Essex-based accountant Gary Jacobs will be the first practitioner to join HMRC’s Making Tax Digital (MTD) public beta testing programme, which goes live on Monday.
Jacobs, the managing director of Eazitax had been put forward by Thomson Reuters as one of its candidates for the MTD pilot. At the software company’s user conference in Coventry on Wednesday (pictured above), tax department officials told Jacobs that he had been selected as the first firm to join up.
Chancellor Philip Hammond eased the workload on unincorporated businesses and their advisers by giving those under the VAT threshold until at least April 2019 before they have to enter the new regime. But unincorporated businesses and landlords over the VAT threshold will start quarterly reporting from April next year and the launch of the pilot means that MTD is now a working reality.
HMRC head of customer understanding & engagement Julian Hatt told the conference audience that in the earliest stages of the pilot, “There will be things businesses can do that agents cannot.” But he was keen to build momentum behind the digital programme. “The important thing is to have conversation with clients and get them keeping records,” Hatt said.
There are actually two pilots taking place, one for keeping business records digitally, and one for the online services that will be used for agents.
Thomson Reuters tax product manager Mark Purdue elaborated on some of the constraints and mechanics of the beta test programme. “HMRC won’t be catering for everybody,” he said. “Certain people won’t be able to join.”
HMRC is picking a “handful” of agents who will join the pilot’s earliest phase - but accountants will be able to subscribe for the MTD pilot themselves as businesses. “You can subscribe yourself as a business and then go through and authorise yourself as an agent,” Purdue said.
The next step will be to align the firm’s existing self assessment agent codes to its new MTD code. There will be one MTD code per firm, regardless of its size, and all of the previous self assessment codes will need to be mapped to the new identity.
New clients will be able to sign up for the pilot later in April and by May it should be possible for them to file MTD updates.
Many of the accountants at the conference responded positively to the pilot announcement, perhaps because it meant there was something tangible they could to start preparing for the transition.
While setting out the department’s plans, HMRC’s Hatt respondent robustly to quibbles raised by accountants about the feasibility of getting their small business clients to adopt smartphone and online accounting tools.
“We are looking to try to change businesses attitudes and behaviour towards record-keeping,” Hatt said. “Nobody underestimates how difficult that will be. We’re not being too ambitious about how quickly we can get this perfect, but we are looking to make an improvement.
“In an ideal world, businesses would capture expenses and income in near real time. Recording them at the point of transaction will not be practical for some, but we would look for information to be captured at end of each day. I cannot say HMRC is going to be especially tolerant of businesses that retain records on paper and catch up at end of quarter.”
When an accountant asked whether a taxi driver who did not currently have the right equipment would be classed as digitally excluded and therefore exempt from MTD, the HMRC official replied: “An individual’s lack of proclivity to use technology is not an indication of digital exclusion. We are living in a digital age. The level of penetration and acceleration of the internet, smartphones and tablets is on a massively upward curve. We can’t be left behind. It’s a question of capability, not preference.”
The persistence of clients putting their receipts into boxes and taking them to their accountants to sort out was was at the root of HMRC’s mission to introduce digital record-keeping, he continued. “Nobody doing that record-keeping is doing anything wrong, yet we have tax gap of £8bn, a lot of which is attributable to poor records.
“The challenge of changing attitudes to record-keeping is not an easy one, but if we get to the point where information is recorded closer to the point of transaction, and that’s based on more consistent, accurate information, that should make everyone’s lives easier.”
The £8bn tax gap claim has become more prominent in HMRC communications in recent weeks, but is being met with scepticism from the profession - as witnessed at the Lords Economic Affairs committee hearing in February.
Tax lecturer and HMRC digital advisory group chair Rebecca Benneyworth added her doubts to the growing pile in recent talks.
“HMRC is being a little more open [that MTD] is about the tax gap,” she said at QuickBooks Connect.
“Their figures say that a large sum of money in the tax gap is attributable by mistakes by small business. They are ranking that as either failure to take reasonable care, or simple error. They have a big number attached to that.
“They’ve decided, if we get small businesses using technology to keep books, there won’t be any more mistakes: ‘We will close the tax gap because we will increase accuracy in the small business sector.’
“The truth is if clients wrote books up a bit more often, I’m sure they would be a bit more reliable. Would they pay more tax as a result? No. We make sure income hasn’t been underdeclared - I’m pretty comfortable about income. Like most accountants, if we’re talking about actual errors, you are going to change the tax take, but it ain’t going to be in the way they think.
“But then the tax gap is a completely made up figure anyway. They genuinely believe it, because to them it’s based on good evidence. To us, we might as well be watching La La Land.”
About John Stokdyk
John Stokdyk is the global editor of AccountingWEB UK and AccountingWEB.com.