Five things you need to know about practice software under MTD

Picture of keyboard and hacker
By Philip McNeill, ICAS Head of Taxation (Tax Practice and Small Business Taxes)

1 May 2017

Are you ready for the transformation? The current timetable is for MTD for Business (MTDfB) to go live from April 2018.

Philip McNeill looks at implications for practice tax software under MTD.

The predominate focus so far with MTD has been on technical tax changes, digital accounting and what it means for taxpayers. But there are significant implications for tax software. To get your practice ready for MTD here are five things you need to check.

1. Access is via your practice software

Access to client data under MTD is via your practice software. HMRC’s current agent online services will be gradually withdrawn as they are replaced by MTD.

The new model, supported by a five year digital transformation at HMRC, creates a new platform and data pool across all taxes. Your access will only be as good as your practice software. Find out what your supplier is doing. If you don’t yet use practice software, you’ll need to investigate the options.

Unless the timetable is reset after the election, there is just over 12 months to get ready. How soon will you know? Ask your software supplier now.

2. Before you can access client data, you will need to subscribe to HMRC’s MTD services for agents

This is not two parallel systems – old-style self assessment will fade out and future engagement will be via MTD for agents. In order to get involved you will need to enrol for HMRC MTD services for agents.

The information HMRC require initially will be limited, but your visibility changes. You and your clients will be linked on the HMRC radar. HMRC is going to have a big pool of data and will be able to monitor compliance history.

There is talk of agent segmentation – with ‘good’ agents obtaining preferential services from HMRC. Consider your business model and the implications of higher visibility.  

3. It’s all about APIs

“We’re a tax authority, not a software provider” – so runs the headline in Civil Service News as HMRC defended its digital plans before the House of Lords Economic Affairs Finance Bill Sub-Committee.

So HMRC is developing Application Program Interfaces (APIs) – which enable third party software to access HMRC systems, rather than programmes which allow direct access.

This has significant implications. Not all suppliers are developing their software at the same rate. And development of APIs for agents has lagged behind progress for individual taxpayer digital accounts.

When will your practice’s tax software be ready for MTD, and will it offer all the APIs available? Practice software may not be MTD ready before autumn 2017.

In the longer terms, will your supplier develop functionality for all HMRC APIs? Some suppliers may decide not to offer some of the more unusual / less common options. While it is speculation at this stage could this cover, for example, averaging for farmers, artists and writers, seafarers and other areas where there are special rules?

Your software will need to match your client’s needs.

4. Will your practice software talk to client’s software?

Details of the exact mechanism for finalising returns for business profits and how this links in with personal tax information, such as savings or rental income, claims and elections, pension contributions etc is not entirely clear.

The most likely scenarios are that HMRC will develop APIs to enable all the income, claims, elections and adjustments currently made under self assessment, to be made via the practice software. Alternatively, there may be limited options for adding data to Personal Tax Accounts.

Whatever happens, it may be necessary for your tax software to import data from your client’s MTD compliant digital records. As clients upgrade their records to become fully digital and fully MTD complaint, will you still be able to manipulate their data easily?

There are still some details needed about how MTD quarterly updates will operate in practice and how year end finalisation will work – and the implications this has.

5. Free software – what’s it about?

HMRC has said that there will be no free software for agents. But it has promised free software for some small businesses. In the recently published specification, the target of the free software is unincorporated business with turnover below the VAT threshold £85,000, without any employees and using cash basis accounting.

So if free software is available, and one of your client’s would like to use it, what is the answer? We are told “HMRC would not require free software to link or integrate with an Agent product”. The conclusion surely must be that to have an agent, taxpayers will need to buy software, and not rely on any free software.

Even with an extra year for smaller business provided in the Budget, it is worth talking to your clients now to ensure compatibility.

Conclusion

MTD moves into a new phase from April 2017. But it seems unlikely that agents will be able to join before the autumn. Given the very condensed timescale, it is essential that you know what your tax software provider is offering and what implications this may have for being MTD ready by April 2018.

Given that the 2017-18 pilot will not cover the year-end finalisation period – the key point of agent involvement – you may want to speak to your software provider about timescale and risk.

Topics

  • Tax

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