Making Tax Digital - are spreadsheets still relevant?

There is much hustle and bustle going on around Chartered Accountants Hall currently regarding UK Government's and HMRC's proposed plans for modernising tax administration, under the title Making Tax Digital.  HMRC recently posted a set of six consultation documents, outlining all the various proposals and plans that make up part of this.

The flagship proposal is that almost all companies, partnerships, and unincorporated businesses will over the next few years have to move to submitted summary financial information on a quarterly basis.  HMRC will use this to project likely tax liabilities for taxpayers and update their own records, before combining with a year-end update to calculate the final tax bill.  While there is a lot more detail to it than that, and the Tax Faculty and ourselves are working extensively to review and comment on the proposals, that's not what I'm here to talk about today.  (If you are interested in the consultation process, we are hosting a joint event with HMRC on the subject on Tuesday 4th October in London).

What we are talking about today is this: in the consultation paper 'Bringing Business Tax into the Digital Age', the following section appears:

2.12. HMRC 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. We are interested in the views of businesses on how spreadsheets could meet the requirements of MTD as set out in subsequent chapters of this consultation.

Question 1: What are the challenges for businesses that currently keep their records on paper or simple spreadsheets in moving to an integrated software package for record keeping and what further measures or support would help businesses to meet these challenges?

So, what about spreadsheets?  Certainly from practical experience I think we all know that spreadsheet use is still ubiquitous for smaller organisations (and some larger ones) tracking their financial activities and information.  The HMRC response frames this question in two ways - in the paragraph, it is asked whether spreadsheets could be made to a standard that would be compatible with the MTD paradigm.  The actual content of Q1, however, is asking more about supporting businesses that are transitioning from using spreadsheets to using specialised software, which somewhat begs the question by assuming that spreadsheets won't be necessary.

Focusing on the initial element - the technical details behind what will be needed to interface with HMRC's APIs and report information into MTD is not yet finalised, so we can't say for sure that a spreadsheet could meet the technical requirements.  However, at this stage of the consultation, the better question would be: should spreadsheet reporting be acceptable for HMRC?

I would argue that a properly-formatted spreadsheet should absolutely be an acceptable way of interfacing with HMRC for the new quarterly reporting requirement.  A spreadsheet format would reduce the transitional and ongoing requirements for smaller companies and unincorporated businesses, which otherwise would be required to acquire and learn to operate new software.  With spreadsheets already acting as a near-universal part of financial processes in companies large and small, certainly HMRC could make some headway into reducing the pains of transition to MTD by accepting spreadsheet data submissions.

Obviously HMRC could not accept totally unstructured data, and a robust, protected, and self-auditing template would be required for spreadsheet submissions to be acceptable.  However this is not necessarily a barrier, with Excel and the other spreadsheet packages all containing multiple tools to control and restrict user inputs.  These tools include data validation, conditional formatting, logic checks, VBA controls, and many more.  The scope of different types of information that would be needed for MTD would be large, but it should be possible with focused development.

So - what do you think?  Are spreadsheets inevitably moving into obsolescence, and not needed for MTD?  Are they so widespread that allowing them is necessary?  Is the information that MTD will require simple too much for a spreadsheet to handle?  Or could a well-designed template help out after all?  Post a comment and let us know your thoughts.

  • It may be a good idea to see how regulatory reporting using spreadsheets works. See the Crown Dependencies and their bank prudential reporting.

    Most businesses should be able to compile a report in the required form on a spreadsheet and then transfer the data to the reporting sheet. There is a need to have proper procedures and controls but that is nothing extraordinary.

    As a matter of liberty it would be wrong to force businesses down this route. The HMRC systems would also need to be able to cope. It is easy to imagine that businesses will be caught up in teething problems and subsequent reimbursement of penalties.

  • David

    Just to note I attended the Tax Faculty workshop today called to provide volunteer input to the MTD consultation documents. The use of spreadsheets was raised by a number of the groups with a positive requirement that it should be allowed as a tool of choice; it is commonly used by both small and large organisations (the latter may run systems like SAP, but very often final reporting is pulled together in a spreadsheet). So it may be worth considering the creation of a formatted template using the APIs that HMRC will be releasing soon... And in terms of 'spreadsheet' or 'Excel' - it was the latter that got the mentions.