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Spreadsheets get MTD reprieve?

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7th Sep 2016
Editor AccountingWEB
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In recent months accountants have been coming to terms with the potential demise of spreadsheet-based accounting tools as a result of HMRC’s digital revolution. But the Making Tax Digital consultation documents may have offered a lifeline for the professions favourite application.

A single sentence tucked away within the 78 pages of the Bringing business tax in the digital age consultation presented a glimmer of hope for spreadsheet enthusiasts.

Responding to the challenges businesses who keep their records on “paper or simple spreadsheets” face, HMRC revealed that it is “exploring, with specialists, the role of spreadsheets in business record keeping and their ability to meet the requirements and benefits of MTD compatible software”.  

Businesses still rely on paper-based records

Research by the ICAEW IT Faculty back in March may have encouraged HMRC to reconsider its anti-spreadsheet stance. Three-quarters of businesses surveyed did not use accounting software, while 41% of the manufacturing and construction industries still rely on paper-based records.  

This prevalence was echoed by AccountingWEB members whose clients exclusively use spreadsheets. DMBAcc reported: “I have 50 clients whom I can serve adequately at present. Not one of them has commercial software. Most use spreadsheets which they understand. I don't need commercial software for 50 clients nor do I want it when I see the confusion it causes.”

AccountingWEB’s consulting tax editor Rebecca Cave agreed that spreadsheets are an adequate record keeping tool. “I keep all my records from my company on a spreadsheet,” she said. “I understand my figures. I don't need some fancy software to tell me what a debit and a credit is. I am a trained accountant.”

I don't need some fancy software to tell me what a debit and a credit is. I am a trained accountant.

But, if spreadsheets are ruled out as part of MTD, businesses will face the extra costs of moving to commercial software - although HMRC has vowed that some free products will be available.

Despite the pause for thought and consultation, Rebecca Benneyworth, tax lecturer and head of an HMRC advisory group on Making Tax Digital, thinks spreadsheets are “going to have to fight their corner to remain in the picture”.

“While spreadsheets are a good way of managing data and have historically been very popular with accountants and some of their clients, I think the issue in Making Tax Digital is that HMRC is hoping that by using software (actual software packages and apps) this will eliminate a lot of errors that are made while the books are being written up.” 

Spreadsheets still ubiquitous in business

The IT faculty’s David Lyford-Smith, who will also be assessing the future of spreadsheets in an upcoming ICAEW event, commented: “While [spreadsheets] have their reputational tarnishes – largely from improper use by poorly trained users – the spreadsheet is a big part of current business practice.” 

While [spreadsheets] have their reputational tarnishes – largely from improper use by poorly trained users – the spreadsheet is a big part of current business practice.” 

In order to filter out errors, Benneyworth said HMRC is hoping to use upstream compliance, where application programming interfaces (APIs) will be built into the software to pick up errors as they arrive.

To illustrate her point, Benneyworth cited the example of somebody entering a £720 taxi fare. She explained that the software would be intuitive enough to ask whether the right figure has been entered, because in this scenario, the taxi fare would be an unusually high amount.

As a solution, Rebecca Cave said spreadsheets can still have a role if software is developed which can convert the spreadsheet data to the standard required by HMRC. “My problem for my company is translating the figures from the spreadsheet and to get them into the format that can be submitted to HMRC using iXBRL. I need some software to do that”

Benneyworth agreed, explaining that spreadsheets can be resuscitated by a software provider who could create a spreadsheet add-on which incorporates upstream checking. “If somebody wrote that, it would be a really good way of going forward.”

Despite the uncertainties, Lyford-Smith remains positive for spreadsheets: “Going into the future, the ever-growing amount of data available may well outpace the spreadsheet format, but the accessibility of the medium is hard to beat and I suspect that, while their role may change, spreadsheets are here to stay in one form or another.

Spreadsheets will die out

Xero’s Gary Turner, meanwhile, is less optimistic about spreadsheets’ future. Turner said the ubiquity that accountants and Lyford-Smith highlighted will fall away in the medium “not least because of MTD”.

Spreadsheet dependent businesses will die out, and in turn help to end the market for spreadsheets.

Turner discussed the future of spreadsheets in a LinkedIn post written last year, where he declared that “our love affair with spreadsheet is finally coming to an end". 

While MTD could speed up the digital natural selection, Turner lists the shift to mobile - “Have you ever tried to use a spreadsheet app on mobile or touch device?” he asks - better alternatives in cloud apps, and errors as reasons for the tool’s demise.

Calling spreadsheets in business “the new smoking”, Turner said: “In a world that’s becoming increasingly digital and therefore intolerant of human error it's reasonable to predict that eventually the incidence of spreadsheets constructed by feeble humans will become a negative flag or a signifier of loose management controls, or other corporate mortality heightening factors.”

He concluded: “Spreadsheet dependent businesses will die out, and in turn help to end the market for spreadsheets.”

What do you think? Will spreadsheets survive the digital transformation, or is this a tool that’s susceptible to error, and redundant in these modern times?   

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Replies (72)

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Replying to Richard Hattersley:
Tornado
By Tornado
08th Sep 2016 20:26

Richard Hattersley wrote:

Just want to reiterate, Gary's blog post was written a year ago.

I included his comments because he raised some interesting challenges spreadsheets face beyond MTD - from mobile phone apps to human error.

When he wrote the blog, MTD wasn't a thing. I'm sorry if I presented Gary's comments out of context.

It is unfortunate that Gary's comments were taken out of context but whilst I see where he was coming from. I don't agree with the predicted demise of the spreadsheet.

With regard to accounting and tax software, Xero is just part of the advances in technology but it is optional, a choice from other similar offerings that we can make based on our own preferences and needs.

The massive stumbling block with MTD is the compulsory/mandatory requirement to use specified software to maintain accounting records.

Take away the mandatory aspect and the whole situation changes. Those that want to use Xero, Quickbooks, Wave, etc can do so whilst others can stick to systems that they are more comfortable with. Natural evolvement of software is a better route to take and market forces will ensure that the better offerings rise to the top.

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By 0098087
08th Sep 2016 20:28

Actually the biggest question is why do we need this. Most tax returns are filed electronically anyway now. Rti still
Doesn't work properly, more disasters, more fines

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By oscardoyle
08th Sep 2016 21:11

Just for the sake of balance...

Pre-RTI, I remember sitting through a very uncomfortable AAT branch meeting where a speaker from HMRC was presenting the new mandatory reporting payroll in real time. The practitioners were in uproar! I feared for the poor speakers life when she was made to reiterate again and again that payroll returns MUST now be submitted on or before payday, rather than once a year.

How much extra work is this going to make for us?? Who's going to pay!! What a ridiculous idea!!

I would be interested to know what the real impact on those practinioners has been since. Probably earning higher fees from their payroll clients with not really much extra work? Just make sure the payroll is reconciled each month and click to send an FPS, but *sucks teeth* ahh it's going to be a lot of extra work we'll have to charge for.

My point is, the accounting practice isn't going to collapse when MTD arrives, just as I and millions of others have been paid every month with no problems since the introduction of RTI.

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Replying to oscardoyle:
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By RobertD
08th Sep 2016 21:36

oscardoyle wrote:

Just for the sake of balance...

Pre-RTI, I remember sitting through a very uncomfortable AAT branch meeting where a speaker from HMRC was presenting the new mandatory reporting payroll in real time. The practitioners were in uproar! I feared for the poor speakers life when she was made to reiterate again and again that payroll returns MUST now be submitted on or before payday, rather than once a year.

How much extra work is this going to make for us?? Who's going to pay!! What a ridiculous idea!!

I would be interested to know what the real impact on those practinioners has been since. Probably earning higher fees from their payroll clients with not really much extra work? Just make sure the payroll is reconciled each month and click to send an FPS, but *sucks teeth* ahh it's going to be a lot of extra work we'll have to charge for.

My point is, the accounting practice isn't going to collapse when MTD arrives, just as I and millions of others have been paid every month with no problems since the introduction of RTI.


Not really the same though. All that RTI meant was that a submission had to be made after calculation. Everyone used software prior to RTI so the change wasn't radical. Imagine telling payroll operators who used the old pay tables they suddenly couldn't use them and that RTI was better for them. There was a natural progression.
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By oscardoyle
08th Sep 2016 21:41

I understood it to mean that RTI software became mandatory for ALL employers and eliminated any other form of submission? Isn't that in some way the same?

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Replying to oscardoyle:
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By RobertD
08th Sep 2016 22:01

oscardoyle wrote:

I understood it to mean that RTI software became mandatory for ALL employers and eliminated any other form of submission? Isn't that in some way the same?

I don't when the old Paye tables ceased but even before RTI all payroll was completed on basic tools or other software. RTI merely requested a submission on each payment of wages as opposed to once a year on a P35. Not exactly a seismic change.

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By 0098087
08th Sep 2016 21:56

This is different because we get most clients paperwork once a year. How are we going to deal with everyone every three months

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By oscardoyle
08th Sep 2016 22:13

I am likely to be shown up here for being extremely naive but, doesn't MTD equal more compliance burden on business owners? And therefore more work for accountants? And doesn't more work equal more fees?

Why so glum?

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Chris M
By mr. mischief
08th Sep 2016 23:05

The software requirement is the big show-stopper for me, it will end in tears. Sage is clunky and expensive. Xero has a joke payroll module and in my view faces big solvency issues, it has overtraded and so far been lucky we have 0% interest rates. Clearbooks is pretty rubbish at VAT. I could go on....

If we frogmarch clients who have robust manual and Excel systems on to the software blind, they will end up in a mess. Yes if I am involved I can find the 200 transactions that have not been posted properly to the VAT control, but no way can a client who never even wanted to be on the software in the first place. I can see that the Xero payroll reports are a total joke and don't properly tie in to the stuff going to HMRC, but most small business owners can't.

Yet when they get the quotes from me for moving them across properly to software and then running it for them, I expect many of them to have a go at it. To "have a punt". I don't like Xero and I don't like Clearbooks, the clients I mentioned above "had a punt" and have come to me to sort out the problems.

This cost them extra fees. If this was purely about my own selfish self-interest, then like the software companies I would be cravenly [***]-licking to HMRC to go forward at 100mph.

But it's not about me, it's about my clients. And living in the country, I know a pile of manure when I smell it.

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Tornado
By Tornado
08th Sep 2016 23:37

A democratic way to trial MTD would be to make it compulsory for all MP's and Lords to use the system (without help from Accountants) as from 5th April 2017. There will be many of these people who have businesses and rental income that falls within the scope of MTD.

The results of this trial would be interesting as Jeremy Corbyn famously submitted an incorrect Tax Return (and late), so will the others fare any better?

(I realise that the likelihood of this happening is zero, but it would be great test of the proposed system and open the eyes of those that govern us).

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By dgilmour51
09th Sep 2016 09:31

"Not exactly a seismic change."
And therein lies the rub.
Actually it was a seismic change - a twelvefold increase in interaction, a twelvefold increase in opportunity to make an error during that interaction and thus a twelvefold increase in HMRC to increase revenue from its 'Fines' LOB.
Always remember that HMRC has no 'duty of care' in any aspect of its dealings with either taxpayers or their agents. They are thereby rendered 'immune from reality'.
Effectively we are now forced to pay HMG for the privilege of 'making a living': it's a fixed overhead on every taxpaying entity, and which is, as far as I can see, utterly ignored in e.g. productivity statistics etc.
One would have expected that any rational organisation would be seeking to reduce its fixed overhead - but we have HMRC.

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By smurfit
09th Sep 2016 14:01

benneyworth obviously doesnt know what she is talking about .. "reduce errors" ?? by not using spreadsheets . we have found every single client who has used cloud software has made a complete dogs dinner and it has cost them increased fees... the beauty of spreadsheets is that generally the data can be manipulated so easily....

as for the sales spin of xero.... by the looks of it they may be long gone before the trusty spreadsheet... $82m loss in 2016 (up from $69m) ,, income up by $80m but costs increased by $97m .... capital and reserves $279m, so based on these annual losses in just over 3 years , unless they turn it around or get further funding.. it will be gone

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Chris M
By mr. mischief
09th Sep 2016 16:11

A general point. For the clients I have described above who are running manual or Excel spreadsheet systems with a very high level of accuracy, can someone please explain how moving to software reduces errors?

Because in my view it is highly likely it will INCREASE ERRORS SUBSTANTIALLY:

1. Whenever you have done a data take on exercise to a new system, hands up if you got every single balance across right first time? Rarely happens in my view even when it is me that is doing it. So there is the data take on risk which is clearly zero if you don't need to do data take on.

2. Then there is the software risk. Microsoft Excel is a proven product with a few minor glitches. Some of the new kids on the block release product with great big hairy glitches.

3. Reliability risk. Microsoft is not going bust any time soon. Some of the loudest and noisiest new entrants in the cloud software world will, in my view, not exist in 5 years time. They will crash and burn.

4. Accuracy risk. This is the really big one. Where my clients are doing their own accounts, the staff people concerned are the very opposite in general of flexible multi-taskers who can seamlessly move from manual or Excel systems to new software. A BIG ACCIDENT waiting to happen nationally in my view if they are forced to.

Where the heck is that HMRC guy in this thread? He was full of it in the webinar, and where is he now?

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By david wilks
09th Sep 2016 16:37

I really hope the people in the ivory tower of HMRC read this blog and rethink the whole thing.
Your requirements will be unworkable, especially in the time frame you have set. Why are you embarking on this car crash?
I extend an invitation for you to come and work in my office for two months to experience life at the coal face.
I will only ask you to do single entry work (on spreadsheets). I will finish off the double entry because I am an accountant and I know about such things and where analysed figures should end up in the final accounts (especially the difference between capital and revenue expenditure). Do you? In the main my clients don't because it is not their job to know.

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Tornado
By Tornado
10th Sep 2016 20:03

Perhaps Mr Gauke should have snuggled up to Microsoft instead of Google and then he may have been able to persuade them to produce MTD software that worked in Excel for free and did everything that the Government requires.

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By Markmidega
15th Sep 2016 06:48

Having reviewed the consultation document, read reports and listened to HMRC webinars I can only say the whole concept of Making Tax Digital is ill conceived, ill thought out and naive , at a cost of £1.3bn

HMRC expect us to believe that nudges in the software will give a client the right guidance that replaces 35 years experience and training and will be kept up to date with tax case law and tribunal results.

The vast majority of our clients use paper or excel for their accounting records , if this goes ahead (I for one ,sincerely hope it doesnt !)then the quarterly summary reporting can be submitted through our software . Why insist on real time recording through software unless the hidden agenda is to require the individual transactions to be submitted in the future ?

If these bureaucrats come out into the real world , met us and clients then it wouldn't take long to realise what a disaster this is waiting to happen

Remember the saying about computer software "Garbage in Garbage out"

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By adamburns
23rd Sep 2016 15:38

Of course Gary is going to say that. He wants as many people as possible to buy his software.

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By david wilks
23rd Sep 2016 15:55

Somewhere I read about a get-together with HMRC (where very few accountants turned up) and the guy from HMRC said something like "we want a soft landing on this". Sorry I can't be more specific but I have been involved in doing spreadsheets for clients. Anyway, as I skipped quickly through what this chappie said all I could see was meaningless statements such as above. The guy could not speak English in my view. If you know who you are and are reading this please get in touch with me.
Every comment I have read about MTD has come to the same conclusion. IT WILL NOT WORK.
HMRC, smell the coffee, see the blue sky, don't get undressed in a glass house.
Oh, and by the way, they are taking longer to answer the agent dedicated line!
Professional bodies - do something for the profession whilst you still have members.

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By Patricia McCartney
23rd Sep 2016 17:22

Don't forget that we all have until 7 November 2016 to comment on the consultation documents.

I am preparing my comments. At a recent CPD lecture it was HIGHLY recommended that all agents feedback their comments on the ConDocs as the volume of feedback is what can sway HMRC.

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By Cantona1
24th Sep 2016 21:53

Even Xero uses excel as its interface. What benefit does Gary drive from a demise of excel? Excel is here to stay. Majority of ERP systems use excel as their interface. Look at SAP's BPC.

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Replying to Cantona1:
By garyturner
25th Sep 2016 13:00

To be clear. I'm not pushing for the demise of the spreadsheet, merely speculating that on a long enough timeline - like 10-20 years, I think their popularity will naturally wane. There will always be some use for spreadsheets just as much as there is for a pen and paper.

My sense is just that many things done on spreadsheets today will move to other tools.

Gary Turner
Managing Director, Xero
@garyturner

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By AndrewV12
21st Nov 2016 13:26

The beauty of spreadsheets is their simplicity, accuracy, neatness, and user friendliness. Also there very easy to amend and edit.

There is no Accounting software out there as effective, efficient, good as spreadsheet, trust me more Accountants than you think prepare Accounts on Excel, I know I used to do it and i know one when I see one.

Never under estimate Excel spreadsheets, incidentally what ever happened to lotus 123, went the same way as lose leaf tea, button up boots and black & white televisions i trust.

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