 2023...but I have given up hope that HMRC will listen to our very reasoned arguments.

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Replying to bluebaron:
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By Paul Crowley
02nd Sep 2021 18:38

Same here
Can probably get quite a few out as digitally excluded, but not as many as currently operate in paper
Numerous double filers as self employed, rent and partnerships
My Saturday review skimmed over the VAT registered clients as they at least have a system already in place
Just do not see where the extra time will come from as I have ever such a lot of minoes and not many big fish
The minoes' fees will be at least double for probably 3 times the work
And no doubt I will be accused of profiteering.
Any such comment is likely to be the end of relationship and the suggestion that there are people cheaper than me so best look for them before they get too busy with the brand new batch of people that were DIY

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Replying to Paul Crowley:
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By bluebaron
03rd Sep 2021 12:34

I totally know where you're coming from. When I eventually managed to get just one single client exempt from MTD VAT, it was a right saga, so I'm not even contemplating that route for MTDfIT, for say £300 fee clients.
I agree that minoes' fees would double.
I'm telling clients to look elsewhere now, but wondering whether or not to keep a couple, in case it blows up in HMRC's face, and mandation / penalties are delayed....but, then would that buy them just one more year to 2024..?

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By Hugo Fair
02nd Sep 2021 21:20

For obvious reasons, the majority of comments/concerns raised on Aweb have been with regard to the impact on represented taxpayers ... but there are even more unrepresented taxpayers out there.

And it is they who will either break the system or make it pointless ... because the chances of all of them maintaining a seamless 'audit trail' of digital records all the way through to their quarterly reports is as close to zero as can be measured.

Even after ignoring refuseniks and those who learn how to 'game the system', an honest taxpayer who doesn't possess a mobile phone or use online banking (and has no clear understanding of accounting protocols) has no chance of collecting data that doesn't either need some immediate manipulation (prior to reporting) or later corrections/adjustments (post-reporting).

So the 'chain' that HMRC are mandating will be broken time after time - which removes the main justification for the whole shooting-match. And worse, HMRC will be unaware of this in the vast majority of cases unless a coincidental investigation is launched - which removes any remaining justification.

What is left? An expensive and likely to fail IT project that will damage HMRC's reputation with the general population (not just accounts and agents), with a resultant diminution of tax collected more likely than any erosion of the 'tax gap' (that has never been properly demonstrated)!

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Replying to Hugo Fair:
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By DJKL
02nd Sep 2021 21:44

Pretty fair summary, most clients can attempt the steps that will be needed but they also will not be able to spot their own mistakes within the required processes, likely leading to submissions in a lot of cases that are junk.

We just need to look at some of the efforts the DIY entities produce re their company accounts submitted to Companies House, or read some of the questions on Any Answers, to know there will be a lot of rubbish submitted.

Whilst I cannot see myself coming out of retirement to do day to day compliance work I could possibly see myself tempted into doing a bit of targeted study and operating a niche practice of defending enquiries.

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By biff1001
03rd Sep 2021 09:19

I'm sick of this sh*t!
If HMRC want to even out the tax take then just get everyone on a monthly standing order.
No need to clog the system with garbage data!

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Replying to biff1001:
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By 55378008
03rd Sep 2021 11:57

The implementation is a complete omnishambles for sure.

That said, the current filing regimes are the equivalent of producing one set of accurate management accounts annually that are six to nine months late and then working in the dark until the next set arrive. So I'm all for more frequent and timely reporting.

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By sammerchant
03rd Sep 2021 10:05

"You will have to find a way to capture cash purchases, for example with a suitable smartphone app"

Any (cheap) suggestions?

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By SteveHa
03rd Sep 2021 10:10

@Tallula - it's a shame you didn't mention the impossibility of following that thread with the current forum layout.

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By johnjenkins
03rd Sep 2021 10:32

A good summary, Tallula and I'm glad Aweb picked up on this, although this controversy will be with us for many years to come, second only to IR35. Why HMRC try and buck the trend in the name of error, tax gap, beneficial, tax liability, etc. when practically all of us know it's a useless piece of legislation that can't possibly work. By all means get all business digital over a time scale that takes into consideration most small business people are not bookkeepers or Accountants. This quarterly update thing is just too ludicrous for words with really no basis or purpose. VAT registered business that do quarterly vat returns (some just do vat, some do quarterly accounts) still have errors, so doing things quarterly does not eliminate errors. How many Accountants regularly find mistakes in vat returns?
Now if HMRC were honest and come out and said "the reason for MTD in the manner we are bringing it out is so that eventually we will be able to track and cross check all transactions, which will alleviate the need for us to have to legally open enquiries or investigations," they would have a lot more credibility than trying to pull the wool over our eyes. How can you trust an organisation that lies and is totally inept? I know I'm not perfect but at least I put my hand up when I make a mistake.

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By lh3f9764bg1g
03rd Sep 2021 11:02

The worm may have turned but the worm is, in fact, impotent.

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Replying to lh3f9764bg1g:
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By johnjenkins
03rd Sep 2021 11:15

It would appear so but then a lot of people thought we wouldn't come out of the EU. Never underestimate the will of the people.

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By johnjenkins
03rd Sep 2021 11:14

I'm just wondering if HMRC have considered the amount of people that will retire rather than go on this daft update procedure. I'm not only talking about Accountants who will go to sunnier climes, but construction Industry workers who are at the "shall I carry on or not scenario". A loss of take to the treasury and more payout in pension credits (or whatever they are now called) will certainly be a result. If the Construction Industry lost many of it's knowledgeable workforce then it could mean major problems.

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By lordburnside
03rd Sep 2021 11:17

Does anyone know how this is going to work?
I have been telling clients to keep their receipts for 40 years - they don't.
I am not sure if capturing cash expenses is going to work using a phone. What about credit card payments? We will be relying on clients keeping receipts and also photographing them.
I was hoping that all clients would just use the bank for everything and I would download each month as a spreadsheet. I love spreadsheets! 3 spreadsheets one upload, 4 uploads plus some adjustments = set of accounts in an ideal world.
Seems others want me to use software and upload paperwork onto it and bank feeds. That makes life more difficult and there is an expense for my client. I use spreadsheets for most clients.
I want to use spreadsheets but the figures have to comply with the regs so no copy and paste etc.
Its going to spoil my fun.
Probably I am going to have to use software (but not the ones on the TV that do it themselves).
Then there is the ridiculous deadline to comply with. I have emailed the Treasury with my views and asked for a 3 month deadline at least in year one when we have accounts to do for previous year and current year. My blood pressure isn't improving.

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Replying to lordburnside:
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By Jimess
03rd Sep 2021 13:08

Spreadsheets are great if the client sets them up properly - they can be imported directly into VT and the majority of the posting work is done. However, yesterday I spent a really frustrating time trying to work out why a spreadsheet import would not work for a client that had recently started to use our template. The problem was decimal points - not only between the pounds and pence but also at the end of every figure! So, lots of wasted hours going through 3 months worth of transactions removing unnecessary decimal points to enable the figures to be recognised by the software and a long conversation with the client who was unable to grasp why it was such an issue. And HMRC think that everyone will just be able to pick up a piece of software and understand what to do with it - Oh Lordy!

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By 55378008
03rd Sep 2021 12:00

In 3-4 years I'm optimistic we'll once again enjoy the joys of January daylight. But something tells me it'll be a case of a step-back before going forward.

Hopefully open-banking and the growing number of integrations will ease some of the burden and convince those who are technologically willing and able that 'little and often' really does trump 'never and then forgotten'.

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By geoffmw1
03rd Sep 2021 12:09

surely the answer to this is an annual tidy up of things once the accounts are finalised. There will also presumably be scope for submission of revised annual tax returns.

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By tedbuck
03rd Sep 2021 12:22

When all is said and done HMRC is not going to take the slightest notice. They want a new toy to play with so they can call themselves the most up to date tax collectors in the world. The fact that it really won't work is irrelevant - like IR35 it may take them 25 years to get it right and the net result will be much the same - drive a lot of people out of self-employment/contracting and cause a skills shortage in the business community.
Fantastic - at least it will make their jobs easier and HMG will be able to get rid of a lot of HMRC's staff.
Perhaps they will re-direct them to answering the telephone lines - now that would be useful.

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Morph
By kevinringer
03rd Sep 2021 13:00

HMRC ignore what the profession says. Why? I reckon it's because HMRC think we're running scared that we're going lose our sources of income because clients will be able to handle most things themselves. I think the HMRC powers-that-be genuinely think all clients need do is press the magic button and hey presto they've done their monthly submission. I'm only guessing, but I've come to this conclusion that since HMRC closed local tax offices, HMRC have lost person-to-person contact with their 'customers' and a massive gulf has opened between what HMRC's expectations are and what can realistically be achieved. We agents need to get our message across to HMRC that we're not scared of losing work, far from it, MTD is going to create loads of extra work. Work that someone is going to have to pay for.

The only way HMRC will see this is if HMRC conducts a pilot with a true cross-section of 'customers' including the digitally-challenged and digitally-excluded, and see how those 'customers' cope with MTD. Currently, HMRC isn't interested in how good or easy the MTD software is, HMRC are only interested in the software's interaction with HMRC. But we agents know the problem isn't that at all. The problem is the digitisation of transactions. If all our clients were able to digitise their transactions accurately and completely, I'd be in favour of MTD because it would make my life easier. But I know from the trials I've run with clients that the majority are incapable of doing any part of the process reliably, so I'll have to do it for them, and because I would need an extra 20 days a week, I'll need more staff, and someone has to pay for the staff. So the clients will end up paying the price just because HMRC have got it into their heads MTD is going to be 'better'. Meanwhile HMRC still have antiquated manual processes (look at the delays in processing SA1, CT refunds, VAT variations etc). But the icing on the cake has got to be that if we have a problem with our digital submission to HMRC, HMRC won't accept any digital communication from us, HMRC will only communicate using Victorian technology: phone or post. So MTD won't solve a single problem that exists within HMRC today. All this hassle and expense for nothing.

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By memyself-eye
03rd Sep 2021 13:58

I've heard that if I stay on my narrowboat, I'm exempt from MTD SH*TSA as I'm 'offshore'

Sounds like a plan!

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Replying to memyself-eye:
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By johnjenkins
03rd Sep 2021 14:05

Watch out that HMRC don't take the "offshore" status away and set up IRH2O

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By trecar
05th Sep 2021 10:20

My initial thoughts related more to the increased stress from more deadlines. HMRC do not have a good record of understanding the problems inherent in computerised systems driving human responses. By increasing pressure from more deadlines the natural response may be to become less accurate as time becomes an increasingly scarce resource. This will probably result in mistakes and short cuts leading to false data entries (not necessarily deliberate). More time will then be required to correct these errors thus facilitating more time pressures. Costs for the taxpayer will inevitably increase. As this type of scenario develops the reaction of HMRC can only be imagined. Of course we will all try our best to comply but the risks of failure become ever greater and the potential results of that failure more problematic.

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By tedbuck
10th Sep 2021 11:37

I just wonder if we are all missing the point of MTD forITSA. It isn't about HMRC getting more information more quickly - even HMRC should be able to see that what they get will be unreliable.
But what won't be unreliable will be the fines for being late. Easy dosh for HMG - not a new tax, not an increase in existing taxes but like the GDPR fines a great money spinner and HMRC can hold its smug head up and say 'it isn't our fault - you should have filed on time.'
Like everything in government these days it is just an excuse for HMG and its minions getting more and more money to squander on projects like NHS and HS2. Judging by what one reads their managements couldn't run a party in a brewery so now HMRC are added to the pile and we already know what their management is like - they can't even run telephone lines and answer mail timeously. Might as well abolish taxation and just fine everyone. No broken election promises then - except that they are so wasteful that they would still run out of money.

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Replying to tedbuck:
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By johnjenkins
10th Sep 2021 12:35

I've said a few times that we should all work for the government and they just give us pocket money.

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