Save content
Have you found this content useful? Use the button above to save it to your profile.
Xero MTD ITSA submission routine, beta version, spring 2022

Xero goes public with MTD ITSA tools

by

The end of the extended January season prompted a flurry of activity from HMRC and tax software developers to bring forward programs that will handle the next generation of tax filing processes.

2nd Mar 2022
Save content
Have you found this content useful? Use the button above to save it to your profile.

First to break cover was Xero, which started briefing accountants with an introductory video last week about its MTD for income tax (MTD ITSA) tool.

Following swiftly in Xero’s wake, QuickBooks Online announced that it had gained production credentials for its MTD ITSA mechanism. This signals the developer’s readiness to take part in the public pilot scheme that will start to expand from the beginning of the new year and users are promised a preview of the new filing facilities during the QuickBooks Connect event on 9-10 March.

A quick check of HMRC’s MTD ITSA software page hints at the source of all this activity. While a number of new names like Xero and QuickBooks have been added to the “In development” section, four of the previously “Available now” products have dropped off that section, including Absolute/Forbes, IRIS and Rhino.

Xero product compliance manager Stuart Miller explained that appearing in the “in development section” on HMRC’s meant that a developer had passed one of the steps on the MTD ITSA journey – usually the quarterly update stage – while those who can cover the whole process from end to end are moved up to the full, “available now” section.

The question remains why some previously compliant developers have dropped down the pecking order, but the overall total of 20 developers on the list shows that the MTD ITSA software effort is beginning to gain momentum.

Xero sneak peek

Xero’s MTD ITSA tools are still at the beta test stage, but being developed in parallel with HMRC’s pilot scheme plans so that Xero users will be ready to join the MTD test programme when it starts to widen out in April.

The MTD ITSA commands appear beneath Xero’s Accounting menu, and choosing that option takes you to an ITSA dashboard, where the user can view the status of previous and upcoming submissions.

First, however, the user needs to join the MTD regime. This is done via a “Connect with HMRC” page that advises the user of the filing requirements and includes a “Get started” link that jumps across to HMRC’s agent authorisation page. This sequence is similar to MTD for VAT, where the user is asked for their gateway details - or agent ID when acting on behalf of a client.

The key user ID within the system is the national insurance number (NINO) rather than UTR and on entering the taxpayer’s NINO, the software will retrieve details for each business associated with that number. Miller and Xero’s sneak peek video emphasised that taxpayers need to complete quarterly updates and end of period summaries for each income source.

Within Xero, that means that if several businesses are returned to the dashboard for a single NINO, the user needs to link each business listed on the dashboard to the specific business ID within Xero.

Once that’s done, Xero will pull data in automatically from the ledger and map the expense categories to the headings on HMRC’s submission form. The taxpayer can drill down from the summary totals to the underlying transactions, but cannot edit the summary data. Any changes can be made to the underlying digital record in Xero and the update resubmitted to maintain the digital link between the records and submission.

Update sequence

In common with most developers, Xero is tackling the quarterly update process first, which will make up the bulk of filings for the first 12 months of MTD ITSA, Stuart Miller explained. “The main bulk of MTD ITSA will sit in the ledger,” he said. “The idea is that if the bookkeeping is kept up to date on a regular basis, all you will have to do is press a button to submit the quarterly update.”

At the end of the year, the taxpayer will need to submit an end of period statement for each trade, which again will be handled as part of Xero’s Accounting ledger.

The last step in the end of year process, known as finalisation, will be where any allowances or adjustments are applied to the final balances to come up with the taxable profit figure for the year. That element of the software is still on the drawing board.

“Our main priority was to get quarterly update credentials so we could get customers into pilot,” said Miller. “You’re not going to need end of year statements until 6 April 2023 at the earliest – and we expect to have that ready so we can do submissions by then.”

Subject to the demands of HMRC’s software journey specifications, the Xero MTD ITSA experience lives is remarkably intuitive. “When we build products, we want to work with the accounting and bookkeeping community to make sure it will do the job they need to do and enhance efficiency of the jobs they need to do with clients,” Miller said.

The Xero routine to correct the original records and resubmit an amended quarterly update – rather than including a missing invoice in the next period’s submission – reflected a slight “quirk” within the HMRC guidance, according to Miller. “The MTD ITSA statutory instrument and developers’ guidance say different things,” he said.

“The statutory instrument follows the MTD for VAT approach – just update it the next time, it will all wash out at the year end. For our build, we had to follow the developer specifications to get our credentials. HMRC has not confirmed if or when the statutory instrument would be corrected.”

Replies (27)

Please login or register to join the discussion.

avatar
By Hugo Fair
02nd Mar 2022 18:27

"HMRC has not confirmed if or when the statutory instrument would be corrected" ... so HMRC's developer specifications aren't in line with the statutory instrument (but never mind because HMRC are always 'right').

"You’re not going to need end of year statements until 6 April 2023 at the earliest – and we expect to have that ready so we can do submissions by then" ... so join now on a wing and a prayer (and close your eyes as to the risks 12 months downstream).

"The last step in the end of year process, known as finalisation, .. is still on the drawing board" ... and that applies to HMRC's understanding of it (not just the 3rd-party developers).

But not to worry ... "Within Xero, that means that if several businesses are returned to the dashboard for a single NINO, the user needs to link each business listed on the dashboard to the specific business ID within Xero".
So, (a) you have to run all your businesses on the same software and (b) you have to possess a NINO (which is not actually a statutory requirement for working in the UK).

It's like being given advance warning of all the separate components just prior to a car crash ... but no-one actually saying 'Hey isn't that usually indicative of a motorway pileup?'

Thanks (6)
avatar
By Paul Crowley
02nd Mar 2022 20:59

Does anyone believe any of this nonsense?
MTD cannot cope with people who claimed SEISS?
Only 9 in the pilot? All of whom are being handheld by expert Agents.
The crash is inevitable

Thanks (4)
Head of woman
By Rebecca Cave
03rd Mar 2022 08:51

“The MTD ITSA statutory instrument and developers’ guidance say different things,”
And therein lies the problem - the actual law ( which is still in draft) and the instructions to software developers do not agree. Will they ever agree?
How will we know?
Traders will be taxed by software instructions not by the tax law?
Does software impose a legal tax charge ?
No.
Who audits the software to check it is in line with tax law
No one.

Thanks (6)
Replying to Rebecca Cave:
By ireallyshouldknowthisbut
03rd Mar 2022 09:49

i'm not sure it matters a jot. The quarterly filing data just lands in a blackhole so you can get your gold star from teacher for doing (or at least looking like you are doing) your bookkeeping quarterly like a good tax payer.

its completely unconnected to the filing of taxes.

Thanks (1)
Replying to Rebecca Cave:
Morph
By kevinringer
03rd Mar 2022 12:35

Rebecca Cave wrote:

Who audits the software to check it is in line with tax law
No one.


We only need look at the hundreds of MTD VAT products and the myriad of spreadsheets that business owners have created with no training or knowledge. HMRC accept the lot. They're not concerned about the accuracy as demonstrated by the fact that the tax gap has increased since the start of MTD VAT. HMRC now accepts any rubbish as long as it is digital rubbish.
Thanks (3)
Replying to kevinringer:
avatar
By Hugo Fair
03rd Mar 2022 13:35

"HMRC now accepts any rubbish as long as it is digital rubbish"

Shame we can't append a slogan/by-line to those quarterly returns:
"This is not just rubbish .. This is digital rubbish" (altho' M&S might sue).

Thanks (2)
By ireallyshouldknowthisbut
03rd Mar 2022 09:28

Seems like a lot of work for the software cos for something which is unlikely to be compulsory any time soon.

Its been what 8 years now? my guess that the reason there are fewer developers still in the game is most rational businesses would mothball the project to avoid throwing more good money after bad in chasing HMRC's fantasy, but the larger players can afford to leave a couple of people on it to tread water just in case it happens.

Anyway, as ever do remember readers, you DONT need cloud. If it happens, you can bridge in excel from whatever you do now. its a "cheap is best" product, all you are doing is dumping low quality bookkeeping data over to HMRC. Quality is irrelevant and this does NOT form part of the replacement tax return which no-one has any evidence of being even close to being started to be developed, let alone imminent.

Thanks (1)
avatar
By North East Accountant
03rd Mar 2022 09:50

"correct the original records and resubmit an amended quarterly update"

OR

"just update it the next time, it will all wash out at the year end".

This has huge ramifications.

If it's the first one then never mind 4 quarterly updates there could be tons.

4 submitted by taxpayer.
4 amendments each quarter correcting errors/late invoices on the previous one.
4 amendments when the accountant does the year end.

For every income source.....

And if the accountant is doing the quarterly whilst there should be no errors late invoices do happen so still amendments.

How does getting approval (where the Accountant does it) for every submission fit into the just press a button nonsense that HMRC seem to think is all that needs to happen?

Thanks (2)
Replying to North East Accountant:
By ireallyshouldknowthisbut
03rd Mar 2022 10:17

Why would you bother amending the junk quarterly filings? They have no practical function for the tax payer.

Who is going to check exactly?

Seems like busy work to me.

Thanks (2)
Replying to ireallyshouldknowthisbut:
avatar
By North East Accountant
03rd Mar 2022 14:10

If it's a legal requirement.

Accountants can't just ignore legislation that they think is pointless....

Thanks (0)
Replying to North East Accountant:
Morph
By kevinringer
03rd Mar 2022 19:28

It will be up to clients to operate HMRC ITSA. Though I have encouraged all my clients to comply with MTD VAT, not all of them have and some are still completely ignoring it 3 years after mandation. If those clients were not paying the correct amount of VAT then I would consider ceasing to act for them. But no, those clients are maintaining accurate records, filling in their online VAT return when due, paying the correct VAT when due. The only thing they are not doing correct is maintaining the records in the format dictated by HMRC nor filing using the mechanism dictated by HMRC.

Thanks (0)
Replying to kevinringer:
Richard Sergeant
By Richard Sergeant
04th Mar 2022 10:02

That's incredible. Is that because the online filing system is still open?I thought it was only for those that mandated to start by this April that still had an opportunity to turn up and bang numbers in?

Thanks (0)
Replying to rsergeant:
Morph
By kevinringer
04th Mar 2022 10:55

HMRC are moving all VAT registered businesses from the old mainframe to the new ETMP (or whatever it is called) system. If the client has not signed up for MTD, when they/we log into their account we are presented with a VAT form with boxes 1 to 9 available for manual input, even if they're mandated. It appears HMRC has not put anyone straight into MTD unless they actively applied to join MTD.

Thanks (1)
Replying to North East Accountant:
By ireallyshouldknowthisbut
04th Mar 2022 14:28

North East Accountant wrote:

If it's a legal requirement.

Accountants can't just ignore legislation that they think is pointless....

Assuming MTD actually happens, I certainly wont be policing what junk data clients file. Its has nothing to do with the bit I am engaged for - working out their tax bill. This is a bookkeeping reporting task, not an accounting or tax job.

For clients who don't want to file their own junk data, I have a chap who can act as their bookkeeping and press the buttons. Its commercial suicide if we get involved in this nonsense to tie up 4 months of the year filing garbage data no-one is even going to look at or use on a "cheap is best" basis. I have actual work to do.

Thanks (1)
Replying to ireallyshouldknowthisbut:
avatar
By North East Accountant
04th Mar 2022 15:32

And when HMRC ask for a reconciliation between the 4 quarterlies and the End of Period Statement....?

Thanks (0)
Replying to North East Accountant:
By ireallyshouldknowthisbut
04th Mar 2022 16:06

[quote=North East Accountant]

And when HMRC ask for a reconciliation between the 4 quarterlies and the End of Period Statement....?

[/quote

I have never seen that in any of the proposals, nor where they are going to get all the staff from to attempt such a thing. It would be massively time consuming on their part and for what purpose? And for what possible consequence for the client? All the rules say if you must file quarterly or get fined. They don't mention quality, and indeed all the official stuff says its just 'something'. We have but 6 minutes to collected, prepare, check and file it.

In the event of a hypothetical reconciliation all you are going to say is "the client prepared this data per your guidelines. We have made no refence to the quarterly filings in our work and so are unable to provide commentary on the discrepancies between those files and the data supplied for tax purposes. Difference may include, omitted or double counted expenses or income, adjustments for accruals and prepayment and general errors made by the client. Now the door is over there, shuffle off I am busy"

I mean, how often does a client bookkeeping file come into you, and leave with zero adjustments to tax? Once or twice a year?

Thanks (0)
Replying to ireallyshouldknowthisbut:
Morph
By kevinringer
06th Mar 2022 10:33

My understanding from HMRC's initial requirements (which may well have changed from 2016) where, like MTD VAT, MTD ITSA would require the digitisation of transactions. These would be totalled every quarter to form something similar to the existing SA P&L and balance sheet, albeit without accruals, prepayments, stock, depreciation, private usages, capital allowances etc. It is the P&L and balance sheet that would be digitally submitted to HMRC. Like MTD VAT, the link between the transactions and the submission must be digital. The annual ITSA would be combination of all 4 quarterly submissions, together with the final submission containing stock, capital allowances etc and also the tax return submission.

I can see this being the death knell to tax return software used by accountants because the functionality would need to be built into the transactional software: QBO, Xero or whatever. There would be no need for the likes of Iris etc. That is if it was to work as HMRC intended. But HMRC failed to consider how clients operate in the real world. Joe the Plumber might actually use QBO for his plumbing business, but he's also in partnership with his brother in another business which uses Xero. And he has a rental property in joint names with his wife and she uses a spreadsheet and bridging software. How is all this software going to work together so that Joe files a tax return is beyond me. This is just one of many reasons why HMRC needs to understand MTD ITSA is not straightforward like MTD VAT. MTD ITSA is massively more complex and I don't see how it is going to work. That's why I think ultimately it won't happen. It's going to be like Universal Credit replacing Tax Credits by 2017: it's now 2022 and that still ain't happened either because UC can't cope with the complexity of partnerships. HMRC has already had to postpone MTD ITSA for partnerships by another year on top of all the previous postponements.

Thanks (1)
Morph
By kevinringer
03rd Mar 2022 12:39

"flurry of activity from HMRC and tax software developers to bring forward programs that will handle the next generation of tax filing processes"

Where have they been? This pilot started in 2017. Surely what the software industry is doing now should have been done 5 years ago. And that fact that some mainstream supplier such as Iris are doing less now than 12 months ago says it all. MTD ITSA will never be mandated in its current form because it is way too complex compared to MTD VAT. And remember that MTD VAT has failed to achieve its primary goal: to close the tax gap.

Thanks (1)
avatar
By GHarr497688
03rd Mar 2022 12:46

Well lets hope lots either don't comply and Accountants that can retire do. I will be and that 80 clients not computer minded in their late 60's looking for a new Accountant to train them up on computers with that entails. On top of that millions can't even file a SA until the last minute so how the hell are they gonna file 6 times a year. The only reason MTD4Vat got through was the fact most people must be getting 9 numbers into bridging software without HMRC even knowing. Absolutely daft. Too big a change , too soon and not tested.

Thanks (5)
Tornado
By Tornado
03rd Mar 2022 13:27

A lot of comments but no one has mentioned how catchy the advert is

Zero with an X de-da-de-da.

It certainly brings a smile to my face

Thanks (0)
Replying to Tornado:
Morph
By kevinringer
03rd Mar 2022 19:34

Sorry, I don't know what you're on about because I never get time to watch TV because I'm spending every waking minute teaching all my clients how to be accountants so they can comply with MTD ITSA. We all know what the average HMRC "customer" is incapable of, so if I don't put in all these hours starting now they're not going to ready for mandation by 2025. Remember, it probably took each one of us some years of training before we could produce accurate set of accounts without a senior finding a mistake. So if HMRC want our clients to do the same, those several years of training has to start now. And don't rely on the software because there's no intelligence in it and HMRC's promised "prompts and nudges" have not materialised.

Thanks (4)
Replying to kevinringer:
avatar
By anthonystorey
04th Mar 2022 10:43

"I'm spending every waking minute teaching all my clients how to be accountants so they can comply with MTD ITSA."
Yes, and they won't need your services once they are trained up and have got the software to do everything.

Thanks (0)
Replying to anthonystorey:
Morph
By kevinringer
04th Mar 2022 11:05

anthonystorey wrote:

Yes, and they won't need your services once they are trained up and have got the software to do everything.


Agreed, because the software will let them claim VAT on anything eg insurance, business rates, drawings, even the VAT payment itself. When clients prepare their own figures they see a nice refund but when we go through and remove all the mistakes, the client then owes VAT. As far as the client is concerned, they're better off doing it themselves. I've got a garage client that switched to QuickBooks Online when he started MTD and he's had VAT refunds ever since. That's because QBO gives the client the option to recover VAT on everything, so he does, even when there's no VAT. He does the VAT himself, it's not part of our engagement so it isn't our responsibility. I've told him that there are errors but he doesn't want to pay me to review the VAT and I can see why: why pay me to end up a bigger VAT bill and because HMRC say he has to use software then he's doing exactly what HMRC want him to do. He also said that HMRC should make sure the software works and if HMRC are irresponsible it isn't his fault if the software isn't robust enough to be used by tradespeople with no accountancy experience. He wants me to prepare his Tax Returns only from his QBO records. I guess when the ITSA module is working in QBO the client won't want me to do the ITSA either because no doubt QBO will let him claim income tax relief on his drawings too. HMRC are well aware of what's going on but they're not bothered. As I've said before, HMRC seem to accept any rubbish these days as long as it's digital rubbish.
Thanks (4)
Replying to kevinringer:
Tornado
By Tornado
04th Mar 2022 11:39

Hello Kevin

I think you are possibly 'caring' too much about something you cannot control.

As you have highlighted, MTD in all forms is likely to be a disaster but it is not our responsibility to make MTD for VAT and MTD for ITSA work, this is entirely the responsibility of the Government, and it not for us to jump through hoops trying to work around the problems. The solutions must come from Government.

In my view, it is the responsibility of software providers, like Xero, to ensure that their software is designed in such a way that even people with no knowledge of Accounting can use it properly. This is essentially what the Government are expecting.

I care about my clients but I am not going to waste my time on systems that do not work properly. HM Government should have only introduced MTD when the systems were fully complete, tested and working faultlessly. There is no obligation for us to work as unpaid testers.

With regard to the April deadline for MTD for VAT, with hundreds of thousands of people not signed up yet, there is bound to be an announcement shortly that there will be a deferment of this requirement or, as seems already the case, people will still be able to submit VAT Returns the old way for an indefinite period. As incompetent as HMRC are, they are not deliberately going to make it impossible for people to submit Returns and pay the tax due.

So yes, we care about our clients and do our best for them, but you cannot do the impossible, so a compromise is needed where required to assist our clients that does not require us to work for nothing or make ourselves ill in the process.

Thanks (4)
Replying to Tornado:
Morph
By kevinringer
04th Mar 2022 14:32

I'm not actually training my clients to be accountants. I'm doing nothing in readiness for MTD ITSA because (1) I've got too much other more pressing stuff to get on with (2) the MTD can has been kicked down the road so often I'm expecting it to get kicked further and (3) my clients won't thank me or pay me to teach them and (4) there's nothing in it for my clients other than increased compliance bills and stress. I could go on. Given the gulf that exists between HMRC's MTD expectations and reality, I'm wondering just how many more years are HMRC going to continue so isolated from the real world. Surely now they know the tax gap has increased under MTD VAT they should be getting worried that the MTD vanity project is not achieving what HMRC want it to achieve. Or are they really so isolated from reality that they have no notion of what is going on outside of their ivory towers?

Thanks (3)
Replying to kevinringer:
ALISK
By atleastisoundknowledgable...
09th Mar 2022 17:44

Kevin, I’m curious - how much work do you do (of any) on the vat errors to got the tax return right? Or is it more of a filing only service? Mechanic’s figures, bish bash bosh not my responsibility m’lord. (For the avoidance of doubt, I’m not calling you on that, most of my tax returns are based on a number written by the client on an Excel).
Genuine curiosity question.

Thanks (0)
Replying to atleastisoundknowledgable...:
Morph
By kevinringer
09th Mar 2022 19:33

The service we offer is tailored me meet the needs of the client. It ranges from filing only to full VAT accounts (where client delivers stacks of papers and we input into spreadsheets or software). But the filing only isn't literally filing only, we always cast our eyes over the figures to see if there's anything that is obviously wrong, that they've included scale charges etc. The garage I mentioned did their own filing and didn't want us to do any aspect of their VAT: our engagement is accounts and tax return only.

Thanks (0)