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The MTD tech approach: Tax software

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Within the present regime, tax software plays a vital role in doing the actual work of putting the tax return together. So what will its role be under MTD ITSA?

21st Sep 2022
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Much of the focus for MTD ITSA is on the real-life challenge around data collection from clients. Some will be asked to use tools to record their transactions digitally for the first time, and of course move from an annual process to one which also incorporates quarterly reporting.

Through this series of articles, we have looked at the non-ledger tools which will provide the options you could introduce to make the process easier. However, one aspect of this has been less talked about but plays just as fundamental a role: the actual calculations and final submissions.

Within the present regime, tax software plays a vital role in doing the actual work of putting the tax return together, so what will its role be under MTD?

Where it will fit in

The logical place for tax software to be is of course near the end of the process, once the data has actually been collated. This important separation marks it out from many of the other vendors' solutions, as it is not intrinsically concerned with the data collection itself. 

 

TaxCalc sees MTD ITSA as an actual extension of the function it already performs, as CMO Andy North explained: “You are going to have clients that fall under MTD and some who won’t. And so for us, it’s about business as usual and then ensuring there is a logical and simple process for handing the quarterly submissions, End of Period Statement (EOPS) and final confirmations for those that do”. 

The strength here is that many accountants are used to the familiar environment of their tax software of choice and of course, there is still the job to be done for those who fall outside of the new requirements. 

Building in flexibility

The other notable feature of tax software is that it is broadly agnostic when it comes to data sources. When confronted with a diverse set of habits, inclinations and abilities of clients to deal with, it’s almost impossible to think that a one-size-fits-all approach is going to be easily achieved. 

Iris Tax Product Director Jenny Strudwick sees this as an important part of what they are trying to achieve: “Our focus is very much the experience of the accountant, and ensuring they are not limited to how they want to direct their clients to collect and record the data. This flexibility is key.”

This note of reassurance means that whatever the route or routes a firm may choose, there is a commitment to making sure the digital journey is unbroken, regardless of the means of getting the main income and expenditure records. Which also includes spreadsheets.

The bridging solution

With the acceptance of spreadsheets as a legitimate means of creating a digital record and the experience of using bridging software for MTD VAT, for some accountants and their clients using spreadsheets may provide the most cost-effective and lightweight approach. This is particularly valid if the number of transactions per month is very low – the logic being of course that the higher the number of transactions the more likely that mistakes could creep in.

“Our view is that spreadsheets are likely to be a ‘go-to’ for a lot of people, particularly accidental landlords, non-techie clients or those that don’t want to spend any money on software with additional functionality they won’t need,” confirms North. “The process itself should be as simple as possible with a CSV upload that then maps to categories ready for working on or filing”.

The added benefit of this is that it also broadens the number of potential solution providers - in particular those that develop spreadsheet-orientated approaches.

The digital link challenge

While generally, the news seems positive for the tax software companies, the reality is that there are still unknowns that need to be addressed. In particular, their role in the creation of an unbroken digital link. Fine if the data is already of high (or more precisely perfect quality), but Strudwick highlights that things like the need for repair work currently creates a significant challenge: 

“A good example is in the EOPS process. Making changes to the data should be done at source but the debate is ‘what kind of change must it have to be’?  If the data itself is missing at source, then you need to return to the recording software and then push through the amendments. However, this seems much too heavy if it is just to change a category. HMRC is working on providing clarity here”.

The one bit of technology you might not have to change

As not all the details of how the mighty ledger products like Xero and Sage will handle MTD ITSA from an end-to-end perspective have been released yet, the mood music from the tax software suppliers is remarkably upbeat. 

Regardless of how you choose to run your clients, and what legitimate digital recording tool they use, this might be the one piece of software that you won’t have to consider changing.

Replies (14)

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By Hugo Fair
21st Sep 2022 17:26

Some interesting points.
I hope I didn't actually say out loud "it's about time people, including HMRC, realised that MTD doesn't stop when you've collected your data (or indeed submitted it then corrected it and so on)"?

Corralling amendments from back in time (via different software) is a potential nightmare ... and I only use 'potential' as a qualifier because even HMRC haven't decided how it's *supposed* to work!

However, the punchline of "this might be the one piece of software that you won’t have to consider changing" is only applicable to agents. The unrepresented are being tossed into an environment where they will *have to* purchase new software (of some shade or other) or pay an adviser.

No wonder "the news seems positive for the tax software companies"!

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Replying to Hugo Fair:
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By Jo Nokes
21st Sep 2022 17:54

I use Taxcalc, and it works fine as far as I am concerned. Whatever the source material, ie VT accounts production, or a piece of paper with some numbers on it, I can input this with ease. Clients will have used spreadsheets or QBO or something, and supplied me with the pdf or the Excel file so I can see what they have been up to. How does this get into these famous software products with a digital link? And, as you allude to, Hugo, if I come across a mistake in the source material in say May 2024, when I am preparing the final product in October 2025, I do not think it is physically possible to go back and correct a mistake. Incidentally, I watched the latest ICAEW MTD webinar yesterday, and there seems to be more unknowns than knowns. The presenters seemed pretty fed up, having spent months, if not years, arguing the toss with HMRC, and seemingly, getting nowhere. I still think they should not have got involved

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By ireallyshouldknowthisbut
22nd Sep 2022 08:42

To me this is by far the most complex bit................and we are not even off the starting blocks yet on it.

The quarterly submissions of a couple of lines of rather inconsequential data are quite frankly a small foothill in-front of this towering mountain which actually does all the heavy lifting from a technical perspective.

Given HMRC's new love of very cumbersome forms like the 60 day report and pay which are horrific to fill in without the option of third party software to clean up the product into something useable does not bode well for the new tax return. If it ever happens.

By far the most sensible development would be to pull the feeds from the garbage Q reporting into the current return with some +/- year end adjustment stuff we can just key in. [And if there are no feeds coming in, just stick in the totals] But I imagine they wont allow that as it would be a quick, simple and work right out of the box. Much better to junk what works now and invent something brand new full of its own quirks and problems which takes many times longer to use, costs hundreds of millions of pounds to develop and takes years to bash into half a working system.

See also the new VAT registration scheme. Take a perfectly good system that delivers a VAT number in 2-3 days and really f*uck it up.

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By Self-Employed and Happy
22nd Sep 2022 09:57

HMRCs requirements for MTDITSA in my opinion has slowed the natural progression that software like Quickbooks were surely about to make, I imagined by now I'd be able to have an Accounts "extension" where I could ixbrl, add accounting notes etc and file directly to Companies House / Submit Corp Tax, then naturally Personal Tax would have followed.

This would negate the need for having to export / manually recreate items within a separate software for filing.

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By North East Accountant
22nd Sep 2022 09:58

"Regardless of how you choose to run your clients, and what legitimate digital recording tool they use, this might be the one piece of software that you won’t have to consider changing."

If they make it effortless to import data from a multitude of data sources the desktop tax software may do OK but very few have a two way sync and it seems a somewhat backward step taking data from cloud to desktop.

What accountants crave is the end to end cloud platform that will do it all, with seemless data transfer, rather than a hotch pot of various vendors...whoever nails that will clean up.

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Replying to North East Accountant:
Richard Sergeant
By Richard Sergeant
22nd Sep 2022 13:48

Understood. We are yet to see the full hand of Sage and indeed Xero and probably Iris with elements - so there may be announcements iminently on this score.

Their acceptance of a range of data sources will be an interesting feature to look out for.

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By johnjenkins
22nd Sep 2022 10:13

I think you need to look at the bigger picture, Richard. You have to ask yourself the question, what is the point of MTD and having no tax return? We all know it's not for the reasons that HMRC are giving out. So they are hiding the real reason. There can only be one reason and that is to have sight of every transaction a business makes. Unfortunately HMRC have gone about introducing this in the wrong way. Trying to pull the wool over "professionals" eyes, even the PAC does not bode well and eventually HMRC will have to admit and come clean. I would assume that the end software will produce a tax liability which the taxpayer would have to prove is incorrect, thus negating investigations. OK this is futuristic but if Government need money to pay for their new projects and they think the tax gap will be closed by MTD, then it'll happen quicker than we think.

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Replying to johnjenkins:
Richard Sergeant
By Richard Sergeant
22nd Sep 2022 13:45

It is less futuristic than you think. The situation is almost exactly how you state in certain 'advanced digital' tax jurisdictions - Poland for example. Their use of the full fat Standard Audit File for Tax (SAF-T) was in place before MTD for VAT was introduced - I wrote about it in these hallowed pages some years ago now, when looking at the impact of digitalisation on tax professionals.

It's quite scary stuff compared to what the government proposes here currently. A near x-ray on your business affairs in fact. I'm not sure politically it would be desirable to kick the hornets nest too hard (yet). It is however possible where they have had to totally replace their tax systems (eastern europe) and are used to working under politically repressive regimes.

EDIT:
I found the links, purely for reference of course.

https://www.accountingweb.co.uk/tech/tech-pulse/making-tax-even-more-dig...

https://www.accountingweb.co.uk/tech/tech-pulse/how-digitalisation-will-...

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Replying to rsergeant:
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By johnjenkins
22nd Sep 2022 14:24

I said the same thing then as I am saying now. You will not get the small business to comply. It will go under the table, cash or barter if pushed too much.
Hit an orange with a hammer and the juice goes all over the place with not much going in the jug. Squeeze gently, you will not get all the juice in the jug but a lot more than using the hammer.

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Replying to johnjenkins:
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By North East Accountant
22nd Sep 2022 15:41

Love this orange analogy....

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Replying to North East Accountant:
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By johnjenkins
22nd Sep 2022 16:33

As long as it doesn't give you the pip.

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Replying to johnjenkins:
Richard Sergeant
By Richard Sergeant
22nd Sep 2022 16:25

You know zest.

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Replying to rsergeant:
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By johnjenkins
22nd Sep 2022 16:34

Richard, are you taking the pith?

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Morph
By kevinringer
27th Sep 2022 10:15

I have been asking our software supplier: what is their future under MTD ITSA? The key difference with MTD ITSA compared to SA is the digitisation of transactions. Our tax software (PTP) does not have any functionality to record transactions and only has limited functionality to import data, so we manually input the totals direct into the software. Unless tax software has better connectivity we will end up just using bookkeeping software. Why should we pay a licence for bookkeeping software such as Sage, QBO, Xero etc, and also pay a licence for tax software such as PTP? Could it be that Sage/QBO/Xero etc are going to charge so much for their MTD ITSA module that it will be cheaper to pay for separate tax software?

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