Spreadsheets survive MTD cull

Hanging on to a cliff
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Spreadsheets received a reprieve from HMRC last week. But whether the trusted record keeping tool is able to survive the rigours of the Making Tax Digital era is another story.

“They’ve taken the digital out of Making Tax Digital,” Sion Lewis, CEO of IRIS accountancy division, told AccountingWEB shortly after the publication of the MTD consultation response on 31 January.

Lewis was surprised by HMRC’s decision to include spreadsheets within the remit of the Making Tax Digital (MTD) project. Last summer HMRC struck a non-committal stance about integrating spreadsheets into MTD. Much to the chagrin of AccountingWEB members, all the signs pointed towards spreadsheets being consigned to the record-keeping scrapheap.

Under pressure from the Commons Treasury select committee, however, HMRC relented last week and softened its original stance, by confirming in the consultation response that “Businesses will be able to continue to use spreadsheets for record keeping.”

But the spreadsheet resurrection has a caveat: “[Businesses] must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Businesses. This is likely to involve combining the spreadsheet with software.”

Software developers blindsided

Tax software developers are now wrestling with how this concession will work in practice. IRIS CEO Kevin Dady told the House of Lords economic affairs committee on Monday that the decision to relax spreadsheets creates “an extra conundrum” for software suppliers, as they need to convert spreadsheet data into a format HMRC finds acceptable.

Kevin Hart, the chairman of the software industry trade body BASDA, said the uncertainty around spreadsheets creates equal problems for Excel users.

Hart explained that MTD software will find it “increasing difficult to translate information coming out of someone’s own Excel spreadsheet” when users have “played with the odd macro” or developed their own routines.

“People who will continue to use [spreadsheets] will not welcome any changes that HMRC are saying that you will have to make to your Excel spreadsheet,” he added. “It’s critical that we can address this uncertainty around Excel quite early on.”

Adding to the dissent, Clear Books founder Tim Fouracre commented that spreadsheets will dilute HMRC’s original digital ambition. “It seems the ‘spreadsheet’ generation just got a free pass to hide in their comfort zone until the millennials take over,” Fouracre wrote in his blog.

Fouracre asked whether future generations, weaned on iPhones and MacBooks, will turn to the trusted spreadsheet when they start up their own business. He believes HMRC has “shot itself in the foot”, because spreadsheets cause many of the errors the MTD initiative was attempting to curtail.

“MTD was an opportunity for HMRC to achieve two worthy outcomes: 1) Get its savings; and 2) increase the productivity of UK plc by steering the country into the digital age,” Fouracre added. “Instead, we’ve got neither.”

Difficult reversal

HMRC’s spreadsheet reversal is, in part, to appease the Treasury select committee’s insistence that HMRC needs to ensure that tools are available to convert information from spreadsheets into information that can be submitted as part of the quarterly digital update.

Spreadsheets found another advocate in Richard Murphy, who told the Lords committee that not only is he “not a fan” of MTD, he also didn’t understand why his Excel accounting spreadsheet was no longer good enough.

Without the emergence or confirmation of free or low cost software, even Xero’s Gary Turner said in a blog that HMRC’s spreadsheet u-turn was “sensible”.

How will it work?

Details on how spreadsheets will integrate into MTD software remain a mystery to software developers. Last week’s announcement added an extra item to the pile they will have to meet by next year’s launch date.

IRIS CEO Kevin Dady hinted at the developers’ frustration with HMRC to the Lords committee. “It was only announced last week for something we are trying to deliver this year,” he said.

As software developers grapple with making MTD-compliant spreadsheets a reality, ICAEW IT faculty technical manager and AccountingWEB blogger David Lyford- Smith argued in his MTD consultation response that “properly formatted spreadsheets should be an acceptable way of interfacing with HMRC”. In view a “self-auditing template” could be the answer to the developers’ conundrum.

“Excel and the other spreadsheet packages all contain multiple tools to control and restrict user inputs,” he said. “These tools include data validation, conditional formatting, logic checks, VBA controls, and many more.”

During an during an appearance on ICAEW’s TAXtalk, Lyford-Smith specified that “home brew” spreadsheets will not be acceptable as they will have to go through a process to “format it in a way the APIs at HMRC’s end need”.

He added: “[Spreadsheets] will likely be in a particular format or using a template so that it’s simple for that middle-man program to pick up the appropriate detail from the spreadsheet and send it off to HMRC.”

Encouraging concession

AccountingWEB members, meanwhile, were encouraged by the spreadsheet concession. For example, Adjadj said it would be “relatively simple” to extract the data needed from the spreadsheet.

“The build solution is a) define the content of standard CSV file that the software will use to import the data, b) create a new worksheet collated data between dates 1 and 2 with columns in the CSV format,” said Adjadj.

While enthusiastic members are already speculating on how to hot-wire clients’ spreadsheets to comply with the regime, others are not convinced. AccountingWEB member Tornado asked: “What sort of program is going to be able to magically extract the necessary information from any spreadsheet and send that to MTD compliant software? They also probably assume that all spreadsheets are created in Excel when of course this is most definitely not the case.”

As HMRC concedes to the spreadsheet demand, the original vision for digital tax will morph into something different. Or is it more of a case of the more things change the more they stay the same?

How big a role do you see spreadsheets playing in Making Tax Digital? Will the requirements needed for spreadsheets to comply with MTD add another layer of confusion for the taxpayer? 

 

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About Richard Hattersley

Richard Hattersley

Richard is AccountingWEB's Practice Editor. If you have any comments or suggestions for us get in touch.

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to 0098087
10th Feb 2017 14:42

0098087 wrote:

One very straight forward subbie,who still writes in a book has been looking at Quickbooks and he said to me yesterday, I don't want it to go to HMRC without you checking it.

Lets hope many more are like that. The cloud crew are saying its as easy as scan click submit quarterly. We all know that's not the case.

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By 0098087
09th Feb 2017 18:22

It's all about self funding to cut costs. As I said who is going to show these clients what to do when they do it manually and can't use software.

What about the ones that don't have time, As has been said that's why we are here.

Why don't HMRC get this. Why don't some people here understand the practicalities of it. You must all have perfect clients who post everything perfectly. I don't and they don't understand

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10th Feb 2017 02:54

Mr Fouracres comments sound very much like his company has just seen their profits from the ill thought out MTD madness disappear- a very arrogant and patronising statement.
It has annoyed me that I am seen as some form of digital dinasour because I use a spreadsheet!
MTD was NEVER an opportunity to achieve any savings fot HMRC NOR steer any one person into the digital age - crazy talk.
I now know who is championing the disaster that is MTD and why!

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10th Feb 2017 07:40

To Tim F and others, I am going to provide a one day course for a very reasonable fee. At the end of this, delegates will be able to:

1. Calculate the value of a loss provision in the accounts arising from write-offs on MTD time spent.

2. Explain these write-offs to their Boards in cunning ways so no-one thinks it was anything to do with them personally.

3. Persuade their Boards to adjust their bonus plans to exlude anything to do with MTD.

I predict a large increase in demand for this course in the next 2 years from software CEOs.

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10th Feb 2017 08:06

I've just read Fouracres' blog in full. What a joke, he says only spreadsheets have errors as Garbage In Garbage Out. Of course that never happens with cloud software, such as people analysing drawings as salary etc etc
Then he says a business can tell how it is doing by looking at its bank balance. In that case why even bother with cloud software, let's just upload clients' bank transactions quarterly and clients can pay tax & NI on the balance.
You can almost see him spitting with rage as he typed his blog - on his tablet, no need for an antiquated PC to type a blog taking up valuable desk space

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10th Feb 2017 08:17

My invitation for a meeting has been extended to include Fouracre. AW, please also provide him with my contact details.

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10th Feb 2017 09:46

As one who's "comfort zone" dates back to one of the first dozen copies of Lotus 123 to arrive in the UK, yes I am quite happy to continue to use Spreadsheets. Mainly on the premise that "if it ain't broke - don't fix it".

For the small Companies I still prepare accounts to be submitted to HMRC it will take a lot of time / effort and money to change to any new system. Whilst I am sure I could still run the system for any multi-national group, I don't these days and just do not have that resource available. Certainly not at an economic cost.

Perhaps our "millennials" might bear in mind that not all production and commerce is the prerogative of global concerns, there will be hundreds of small organisation commercial and otherwise for whom "the spreadsheet" is a more than adequate solution.

I will now revert to working on my cloud based solution to a new problem, confident that 37 years of experience has taught me what to change and what to treasure.

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10th Feb 2017 09:48

I know I may be going a little off piste with this post but I have just received a 2017/2018 coding notice from a client that shows a code of "11501". In my book this should be 1150L.
If HMRC can't even get this right what bloody hope.

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By Tornado
10th Feb 2017 10:30

When a spreadsheet is created for any reason, we need to remember that this becomes an 'application' very much in the way that any other computer programs are created, only the spreadsheet provides a very user friendly way to create that 'application'. A spreadsheet 'application' has the ability to be every bit as complex as conventionally written software and this is proven by providers such as VT.

I can understand why some software providers make derogatory remarks about spreadsheets, but in my view, this is just arrogance on their part and perhaps their fear of more people realising that it is possible to get along without them.

One of the biggest errors in the MTD plans is that HMRC have not used part of their £1300 million budget to provide a range of free software that anyone can use and has been written in such a way that it does exactly what HMRC require.

Which brings us back to the eternal unanswered question - why do we have to purchase commercial software in order to comply with government legislation? I think we have all worked out the answer to that one by now, but the Government will still not admit the truth.

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to Tornado
10th Feb 2017 10:48

I was going to post something very similar. Excel is a software development environment. A structured template is very different kettle of fish from random jottings in a spreadsheet but are all bundled together. I do however agree with Tim Fouracre's points about bank feeds eliminating typos (though bringing in other issues) and flexible tools like spreadsheets do seem to be going out of fashion ( I blame it on the national curriculum !).

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to daveforbes
10th Feb 2017 12:34

To be clear, I believe that bookkeeping software has many advantages over spreadsheets and would always advise clients to move on from them.

But those who chose not to should not be stigmatised by the software industry or discriminated against by HMRC.

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By RobertD
10th Feb 2017 11:37

Rather disappointed with Andrew Tyries couple of letters to Ellison and Cherry. It would seem that this is down to costings only. Ellsions letter appears somewhat more polite than Mike Cherry's. Hasn't Andrew Tyrie been listening to the Lords week? Richard murphy ridiculed HMRC's costings and two of the other accountants gave large estimates.

https://www.publications.parliament.uk/pa/cm201617/cmselect/cmtreasy/cor...

https://www.publications.parliament.uk/pa/cm201617/cmselect/cmtreasy/cor...

http://parliamentlive.tv/Event/Index/8978232e-678f-48db-83a9-3b7f140502b8

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By LJCASE
10th Feb 2017 14:18

Shall I bother telling clients about MTD then?
The client who still writes in a cash book and lists invoices or the paper bag clients who wouldnt know or dont want to know about accounting software can carry on as before. We load entries onto an excel spreadsheet which flows into an accounts package (e.g Taxfiler) which flows into the tax programme. But this needs to be done a month after the quarter end date.
I've missed something havent I?

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to LJCASE
10th Feb 2017 15:29

Ah, now, therein lies the rub ...

Timing. HMRC mean that spreadsheets can be used for keeping records. They also refer to records being kept on a day to day basis.

So, does an accountant "digitising" paper records into Excel, say quarterly, meet HMRC's expectations? More importantly, how can they legislate for the timing between incurring a transaction and it being recorded digitally somehow?

I think this is the question that nobody is asking and it could actually be the most important factor here.

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10th Feb 2017 15:44

The simple answer is they cannot. HMRC can jump up and down as much as they like but it will make no difference to a right thinking person. I have yet to come across anyone who maintains their records on a minute by minute basis. There will of course be a rush at towards the end of each quarter.
On another point, the office for national statistics today asked a client to "make up figures" in response to a request for which he didn't have the actual figures available. I sometimes think I am living in a parallel universe. Happy weekend everyone, except Harra & Co.

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13th Feb 2017 13:31

HMRC are missing the main point. We use spreadsheets for about 95% of our clients. Most of these are spreadsheets we put together for analysing the bank but many are built by the clients themselves. Each spreadsheet is individual and importantly it doesn't produce a complete set of accounts. We input the spreadsheet analysis totals into our accounting software but also need to input journals which have never been near a spreadsheet (indeed, some are from hand written journal lists). So no amount of MTD-integration of spreadsheets is going to result in meeting HMRC's goal. HMRC need to visit accountants and business and see how accounts are put together.

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to kevinringer
13th Feb 2017 15:45

Kevin - with respect, HMRC would only be missing the point if all firms had 95% of their clients using spreadsheets.

I now have say 5% of my clients using spreadsheets, this was a lot higher 5 years ago but they were the first ones I moved to cloud accounting to cut out wasted time in clients keeping accounting records that were divorced from the accounts, so now, when I export the TB from the books at the year end, there are no journals and other extra stuff needed, the books are accurate and up to date.

Keeping accounts accurate and up to date is the ideal situation in any business and so perhaps HMRC are making a point rather than missing one?

Yes, there is never any guarantee that mistakes won't be made but that applies to annual accounting just as much as it does to quarterly only I've found that sharing the accounting work throughout the year, rather than 6 months after it, is more likely to pick up errors.

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to Paul Scholes
16th Feb 2017 14:23

Paul Scholes wrote:

...so now, when I export the TB from the books at the year end, there are no journals and other extra stuff needed, the books are accurate and up to date.

So you, Paul, post those "journals and other extra stuff" (depreciation, divs, provisions, accruals and prepayments, posting error corrections etc etc) in your clients' "books" pre-TB. For myself, I find it easier to post such entries in the accounts production software that I export the client's TB to.

My approach is to export the client's TB (complete with its errors, omissions, mis-postings et al) into an Excel ETB, whereupon all such journals and corrections are posted; so that the end product of the ETB is effectively a cleaned-up and corrected TB.

Will MTD require me to switch to doing it Paul's way? ie am I going to have to tidy the client's Sage or Xero records and post reversing journals prior to exporting a TB to my ETB/accounts production software?

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to I'msorryIhaven'taclue
16th Feb 2017 18:12

Hi - I too, for 30+ years, used to extract the clients TB then add all the adjustments, initially onto an ETB then into Iris. But then I had to feed the adjustments back to the client's books, thus entering all the adjustments twice. Now I enter them once.

With the software now taking taking care of depreciation month by month and the clients processing their own dividends and even some prepayments/accruals my main task is to spot any errors during the year and either telling the client to correct them, or, if quick & easy, doing them myself (but still telling the client). Then there are any other material adjustments to do either, if wanted, throughout the year, or just at the year end.

By far the biggest benefit of working like this is that within a few weeks of the year end I can report to the client on the year's results and they can login to look at the P&L & Balance sheet and other reports, drilling down to where all the numbers come from.

Once they and I are happy, I export the TB and, within an hour have the accounts and CT stuff to upload for electronic approval.

So, it's now got to the point where, with the majority of clients, the year end accounts are akin to a VAT return. It's a huge change, that used to perplex me (why did I spend decades learning all that stuff) but is now a relief.

For me it's just a case of changing methods to take advantage of improvements now available with new software. I speak to lots of users and accountants for Clear Books and am still puzzled by how many accountants still ask their clients to send them a TB, nominal and other reports from their cloud accounts, months after the year end (some even ask them to print them out and post them), just like they did 20 years ago. Yes you'll end up with the same set of accounts, but months later, plus the client's bookkeeping is done predominantly for the accountant once a year, it is of no use to them throughout the year.

I ask accountants to imagine the Inspector's reaction when questioning them about all the adjustments, journals and corrections, identified months after the year end, and being told "You have to understand this is an incomplete records job". This may have been OK in the past but, as I say, surely the ideal is to have books that are accurate and up to date?

To put it another way, if I take on a new clients and we get to talking about the bookkeeping, should I offer to help them keep their books accurate and up to date or meaningless and a mess?

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to Paul Scholes
17th Feb 2017 15:25

Hi Paul, thanks for giving me an interesting perspective.

Paul Scholes wrote:

Hi - I too, for 30+ years, used to extract the clients TB then add all the adjustments, initially onto an ETB then into Iris.

Guilty! I type the client's TB enter my Excel ETB, make whatever adjustments are needed to put everything right, then export the output of my ETB to VT.

Paul Scholes wrote:

But then I had to feed the adjustments back to the client's books, thus entering all the adjustments twice. Now I enter them once.

Ahha, I see... I too only make the adjustments once, but in my Excel ETB (ie in my working papers). I suppose the fundamental difference in our thinking comes from my unwillingness to make adjustments to a client's books - something that was drummed into me many moons ago in my audit days and which has stayed with me.

Paul Scholes wrote:

With the software now taking taking care of depreciation month by month and the clients processing their own dividends and even some prepayments/accruals my main task is to spot any errors during the year

Most of mine can just about manage to post up everything you'd find in the daybooks/ledgers/cashbook in a manual system - I'll help them out from time to time by posting essential journals eg DR wages CR DLA, but I couldn't imagine any of them or their alleged bookkeepers posting anything as advanced as the entries you mention.

I suppose at the end of the day I am happier regarding their Sage etc records as I would a badly written set of manual books, warts et al. Any adjustments in my ETB/working papers go in the management letter for the client to make. Nevertheless I can see how your approach would work better for MTD.

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to I'msorryIhaven'taclue
17th Feb 2017 18:24

Believe me I know exactly what you are talking about, the majority of clients I describe above were those you describe, but 5 years ago.

The difference is, firstly, how much easier non-accountants find the cloud products, compared to desktop ones and secondly, how much easier it is to train and support a client in their books when you can log into them any time, even when they are in there. In the main system I use, I can make loads of the features and functions invisible to them, so that they can start at a simple level and then I can release more of the features as they become proficient.

Although I tried (and did I try) to do the same for my Sage, QBs, TAS and MYOB clients over decades, but usually gave up and just accepted that I'd get a set of incomplete records at the year end and the client would have to spend (waste?) money paying us to fix them.

As far as sticking my nose into their books, when you think of it they employ me to support them in their bookkeeping and so I take on the whole of bookkeeper when I need to.

So, whilst I considerer myself lucky to have jumped onto the cloud bandwagon so early, if many others are now doing it, this is perhaps why .GOV now thinks that it's time to force the issue for everyone?

The problem is that they've made such a fist of directing and planning it there is, rightly, a huge push-back.

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to Paul Scholes
19th Feb 2017 11:01

Thanks Paul, I appreciate your advice. I know I need to rethink my involvement in clients' bookkeeping, and what better time than now with MTD on the horizon?

I had a few bad experiences collaborating with clients' bookkeepers during the early cloud days, whereby the bookkeepers' carelessness or ineptitude kept me far too busy, and the clients saw little value in it all. I guess that's stayed with me.

I remain unconvinced however that using an accounting package for anything beyond a set of double-entry books and essential journals is worthwhile for my particular clients: encouraging them to calculate depreciation, make value-calls on provisions, and post reversing journals would only add to their confusion. Besides, those who do manage it would surely want to cut us out by getting their alleged bookkeepers to file MTD quarterly reports. I'm not voting for that!

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13th Feb 2017 13:44

I've recently prepared the accounts for a client who uses Sage and employs a fulltime bookkeeper. The bookkeeper balances the bank and makes sure aged debtors and aged creditors are correct. But even that bookkeeper makes errors such as posting wages to the balance sheet 2220 instead of P&L 7004. How will MTD software prevent this?

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to kevinringer
16th Feb 2017 15:47

kevinringer wrote:

But even that bookkeeper makes errors such as posting wages to the balance sheet 2220 instead of P&L 7004. How will MTD software prevent this?

It won't; that'll be for us to correct, I suppose.

Which is what I was getting at above: Will we be expected to correct the client's Sage / Xero accounting records? Or will I, for one, be able to continue to treat them as a bad set of books and continue making the corrections in my (Excel) ETB instead?

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