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MTD ITSA guidance leaves vendor questions unanswered

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While the arrival of the latest Making Tax Digital guidance answers questions about several core parts of the project, the documents also leave much in limbo for the software firms supposedly central to its delivery.

31st Aug 2022
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Last week’s release of Making Tax Digital for income tax self assessment (MTD ITSA) guidance cleared up a number of top-level issues, including how to check eligibility and sign up for the project.

However, as pointed out by AccountingWEB’s consulting tax editor Rebecca Cave, the documentation does not cover the software side of the programme, leaving several key questions unanswered for vendors and the users who will rely on them to file MTD ITSA returns and submissions. 

AccountingWEB spoke with several software firms to get their thoughts on the documentation and find out what they’d like to see next from HMRC and the MTD ITSA project.

Unanswered questions

For TaxCalc’s director of product compliance, Dean Shepherd, the ITSA guidance falls short of its MTD VAT equivalent (VAT Notice 700/22) and leaves several key questions unanswered:

  • To what extent do digital links need to be maintained as part of the end-to-end process? Just the quarterly updates or right through to the end of period statement (EOPS) and final declaration?
  • Can a taxpayer submit quarterly updates using the cash basis and then revert to accruals basis for the accounts/EOPS and vice versa? Or, as the software developer forum suggests, would a change of basis at year end mean all quarterly updates would need to be refiled under the same basis?
  • How will authorisation be handled for taxpayers with a bookkeeper preparing and submitting quarterly updates and an accountant preparing and submitting the EOPS?
  • How will identification be handled for taxpayers without a national insurance number in the standard format?

Rob Ellis, CEO at BTCSoftware told AccountingWEB that while he was glad to see a core set of questions addressed by the latest MTD ITSA guidance, much is left in limbo.

“On behalf of our customers, I would highlight the grey areas remaining around quarterly reporting dates as a priority topic requiring clarification, as HMRC is planning to transition many of those affected by basis period reform in the 2023/24 tax year,” said Ellis. “This has been a common topic of conversation when touching base with accountants since the basis period reform policy paper was released in October.”

Jenny Strudwick, product director, IRIS Software Group called the guidance a good starting point and pointed to the additional documentation that will follow. “We expect to see additional detail, real-life examples and scenarios being released over the coming months,” she told AccountingWEB. “The challenge now is to move at pace. The accounting industry continues to digitally transform, and we need to make sure all modifications in legislation and guidance around these changes keep up with this momentum.”

Does HMRC trust software?

HMRC meets regularly with a range of vendors as part of a steering group to work on the MTD project, swap advice and build guidance. However, one developer who asked not to be named felt that the process was not delivering on its initial ambitions.

“HMRC doesn’t know whether to trust software or not and that’s deeply rooted,” they said. “If we raise something that’s important it tends to be sidelined and HMRC presses on ahead regardless – they don’t seem to be listening to software developers.

“It’s government policy to increase software usage but if it’s important then we have to use the HMRC site,” they continued. “And it’s not just MTD. Look at the Verify service. It was designed to allow trusted third-party vendors to verify people’s identities, but HMRC turned around and decided they wanted everyone to use the government gateway instead.”

For John Hemming, founder of MTD ITSA-approved tool Cirrostratus, the experience has not been as challenging, but he remains philosophical about what the process was likely to achieve. “HMRC is a massive organisation, so acting on any meetings or engagements like this is a challenge,” he said. “They’ve expressed a willingness to talk about things, which is a positive, but whether that’ll result in changes remains to be seen.”

Error correction and sign-up issues

When it comes to specific crunch points raised by software firms, vendors highlighted a number of crucial areas where progress had stalled or was yet to be made.

Jon Martingale, group product manager at FreeAgent, said the current process for agents to sign clients up on the MTD ITSA pilot remains somewhat of a Gordian knot for developers. “It is very manual and does not feel scalable, and this feels like something both sides [HMRC and the vendors] need to figure out. We need accountants to sign up their clients to test the system, but if it takes too much time then they won’t do it and we won’t be able to improve the process,” said Martingale.

TaxCalc’s Dean Shepherd flagged several frustrations the software community has highlighted, including one around correcting errors in the system. “Software developers have been told since the outset of MTD ITSA that upon identification of an error or omission one should ‘re-send the relevant quarterly update’. Despite this being made clear to software developers, conflicting advice has been given out by HMRC representatives when asked directly,” said Shepherd.

“This is so obviously impractical, particularly where you have a VAT-registered client who will have to make a similar adjustment on their VAT return but, of course, not by refiling the original, but instead by reflecting the error or omission on the next available VAT return. Will HMRC leave it to the software developers to reconcile that conundrum?”

Shepherd also added that software developers have been advised that HMRC will not be creating any facility that allows agents to sign up their clients for ITSA in bulk. “HMRC has gone so far as to warn software developers against circumventing this by creating any such functionality themselves,” he said.

Wider communication needed

One issue that came up in the majority of conversations with software vendors was a lack of awareness in the general public about the upcoming changes. HMRC is expected to roll out a wider communications package at some point in autumn 2022, but with the mandation date of April 2024 approaching the feeling among vendors is this can’t come soon enough.

FreeAgent’s Martingale told AccountingWEB that the current guidance goes a lot into the how taxpayers can sign up, but doesn’t help with the why. 

“At this point in time, I’d like to see more education-level information for taxpayers to help them understand the considerations. What is MTD ITSA? Why should small businesses sign up? What are the potential benefits?” he said. 

Martingale added that there was a lack of knowledge in the general public about changes to the income tax self assessment regime, and called for more straightforward language that a wider audience will understand across a broad range of communication platforms.

BTCSoftware’s Ellis said: “I consider it our responsibility to use our links with HMRC as developers to advocate for accountants; our community needs better communication of the legislative rules to the public.”

Replies (28)

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By ireallyshouldknowthisbut
31st Aug 2022 17:57

This little snippet is staggering:

"software developers have been advised that HMRC will not be creating any facility that allows agents to sign up their clients for ITSA in bulk. “HMRC has gone so far as to warn software developers against circumventing this by creating any such functionality themselves,”

Why on earth would you actively block development of software tools to remove repetitive data entry tasks? Its child like dogma and demonstrates a fundamental weakness in leadership at HMRC that they cant accept any criticism of this failed project, and act on it.

The project is definitely dead now. The detail us accountant know about is finally starting to drip through to HMRC (and they haven't even got to the hard bit yet - the tax return). I am surprised the software vendors are still putting any serious resources into it given the basic lack of a spec at this point.

Thanks (6)
Replying to ireallyshouldknowthisbut:
Chris M
By mr. mischief
31st Aug 2022 18:10

My latest MTD VAT mess-up by HMRC:

VAT returns not yet submitted (as currently reported by HMRC):

From To Due date
1 Aug 2022 31 Oct 2022 7 Dec 2022
2 Feb 2020 31 Jul 2022 7 Sep 2022

Why would anyone even hire an IT guy who'd allow a 27 month VAT period to be keyed into the system without at least throwing out an exception report?

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Replying to mr. mischief:
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By adam.arca
01st Sep 2022 12:59

mr. mischief wrote:

Why would anyone even hire an IT guy who'd allow a 27 month VAT period to be keyed into the system without at least throwing out an exception report?

Not had a 27 month one but I have had a 21 month one where HMRC decided that the client contacting them to change his address was actually telling them he had ceased trading! And this was a client who rang them assiduously and did everything he could to resolve the issue.

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Replying to ireallyshouldknowthisbut:
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By adam.arca
01st Sep 2022 12:55

ireallyshouldknowthisbut wrote:

I am surprised the software vendors are still putting any serious resources into it given the basic lack of a spec at this point.

This.

I suppose the pot of gold (or, more likely it seems, the crock of fool's gold) at the end of the rainbow is keeping them hooked and it's interesting how mealy-mouthed all the developers quoted in this article were. It seems pretty obvious that robust criticism of HMRC is now a gulag-style offence.

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By GHarr497688
31st Aug 2022 18:38

How does it work then. I would be unable to get the quarterly updates ready and filed on time. This year alone out of 70 clients , 20 still have not provided the data to complete the SA . I expected these clients to provide the data before 31st December . It would be impossible for me to file so many times and the clients would make so many mistakes with any sort of software from Cloud Solutions to Spreadsheets. I could write a book about the reasons why. This a a very worrying intervention by HMRC leading to inaccurate Tax Returns and Accounts.

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Replying to GHarr497688:
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By DMBAcc
01st Sep 2022 10:58

Why do you think I am retiring? Sadly MTDIT will never be allowed to be a reason why a small business ceases trading. HMRC will insist it is COVID, War, Inflation, Energy, the environment and anything else they can think of but NEVER MTDIT. Lunatics and Asylum come to mind. Or Pxssup in a Brewery. I weep to see how low we have come. And nobody seems to care, least of all the Government.

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Replying to DMBAcc:
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By Geoff56
01st Sep 2022 12:17

Well, it certainly looks like being the thing that pushes me into retirement.

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By North East Accountant
01st Sep 2022 09:27

"they don’t seem to be listening to software developers."

Well we know HMRC aren't listening to accountants, but I was at least hopeful that they were listening to the big software developers, cos they have people onboard who know what they are doing.

For goodness sake HMRC, wake up and smell the coffee, you are sleepwalking into a total and utter nightmare, entirely of your own making.

Thanks (13)
Replying to North East Accountant:
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By RogerMT
01st Sep 2022 10:17

Well, the entire UK government managed to sleepwalk into a total and utter nightmare, entirely of their own making with Brexit, so it's nothing new! :)

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Replying to RogerMT:
By ireallyshouldknowthisbut
01st Sep 2022 10:23

RogerMT wrote:

Well, the entire UK government managed to sleepwalk into a total and utter nightmare, entirely of their own making with Brexit, so it's nothing new! :)

Quite. See also the energy crises and inflation.

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Replying to North East Accountant:
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By lh3f9764bg1g
01st Sep 2022 10:35

I very much doubt that the software developers are raising the issue of what I see to be the virtual impossibility of this project. After all . . . . . it is going to be a bonanza for them. I imagine it already is. As for HMRC listening to accountants, well . . . . . are the professional bodies representing the views of their members to HM GOV? It seems not. What I think is interesting - and what I am hanging my hat-of-hope on - is the total lack of an advertising campaign targeted at the general public. Any taxpayers (customers!) that I know who are aware of MTDITSA have not learned of it from HMRC. For those of us who were torturing the calculator when Self Assessment started there's a strong memory of the then campaign which was very extensive. I'm hoping that the lack of a similar campaign this time around is an indicator of second thoughts. One thing that's for sure . . . . . should they embark on such a campaign then they will be committed to this idiotic project. Of course if and when they do start informing the public they are going to have quite a task ahead of them as many people do not buy newspapers nowadays nor watch television. How are they going to reach their target audience in this digital? Facebook? Pah!

Thanks (7)
Replying to lh3f9764bg1g:
Tornado
By Tornado
01st Sep 2022 13:36

"when Self Assessment started there's a strong memory of the then campaign which was very extensive."

The way that Self-Assessment was introduced was carried out in a logical and rational way. For example, the original intention was that everyone would submit a Basic Self-Assessment Tax Return with more complex situations requiring additional pages, but sensibly, HMRC realised that they could not cope with so many Returns and just limited the scope to those whose tax affairs could not be dealt with through PAYE. A stark comparison to the arrogant approach of today's HMRC with perhaps many of those in charge of MTD not having been born when SA was introduced.

There were also later, extensive TV ads with celebrities telling us that "Tax need not be Taxing". The problem was this was obviously a lie and the pubic easily saw through this which is exactly what will happen if HMRC now try to tell people that MTD for ITSA is good for them.

With such trivial distractions as a massive increase in the cost of living, war, shortages of labour and materials, travel problems, and myriad other problems that people face these days, and the very real prospect that many businesses will have to close down, who is going to be the slightest bit interested in a Vanity Government Project called MTD for ITSA that is likely to make their lives an even greater misery.

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Replying to Tornado:
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By DMBAcc
01st Sep 2022 16:50

Let's hope you are right. However, I still don't trust HMRC/Treasury to pull the wool over the eyes of ministers. After all it won't be that difficult given the average IQ of the current bunch.

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By steve 12321
01st Sep 2022 10:25

We need to provide letters to client to lobby MPs to get some sense rammed into government / HMRC this is a stupid and counter productive to a strong economy as you are making it harder for people to earn money as they have to spend on pointless stuff like this. It needs to be as easy as possible to
- be self employed
- employ staff
- run business
- be a landlord
Etc etc
Not force silly tax systems on people and fine them for non- compliance

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By Peter-S
01st Sep 2022 10:53

"HMRC is expected to roll out a wider communications package at some point in autumn 2022"

so, just as accountants are getting in to the busiest 3 months of their year. Sounds about right.

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By Mr J Andrews
01st Sep 2022 12:37

About time the only sector to gain any advantage from this fiasco should also face problems.

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By steve 12321
01st Sep 2022 20:27

I feel sorry for people (accountants and taxpayers) who have to suffer this nonsense going into a very challenging time. It’s bad enough regardless. It’s disgusting really !

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Morph
By kevinringer
01st Sep 2022 21:10

“If we raise something that’s important it tends to be sidelined and HMRC presses on ahead regardless – they don’t seem to be listening to software developers."

No surprise there because HMRC have not been listening to accountants or the professional bodies either. Seems like they don't want to listen to anyone. If HMRC doesn't listen to anyone, MTD ain't going to work.

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Morph
By kevinringer
01st Sep 2022 21:12

"Jenny Strudwick, product director, IRIS Software Group called the guidance a good starting point..."

The MTD ITSA pilot started over 5 years ago in April 2017. Yet IRIS said we're only at the starting point now. If it has taken over 5 years to get to the starting point, no way is this going to be ready in less than 2 years.

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Morph
By kevinringer
01st Sep 2022 21:15

"We need accountants to sign up their clients to test the system, but if it takes too much time then they won’t do it and we won’t be able to improve the process"

It's not the sign-up process that is putting us off, it is the huge amount of time required to digitise transactions. Why should clients crash-test the software at the client's expense? If HMRC and the software industry want more people to participate in the pilot, they're going to have to put their money where their mouth is and pay accountants and taxpayers to participate. After all, accountants and taxpayers will do all the crash-test-dummy work and the software industry will reap the rewards.

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Morph
By kevinringer
01st Sep 2022 21:19

“This is so obviously impractical, particularly where you have a VAT-registered client who will have to make a similar adjustment on their VAT return but, of course, not by refiling the original, but instead by reflecting the error or omission on the next available VAT return. Will HMRC leave it to the software developers to reconcile that conundrum?”

The software industry should be able to sort this out. But most taxpayers use spreadsheets built by businesses and accountants ie people who are not professional software developers. It will be beyond the ability of these DIY spreadsheeters to create a spreadsheet that will enable a late transaction to be corrected in the next VAT return, but at the same time correct a prior ITSA return. It ain't going to happen. That's not how we deal with it currently anyway, see https://www.accountingweb.co.uk/any-answers/how-do-you-deal-with-previou....

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By AndrewV12
02nd Sep 2022 10:06

Liz Truss pledges to cut red tape and ‘unleash’ British food

Okay forget the food bit, if Liz Truss pledge's to remove red tape surly MTD must be on the top of her list.

Surely.

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Replying to AndrewV12:
Morph
By kevinringer
02nd Sep 2022 10:20

I had a meeting with my MP about MTD. My MP was self-employed in a former life so had had dealing with HMRC and could see the horrendous workload it would place on the self-employed. He wrote to HMRC who said how wonderful MTD was, how it was easy peasy, cheaper than other record keeping systems, accurate etc. My MP then had to chose between my view and HMRC's view. I'm a nobody so HMRC's view prevailed. Liz Truss might hear us and consider scrapping MTD, but she will hear HMRC louder and their view will prevail, no matter how wrong they are.

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Replying to kevinringer:
Tornado
By Tornado
02nd Sep 2022 10:43

" Liz Truss might hear us and consider scrapping MTD, but she will hear HMRC louder and their view will prevail, no matter how wrong they are."

I am not so sure about that. I believe that she is a Chartered Management Accountant and her Husband is a Tax Accountant in Practice in Norfolk.

Everyone knows that AWEB is probably THE leading source of information and comment for the Accountancy & associated professions,so I think the chances of one of them reading about MTD on AWEB is quite high, and it will be abundantly clear to any Accountant that MTD is a not going to achieve its aims ..... ever.

The MTD Project is POINTLESS but the Government seem hell bent on pushing it though even though it is destroying all the excellent existing tax administration systems in its way. The MTD Project is nothing but pointless RED TAPE that needs to ripped away and burned in the re-cycling furnace where it might do at least some good.

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Replying to Tornado:
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By Geoff56
02nd Sep 2022 12:23

"I think the chances of one of them reading about MTD on AWEB is quite high"

I hope you're right, I really do; but I'm not very hopeful.

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Replying to AndrewV12:
By ireallyshouldknowthisbut
02nd Sep 2022 11:39

.

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By AndrewV12
02nd Sep 2022 10:06

Liz Truss pledges to cut red tape and ‘unleash’ British food

Okay forget the food bit, if Liz Truss pledge's to remove red tape surly MTD must be on the top of her list.

Surely.

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By listerramjet
02nd Sep 2022 23:06

Should we be surprised that HMRC is trying to provide a more modern approach to data submission, but in doing so is going backwards rather than forwards. One of your commentators has rightly moaned about the lack of a specification, but it is actually difficult to discern anything that looks like strategy in this farrago. What we actually see is a continued attempt to shoehorn the administration of what is incredibly complex legislation into a schema that is not even designed properly. Rather than "making tax digital" what we need is "making tax comprehensible"!
One thing that might help is is they properly embraced the idea of tax payer as customer. The current approach is more like tax payer as potential criminal!

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