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