Host
Philippa Lamb
Guests
- Katy Worobec, Fraud Prevention Consultant, A Jolly Consulting
- Lindsey Wicks, Senior Tax Technical Manager, ICAEW
Producer
Natalie Chisholm
Series Lead
Mark Rowland
Transcript:
Philippa Lamb: Welcome back. Two stories for you today. First, we'll be taking a look at the government's Fraud in the Digital Age report. What does it tell us about trends, and what can businesses do to protect themselves? Risk and fraud specialist Katy Worobec from A Jolly Consulting is here to talk us through the findings. And with the first submissions deadline for income tax under the new Making Tax Digital system just gone, how did it go? Lindsey Wicks is back with us to discuss the lessons learned for the next submission. First, though, fraud and Katie Worobec. Hi, Katy.
Katy Worobec: Hello.
PL: We all know digital has really popped up fraud. This report, though, it does describe a really dramatic evolution in the methodologies, doesn't it? Do you want to just describe where the landscape is right now?
KW:Yes, I mean, I really like this report. Actually, it's very good at sort of just drawing the sort of current perspective on where fraud is, and I think the landscape is pretty much one of…we see the same types of fraud, but on steroids, if you like. So we've got things at scale. We've got lots of people being targeted. So it's almost more of the same, but much more of it because of the way that tech is used these days.
PL:So tech's elevating it, but in terms of the sheer volume of fraud, a lot more?
KW:Yes, yes, I think so, and I think if you look at fraud right across the piece, there is a lot of it that we probably don't even know about that's underreported as well. So I think you know, as people are fond of saying, it probably is the tip of the iceberg in terms of what is actually happening out there.
PL:I was amazed to see fraud, and we know it's a widely perpetrated crime, but the report tells us it now accounts for half of all reported crime. I was really surprised to hear that.
KW:I wasn't, sadly, but yes, I understand why it would be shocking if you weren't sort of involved in fraud because it's it is a very easy crime to commit, sadly, and the tech has only made that easier for criminals, both opportunists and organized criminality to get involved in it.
PL:And when, as you say, a lot of it probably goes unreported, the number is even bigger.
KW:Yes, absolutely, I'm sure it is. The other challenge is that we don't really have one version of the truth when it comes to measuring fraud. There are different organisations that do record fraud in different ways, and some of them are very precise, but some rely just on surveys and on interviews, so you can't necessarily rely on one single source of truth to tell you what is going on.
PL:So that's obviously not helpful, but I'm guessing they're all seeing an escalation, are they?
KW:Yes, yes. Anything that you're looking at is a good indicator of what's happening. I think.
PL:So how much of this is corporate fraud versus scams directed at consumers? Do we have any sort of sense of that?
KW:I think it's very difficult to say. One in four businesses are supposed to have experienced fraud at some level, but I suspect that corporate fraud may be even more underreported than consumer fraud, simply because in the case of the consumer, often the bank will reimburse you, so it's in your interest to report it, whereas it may not be as much in a corporate's interest to report fraud. So it's difficult to speculate. I think
PL:I'm interested to understand the global picture. Presumably, there are hotspots, are there, in terms of where fraud is committed?
KW:Yeah, I mean, I think the UK is a target for fraudsters. I'm not an expert of exactly, you know, how many places across the world and what exactly they are recording, but we know that fraudsters do target UK because the UK is – or English, I should say – is a universal language and is easily understood and used. So we know the UK is a target. We also are in the UK. We are very fond of online banking and banking using sort of new technology. We're very good in that sense. So there again lies more opportunities for the fraudster to target people.
PL:And obviously, financial services is a huge industry here.
KW:Yes, indeed, it is.
PL:All of that contributes to us to being right in the sights of this. Getting onto specifics, how are criminals using tech to perpetrate corporate fraud? AI must be factoring heavily into it.
KW:Absolutely, it's probably easier to say which crimes aren't using tech because every single crime that we're seeing has got some kind of tech underlying it. But I suppose thinking about what we're seeing today, certainly AI features, and it's obviously the sort of sexy thing that everyone talks about-deep fakes and so on-and that's certainly making a difference. But I think, from my perspective, it's about the fraudsters being able to do what they've done in the past, so pretend to be somebody else, impersonation fraud, but on a scale and a credibility which we haven't seen before, and that's escalating all the time.
PL:Okay, so we've covered this on the podcast, I think, a couple of years ago. This idea of, as you say, faking real individuals. Give us a few examples or an example of how you've seen that play out in an organisation.
KW:I mean, there's a very well publicised deepfake which has been talked about in the last year. So, which was a bank – that’s not in the UK, I hasten to add, but it could be here – and that was somebody who was on a video call, and members of the senior management were deepfaked. In other words, their voices and their likenesses were used in a live call. So, there's an extreme example of how AI can be used.
PL:So this was a Q and A situation? live questions and answers?
KW:It was, I think. Our understanding was it was about financial discussions around the company, and as a result, money was moved as a result of that because the person involved believed that they were talking to a senior person in the executive on the board. So there is an example of a really, I suppose one would hope, is a fairly extreme example of how AI is used. But more readily, it can be used very easily to clone voices. So, again, at the other end of the scale, we see people who think they're talking perhaps to a CEO or a financial director of their company on the phone, and in fact, it is somebody pretending to be them and using a voice changer. So, again, that's the other sort of more simplistic and perhaps more readily seen use of AI in that tech space.
PL:Social engineering is the other thing that I keep reading about. This sense of people are still very much at the heart of these frauds, aren't they? This isn't stuff that is just about infiltrating systems.
KW:No, it's not at all.
PL:It's about driving behavior and obviously deluding people about who they're talking to. So how does that work on the ground?
KW:If we sort of stick to the tech sort of theme, you would probably be browsing your social media, whatever it might be, and you'll see adverts all the time encouraging you to either buy goods or perhaps invest, and that would then in turn take you to fake websites, which might encourage you to enter data, which is then used, or might encourage you to invest money, which you then lose. So the social engineering often starts in the social media space and on platforms, and then moves the person or the or the business into a place where they are start talking to them and build their trust. So there's a sort of starting place, and then where the fraudster takes you in order to continue to build trust and to get information or money from you.
PL:And I can see how that would be effective with consumer fraud, but it's happening with corporate fraud as well.
KW:Yes. I've already sort of mentioned the idea of somebody phoning up, pretending to be a finance director and wanting money moved quickly. It's always about urgency. Yes. So we see that, but there's also things like mandate fraud, invoicing fraud, where a company or a supplier says, "I've changed my bank details. Here they are, and it looks as if it's come from them because it looks like their headed note paper, it looks like their email address when in fact it's not. So again, if somebody without the right processes might well just take that at face value and pay the invoice to the wrong fraudster in this case.
PL:So before we get onto solutions and barriers to this, the bad news it seems to me is that there's a lot of reported cases that never get fully investigated, and that presumably drives confidence in the fraud sector, if we can call it that.
KW:Yes, I think there's a range of things that might encourage fraudsters. One is the lack of consequences as a result, but also the ease of how to do it. So the ways in which you are able to commit fraud and the tools that you need to do it are very accessible now, so you can very easily look online and find the tools that allow you to manipulate people. So those are very readily available. You don't need to be a tech expert to use them. So that would encourage opportunists as well as organised criminality. But we are seeing organised criminality very much using the tools that they're given, and it's very easy to commit. You don't get much consequence at the end of it either.
PL:So thinking about defenses, sharing information within your sector that must be a way forward, presumably.
KW:Absolutely, it is. And I've worked in the banking sector for many years, and they've come leaps and bounds since I started working in fraud to share information amongst themselves, and more recently with other sectors as well. Because I think it's important to note that whilst obviously the money might well come out of a bank account somewhere, it's about how that fraud is perpetrated, and if you can target upstream, if you like, so where where the fraud is initiated, rather than trying to chase the money after the event, that is much more effective. So data sharing is absolutely vital, I think.
PL:Yeah, because I'm thinking about the kind of regulatory framework around that. Because obviously, in some sectors, it's mandated reporting and making these things transparent. In others, it isn't. We've had the Economic Crime and Corporate Transparency Act, haven't we? I think, introduced these provisions for data sharing for, it was AML regulated companies?
KW:Yes, that's right. But I think sort of ring fencing AML, or it being AML-regulated companies, is not the answer. Not really, because you tend to sort of focus on compliance. Then what we're talking about and what really works best is if you can get as many people as possible to share information, and it's very difficult sometimes to get different sectors to understand what they've got might be useful to another party in a different sector.
So people like Stop Scams UK, for example, bring together the telecoms industry, the online platforms, and the banking sector to work together and try and encourage them to see what they can share and actually be adventurous about it, and I think we're often restricted in the UK, or people feel restricted, because legal advisers will say you don't want to do that. Might be a danger of civil liability as a result. So there's a lot of sort of reticence about sharing, where we could probably be braver if we're given the framework to do it in, and this is one of the things the report talks about.
PL:So the take up is not huge at the moment because of caution.
KW:I think there is caution. Some organisations are braver than others, depending on, often, personalities on the board who will be perhaps more adventurous and not be too hidebound by legal arguments. Legal arguments will always tell you there's a risk, which there is, but you know the advantages are much more than the risk, in my opinion.
PL:So the report touches on this, and what does it suggest in terms of getting more buy-in for for those?
KW:There should be a legal framework so that people are really not fearful of sharing information, and in the absence of that, some kind of memorandum of understanding, which again allows people to feel comfortable sharing information, which, on the face of it, might be perceived to be difficult, but is not really.
PL:And what other recommendations does it have for business in terms of prevention?
KW:Well, I think the main thing for me is that it talks about being proactive in prevention, which might be obvious, I suppose. But given that the whole purpose of this particular report is looking at sort of legal jurisdiction and how to deal with that type of thing, what it's saying is: let's be proactive in doing that. It's not about investigating after the event and what you do with that. It's about looking upstream and saying, what can we do to prevent that? How can we encourage law enforcement to look at that end, rather than try and investigate at the other end, and that is something that's been talked about for a long time. It's good to see it being reflected in this report.
Philippa Lamb 12:09
And internally within organisations: fraud risk assessment built into every iteration of your business, presumably?
KW:Yes, I would say that, and I think it's perhaps difficult for smaller businesses to, in their head, justify doing that. Perhaps they haven't got the experts on site. Their focus, obviously, in this environment, is to try and make money and not spend it on things. But there are experts out there who can help advise about fraud risk assessment and come in, look at your business and help you define what it is, where your vulnerabilities are, and what you should be doing about it.
PL:I mean, asking you whether that's money well spent. I think I know what your answer would be.
KW:It is, I think.
PL:But, right, so, is there data on that, in the sense of, you know, the return on that investment for organisations?
KW:Ah, well, therein lies the rub, I suppose. You don't know what you don't know. You know, if you're preventing fraud, you can't really evidence that, because you've got nothing to base it on necessarily, and sort of doing it after the horse has bolted isn't necessarily helpful either. So, I mean, I think everyone would acknowledge it's good practice that you should be thinking about fraud, and it's a constant thing that should be going on in the background as well.
It's not just a ‘one and done’ piece of work. You should be sort of every time you change a product or add a product or change a process, you know ideally you should be looking at your fraud risk assessment and say: does that change how I should be, what I should be doing internally and what I should be doing with my customers or suppliers?
PL:Every organisation, big and small, is talking about building AI into its systems and processes. You don't need to be an expert to understand this is opening the door to a lot of opportunity. Do you find that organisations you deal with are thinking about it in the context of fraud?
KW:So I think probably most people's perception of using AI and why they would be looking at AI is to help their efficiencies internally. So cutting costs, getting things done more quickly, all those sorts of things. So, in the great rush to do that, it's very easy to forget what that means in terms of whether it brings other vulnerabilities into your business. So, we just spoke a moment ago about fraud risk assessment. It should be an ongoing thing, and if you introduce something new, like some kind of AI tool, you should be looking at it from all angles to think, well, does that leave me vulnerable somewhere else, though. Very nice. I've saved money over here, but am I going to lose it over here because I've forgotten it might not provide information for a crucial process over here? So, yeah, you've got to think about it in terms of not just what it brings you in terms of benefits, but are there vulnerabilities that might come with it.
PL:Thinking about the reality we're all living in, which is that fraud is going to take place, and if it happens, your thoughts on how organisations should respond?
KW:The first thing you should be doing is, if you haven't done already, is to report it to a financial institution, your bank, and make sure that if there is any opportunity to get funds which have been lost, then do so. The second thing should be reporting it to Report Fraud, which collects all the intelligence from frauds of the UK and helps collate that intelligence and uses it proactively. And then I think, you know, when it comes to looking about what you should do internally, certainly you should be preserving evidence where you can in terms of phone calls, emails, etc. That goes without saying, but also in reflection, use the opportunity to again identify where things have gone wrong, where processes were weak, and use that to reinforce and play back into your action plan for preventing fraud in the future.
PL:And what about wider transparency? We talked a bit about your information sharing in your sector or beyond your sector. Obviously, there's regulatory requirements. There is always going to be a temptation to hide the breach, isn't there? You know, there's this sense of we've failed. There's been a breach here. We don't want to talk about it. What's your sense about that? Because there's a reputational risk versus the potential win of being authentic with your wider stakeholders. What do you advise your clients to do?
KW:Certainly, there's a duty I think to report breaches anyway, so you shouldn't be hiding behind it.
PL:But if you think about client bases, customers, you know the wider pool of people who aren't actually required to be informed.
KW:I think people that or businesses that are seen to be transparent about these get a better press than those than where it comes out of the woodwork some point further down the path, which often it does. So it's only really putting off the day if you don't actually report these breaches, and we've seen organisations that have come off very well because they're very open with their shareholders and with their customers to say: this is happening, bear with us, this is what you should do, this is what you shouldn't do, and are seen to handle the situation well rather than brushing it under the carpet and pretending it's not happening because it will come out at some point.
PL:Yes. Well, we saw those huge breaches a while ago. Marks and Spencer, Jaguar Land Rover. Those. I mean, how fast did they stand up and say this has happened? Do you know?
KW:I'm not privy to exactly what happened. I think certainly as a Marks and Spencer's customer, I did think that they handled it well. As a customer, I was pleased to see the type of communication that was coming out of Marks and Spencers at the time, so I felt that they did cover themselves well, considering the difficulties that they were obviously going through at the time.
PL:Yes, presumably, if you take the view that you're not going to talk about it, and then the difficulties are ongoing, and present themselves to your clients or your customers, yes, the risk is greater.
KW:Well, absolutely, because people say: Well, what is going on then? What are you not telling us? Why are we not getting the service we're expecting? Whatever it might be. So, and then, as you say, as I said, further down the line, something comes out, and you know, you have to admit that there has been a data breach, or it becomes obvious. It's not covering you in glory if you've pretended that nothing's happened up until then.
PW:Thanks very much indeed, Katy.
KW:Thank you.
PL:On to MTD income tax now. Welcome, Lindsay.
Lindsey Wicks: Hi, Philippa.
PL:The first submissions for income tax were made at the beginning of August. What were the expectations going in? I mean, obviously, there's HMRC, there's practitioners, and as clients, so were they all worried about the same things?
LW:I don't think they were necessarily aligned from practitioners' perspective. I think that they were worried about whether there had been enough testing of the systems at scale. There had been a pilot, but it wasn't at scale. It wasn't all software products, so they were worried about that. They were worried about: would the systems hold up when they were used at scale?
They were worried about getting client information, and they also thought that HMRC was possibly underestimating how much work is needed. It's not just the numbers that get submitted to HMRC; it's all of the record keeping and checking of those records that needs to happen before people are happy to actually press that button and send it to HMRC. So I think that they were worried that HMRC's expectation of the workload was vastly underestimated.
PL:And did HMRC admit to any, well – not anxieties, but worries about how the system might play out in practice?
LW:I think that HMRC was confident that there'd been enough testing and that people were ready. You know, there has been a lot of work across HMRC, across the profession. Accountants have been getting ready for this for – we've known about it for 10 years. So, albeit that there have been delays along the way, so you know it's been a bit start-stop in terms of getting ready.
PL:So, HMRC were optimistic that practitioners were feeling this feels like real time testing, perhaps.
LW:Yeah.
PL:And clients in terms of you know getting their information and preparation tasks in a row. How did that go?
LW:I think it's going to be mixed. So some of that population will be VAT-registered, so they're used to digital record keeping. They've had to do it for a few years for VAT, but for others it will be new. And I have seen on forums, for example, comments where accountants have been frustrated because they haven't got the records, and their clients said: "I'll get back to you after my busy period”, so I think that you know the message hasn't necessarily got through to clients. But there's also a lot of taxpayers out there who won't be using an accountant for this. I think the data shows that in this cohort, about 75% of taxpayers use an agent, but there'll be 25% who haven't got an accountant or a bookkeeper who won't necessarily have got the message that they need to do this in the first place.
PL:Oh, that thought hadn't struck me. So they don't even know they're supposed to be doing it”
LW:Possibly not. I mean, they should have had some brown envelopes from HMRC telling them to get ready.
PL:Right.
LW:Or emails, but whether or not they've actually read them and paid heed to that.
PL:And as you say, people who don't use advisors, they're choosing their own software. They're getting their heads around this system. I mean, it's a big change. It's a huge change. In fairness, I mean, it's the biggest change we've seen in decades.
LW:Yeah, last big change to income tax reporting was in 1996/97. So a lot of us weren't even, you know, working in tax then, or in the self-assessment system back then, so it is a big change.
PL:Yeah, so we need to acknowledge that we've had this first round. How did it play out?
LW:Well, I think the biggest pain point that we're seeing is getting the client information, and I think the other one that has played out is practice capacity, and part of that is because accountants and bookkeepers they want to make sure that everything is reconciled and ready, but that means you're actually having to do your self assessment work for 25/26, as well, before that quarter one. So if you want to make sure that the previous tax year is all shipshape before you submit quarter one, that was that was a lot of work to do because normally you have up to 10 months after the end of the tax year to submit that self assessment return, and it's brought forward that work and getting the information from clients sooner for that, as well as then having to do reporting within four or five weeks of the end of a quarter. So that window is a lot shorter than normal – 10 months that clients are used to.
PL:I mean, we have seen some survey work on tax advisors, and have a strong sense of frustration and deflation after completing the submissions process from some of them. I think we saw the Accountants Therapy survey.
LW:Yeah, so Accountants Therapy are a peer-led support community for accountants, bookkeepers, and tax advisors. Yeah, and they ran a survey for during the week after the first quarter, and they had 142 respondents to that survey, and only 48 of them managed to get 100% of their clients' quarterly obligations submitted by that seventh of August deadline.
PL:I mean, do we know why that was predominantly? Was it about getting the client data? Was that the big issue?
LW:It was client data, but there were a few other pain points. So, there were some HMRC issues. Maybe HMRC's system said that the taxpayers weren't eligible to use making tax digital for income tax, even though the practitioner knew that they should be.
PW:Okay.
LW:There were a few HMRC service interruptions, and then there were some other system issues with HMRC. If you'd made a calendar quarter election, so to report from the first of April to the 30th of June, perhaps for your self employment, but you were also a landlord, it did something strange to the dates for the property business.
PL:So it actually glitched.
LW:Yeah, so it did glitch, and some were showing a 1 April to 5 July date, which is longer than the quarter. So if they wanted to report on standard quarters from 6 April to 5 July, basically they were getting a ‘computer said no’ error, and it needed a manual intervention from HMRC to fix those dates.
PL:Did it? And how easy was that to organise?
LW:Well, it does mean phoning up HMRC. So they have got their agent dedicated line picking up Making Tax Digital calls, option two, and then option three off the top of my head to get through to Making Tax Digital people. But yeah, you have to explain your issue, and somebody has to go away and fix it.
PL:And that's every single time?
LW:Yeah, for the people affected. So that's an example of some of the issues with HMRC. There were also issues with national insurance numbers. So the national insurance number needs to match, and people might have had national insurance numbers that they think is theirs, but HMRC systems say a different one.
HMRC's one should be the right one, but that has other implications, because if you have been paying contributions against the wrong national insurance number, then your contributions record could be wrong. Yeah. So in some ways, it has brought to light other issues. There were some software issues.
PL:At the HMRC end or at the practitioner end?
LW:Practitioner end. You know, some of it might be software choices. So I've seen things about software not being able to deal with all income types, but that is a known issue. You know, some haven't developed for foreign property, for example.
PL:Yes.
LW:But then I've also seen some comments about foreign property, where there's a convoluted process. You need to set up each property. If you've got a portfolio of holiday lets, for example, you need to set up each one separately in software. And I think there might have been some software problems there if that wasn't generating correctly.
PL:So we're going to see quite a number of practitioners having to migrate everything into new software choices. Do you think?
LW:Or wait for software to develop, catch up. Yeah, if it is a software development issue.
PL:But as you say, the deadlines are tight now. There is a lot of opportunity for that to happen, but it needs to be quick.
LW:Yeah, it does. And there are other issues in terms of software connecting to HMRC systems, and also it's the time to take to authorise new clients. If you take on a new client, there's a whole process in terms of getting authorised to act on their behalf with HMRC, and if you're waiting for things to be processed, then I think there were a few client authorisations that didn't happen in time to meet that 7 August deadline.
PL:Going back to that accountants' therapy survey, see the number of respondents saying that MTD was a bad idea went up from 53% to 64% I mean, in fairness, the number saying it was a good idea that did rise a little bit, but the general sense seems to have been this is hard work and it's not working that well right now.
LW:Yeah, yeah. I mean, the numbers for both went up, and I think it's because less people are on the fence.
PL:Yeah, having actually done it.
LW:Yeah.
PL:Yeah, yeah. No, that seems fair enough. More crucially, perhaps it doesn't seem to have been very commercially viable for practitioners, does it? 75% said they did not recover some or all of the time they spent doing those submissions. So, is that a forever problem, or is that just we're all getting used to this problem?
LW:Yeah, I think it's understanding the reason for those answers. It might be because it's new. This time, people were signing their clients up first, potentially. You know, you had to go through engagement letters, possibly training, software selection, getting bank feeds connected, so it it could be one off, but I think there is a sense that generally it's going to cost more because you're going to be contacting your clients more, and every time you're making contact, that's time spent. So I think there is a general feeling it is going to cost more, and: will I be able to charge everything that it's taking? But it was for a lot of people. I think it was a little bit of a finger in the air in terms of how much do I charge this time/
PL:Right.
LW:Compared to, you don't know how much time you're actually going to spend and how much your client can afford.
PL:So quite widespread rethinking of price instructions, pricing structures, potentially?
LW:Possibly, but I think it – like I say, it's understanding a little bit more about why and is it partly the one-off setup costs this time?
PL:Now looking ahead in September, HMRC starts signing up in scope taxpayers who aren't already signed up.
LW:Yes, so we're.
PL:Do you know how many?
LW:Yeah, we're expecting 864,000 in this first wave. Now that is based on 2023/24 returns, and actually those who are being signed up, it's the 24/25 return that matters. But my understanding is that it's not a million miles off in terms of that being the total population. Okay, 570,000 had signed up in time for the deadline, so that leaves about 294,000 who haven't signed up yet. But when this happens, it won't happen overnight. So September's the start date. HMRC can only process a certain number at a time, so it's going to be between September and March, is my understanding.
So you don't know when taxpayers might be signed up. There will be a pause for the self-assessment peak, and when HMRC's done it, it will write to the taxpayer. It won't write to their agent, so you need to be speaking to your clients. If they're not signed up and you expect them to be signed up, then you need to find out about that letter if it has happened, because there is still a process. So once HMRC has done its bit, which is basically transferring the data in the background between its legacy database and its new enterprise tax management platform. Then there is still a checking process to do, but it's different to the sign-up process. Now this is the key bit.
PL:Right.
LW:So when you sign up, you can edit your details, and if you are self-employed and you are a landlord, then you want to make sure that the two say different things. So not Mrs. Lindsey Wicks, for example, as an accountant, and Mrs. Lindsey Wicks as a landlord.
PL:Okay.
LW:Because I wouldn't know whether, when I'm looking at software, whether it's my accounting business or my landlord business that I'm looking at. So you need to be able to edit. If they are currently named the same thing, you want to be able to edit those so that you can distinguish them in software. But when HMRC signs you up, you lose that edit functionality. All you can do is add a new income source, or say that an income source has ceased.
PL:Okay.
LW:And if you need to make changes to the details, then you have again got to lift the phone to HMRC to make those changes. So there is still an incentive there to sign yourselves up and take control of the process and that information.
PL:From an advisor's point of view, this is resource heavy, isn't it? As you say, there's a lot of lot more client contact that isn't just you know good to have; it's essential to have. And then, as you say, the unpredictability of knowing when you're going to need all your manpower and all your systems power to handle all these new accounts-it's hard to project forward, isn't it, for a business to understand quite what they're going to need to make this work?
LW:Yeah, the accountants' therapy survey had confidence of managing the quarter two workloads as 6.4 out of 10, but then that dips for the 30,000 cohort that come in from April 2027 to 3.9 out of 10.
PL:Okay, for those reasons?
LW:Partly because of the unknown, but also that population's bigger; they're less likely to be using software. And this year we've got a soft landing for penalties, so you don't get a penalty point if you file your quarterly update late.
PL:That's just this year?
LW:So it's just for 2026/27. So the cohort coming in from next April won't have that soft landing, so you do need to be hitting those deadlines.
PL:
Worst case, if there is, you know, widespread errors, defaulting chaos, will HMRC be flexible on that? Do you think they might review that and stretch those exemptions a little longer? A year’s not long, is it?
LW:It's not. Everyone has been asking about this, and it's something that people will still be pushing for. I think so. A soft landing for each cohort as they come on stream. So we will see.
PL:So next January: is that going to be the busiest period of all time?
LW:Potentially. I mean, it depends because, like I say, some might have ended up doing 2025/26 early, yeah, to make sure that they were reconciled, ready for submitting quarter one. But you've got the rest of your self assessment population that you look after, and that quarter three deadline is just days after the 31 January deadline.
So, generally, we hear from practitioners that it's not just 31 January that matters. If they deal with VAT clients as well, then they're hitting the seventh of February. So 7 February is normally a busy time for VAT, but actually you've got quarter three deadline for Making Tax Digital for income tax for 26/27. So I think, come middle of February, people will be feeling fairly exhausted.
PL:Certainly under pressure. Next steps is to make this as doable as it can be. I know ICAEW is working with HMRC to make sure that things move in the right direction.
LW:Yeah, we're keen to hear from members about their experiences because at the end of the day, we need evidence to inform any suggestions we make to HMRC in terms of how things can be improved, what problems people are seeing, whether or not we should be pushing for a soft landing or something else.
PL:So you want to hear from people?
LW:We do want to hear from members, and I would flag that icaew.com. We've got our Making Tax Digital Hub, icaew.com/mtd, but HMRC's got a lot of support for agents as well. You've got an Agent Toolkit on HMRC, and within that there is a link to sign up for group sessions, so you can speak to HMRC directly. They are running small group sessions on Teams for agents, so that is your chance to speak to the horse's mouth as well if you've got issues.
And what I would say as well is start looking at that next cohort that's coming in from April 2027, because one thing that's happened in the last couple of weeks is that the applications for exemptions have opened. So if you've got clients who you think will be exempt from next April and it's not an automatic exemption. Then now is the time to start thinking about those exemption applications too.
PL:That is all very helpful. We'll put all those links in the show notes. I've no doubt we'll talk about this again on multiple occasions. But for now, how is ICAEW feeling about where we've got to now?
LW:ICAEW has consistently supported the overall aim of digitalising the tax system, but we've always been opposed to the mandatory quarterly update element of Making Tax Digital. And our view is that quarterly updates add complexity and costs with little tangible benefits to taxpayers or HMRC. And in some sense, this is what's happened in this; the first quarter has borne that out, so I think that is something that we will keep repeating. Albeit that it does feel like quarterly reporting is here to stay.
PL:Thank you very much indeed, Lindsey.
LW:Thank you.
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