Making tax digital - quarterly reporting

The announcement in the Blue book about proposals for mandatory quarterly reporting of accounts information by businesses and landlords was a big surprise to me. I knew quite a bit about HMRC's digital agenda and developments, but the idea that it would be mandatory is not something I had heard before the autumn statement.

I am worried about the impact on smaller businesses and the additional costs they will have to bear, but also the fact that many of my clients will have no hope whatsoever of complying, and for some it won't be worth me trying to educate them.

I thought I would ask members' views, and have the following questions for you. It would really help me to understand this issue better if members could take 5 minutes to give their views.

1.  Do you think your clients want to report quarterly to HMRC - it will after all give them much more control over their tax liabilities which will be calculated quarterly?

2.  What proportion of your clients are sufficiently IT aware to make this possible in the short term (the next year or so)? I appreciate that this is quicker than the proposals indicate, but it tells me the current state of IT literacy in your client base.

3.  Do you regard this as an extra burden in terms of time and administrative costs for small businesses?

4. Have you considered, or are you now considering introducing bank feed software for clients to use, and if so do you think your clients are suitable candidates for it? To be suitable they would need to make most of their payments by online banking, as cheques and cash cannot be auto analysed. Accepting cash is OK provided it is banked intact on a regular basis.

5. Have you any other comments?

See Making tax digital for links to HMRC’s proposals issued on 14 December 2015. We are interested to hear your views on the proposals and timings so please add a comment below

  • The prospect of quarterly accounting is horrendous and surely almost impossible for small businesses if the sort of information is that which we use for annual accounts. Companies with properly staffed accounting departments used to management accounting procedures may well be able to cope, but small sole traders trying to keep basic records up to date are a different matter. Will small shopkeepers have to do quarterly stock-takes? How do we deal with prepayments and accruals? Or are we just talking cash accounting? Most small clients have difficulty providing information once a year. The thought of chasing all small business clients and getting accounts prepared and out to clients and back and into HMRC will make huge demands on practitioners and at costs which small clients will not be able to afford. Being semi-retired, I have very few business clients now but chasing property owning clients four times a year will not be welcomed  by them or me! Will all  businesses be required to have tax year accounting dates. What about clients with long established businesses and 30th April accounting dates. It seems totally unrealistic to think that accurate tax liabilities can be arrived at on a quarterly basis.
    Some of the publicity is saying that the quarterly reporting is to be introduced from April 2016. I trust that that is not the case, surely it cannot be dealt with without a lot more preparation time. As regards computer based records updated by clients, many of them have enough difficulty in assembling even rudimentary manual accounting records and regard computers with suspicion. I cannot see how this is going to work.
  • In brief my answers are (1) no, (2) some; (3) yes and (4) no.  I agree with all of the previous comments so shall not repeat them but in answer to (2) I would add that although many clients are IT literate these days it does mean that they can produce an impressive spreadsheet but with wildly incorrect figures.  I can see quarterly reporting leading to some frightening results which we shall have to unravel.
  • Apart from endorsing what is said above, the promise of software is pretty empty given that the "free" software from HMRC cannot cope with anyone with slightly complex affairs (not difficult with today's legislation); further cost for taxpayers or their advisors. Incidentally why should taxpayers be forced to pay for software to meet their statutory obligations, given that HMRC has a tendency to "lose" paper returns.
    Surely the hidden agenda here is quarterly in year payments on account (very large corporates being in the vanguard here) with the option perhaps of using the prior year liability to establish instalments if the quartely reporting is not done, but with some no doubt draconian penalties if that option results in underpayment.
  • I will be a dissenting (controversial?) voice here.  

    The systems that IT-literate clients use will continue to migrate to the cloud, Xero etc, - that way quarterly reporting will not be an issue - hence Gary Turner disappearing from the Autumn Statement session excitedly - the quarterly reporting from cloud packages will be a convergence of HMRC & client/Practice systems.

    Non-IT-literate clients will have to move to a process where they are hand-held in systems that enable their advisors to collate their data - the IT can be set up and run/supervised by the advisors - Receipt Bank etc is not hard to use - and if the client can only bundle papers into weekly/monthly packets posts - Receipt Bank or the advisors can handle that.  (The hopeless cases will be less likely to lose everything if they know they need to send it off each week rather than wait until the middle of next January).

    As an example, I have this week arranged with a client who wants to keep tabs on her tax bill for her to send us her bank statements each month - we can then use IT (AutoRec and Xero) to generate the figures quarterly.

    The real issues are the period-end adjustments - as Colin described above - stock-taking/ accruing income etc.  Presumably the quarterly reporting would have some form of annual adjustment akin to VAT Annual Accounting?

    I am not down-playing the work involved in developing ways of working that can give quarterly returns but this is the way the world is moving and I think we have to think of ways we can move with the times rather than say "this is the way we have always done it"
  • 1 I doubt if any of my clients want to report to HMRC quarterly. Some of them are competent enough to be able to estimate their tax on a regular basis but that's a different matter to reporting it.

    2 The proportion of my clients who are sufficiently IT aware to be able to do this in the short term is low. I have concerns that many of them would never be sufficiently IT aware. But there is the issue as to how accounting and tax competent they are as well.

    I have a client who uses FreeAgent, which is one of the developers of these apps. When I looked at his FreeAgent account I saw that there were some 500 unexplained bank transactions for the year. That means that the accounts and tax FreeAgent calculates during the year is meaningless. He's one of my most computer literate clients,
    I don't think the HMRC or the Chancellor has ever used of the acronym GIGO - Garbage in, Garbage out. That acronym is very relevant to the proposals and what will happen if they are implemented.

    3 There is no doubt that this will increase bith admin time and expenses for small businesses. Those who do their own reporting will have less time to be able to generate income and also incur the cost of the software and the support that they will need. Those who use accountants will incur significant increase in fees.

    There is also the problem for people such as landlords who will be faced with the same issues (other than those with employment/pensions and the rental income is <£10k.

    4 The experience I mention in 2 above doesn't encourage me to start pushing clients into bank feed software.

    I was speaking with a client this morning about this. Modest self employment income, around £15k net. Keeps records on a spreadsheet. He feels IT literate enough to do this, but not accounting/tax literate to wish to report it to HMRC. If he is faced with this, he will give up and try to get a PAYE job. I think that there will be many who do that, or if they are nearing retitrement, retire. There will be a hit on the economy which will impact on the tax generated.

    I was speaking with another client last week. He is a landlord with no other income. He thinks the proposals are lunacy.

    I have another client, a company, industrial roofing, some £6m turnover. Admin staff snowed under with work. They are terrified by the proposals though they come in later than for self employed. The annual accounts are done about 6/7 months after the year end a) because they are behind with things such as bank recs - they would have no choice but to take on more admin staff to deal with this, thus extra costs. b) because they have contracts which last months they need to recognise profit on a proportional basis. They have to do accounts several months after the year end to be able to assess the profitability of those contracts in progress at the year end. If they do WIP earlier, then the WIP calculations would be little more than a mix of guesswork and hope.

    So what is going to be the filing deadline for quarterly reporting? 30 days as with VAT reporting? For the roofing client, that's an impossibility.
    And for accountants, 4 time a year filing within 30 days as compared to once a year with nearly 10 months. !!!!

    Question. If this is coming in from April 2018, what happens with tax returns for 2017/18 with a scheduled filing deadline of January 2019? Quarterly reports for 2018/19 being submitted ahead of 2017/18 returns? Or will the filing deadline for 2017/18 be reduced to 30 June 2018?

    Question Is the intention that it is total accounts figures being submitted as with tax returns or is it the intention that the account data be submitted, ie the equvalent of a nominal ledger or cashbook? The intention of HMRC is that it will reduce errors. Quarterly reporting in a short time scale is more likely to increase errors. Howvever if HMRC has access to the data, they have powerful computers which can interrogate the data to identify what they think of as errors. And HMRC are allowing a year for the implementation of digital VAT reporting. Considering that VAT returns are filed online with HMRC why is there the need to allow a year for digital reporting unless it's the data behind the return which becomes reportable.

    I note that there will be testing of the reporting leading up to the implementation. One hopes that this testing on taxpayers will be done, not by those whop opt in to taking part, but on a proportion of the taxpayer population such as a town. That way, that would give more representative results as to the ability of people to be able to do this. The concept of digital accounts is fine in theory, but in real life, it's not going to work for many years until the majority of self assessment and corporate are far more digitally aware than they are at present. Digital reporting should be optional, not mandatory.