Host

• Stephen Relf, Technical Manager, Tax, ICAEW

Guests

• Craig Ogilvie, Director – MTD, HMRC
• Hannah Miller, Director, Chipperfield Accounting
• Nikhil Sangani, Chartered Accountant, Sage & Co
• Rebecca Benneyworth, sole practitioner and a board member of ICAEW’s Tax Faculty

Reporter

• Mark Rowland

Transcript

Stephen Relf: Hello and welcome to the Tax Track, the podcast series from ICAEW, exploring the latest developments in the world of tax. In a first for the Tax Track, this episode is being recorded live at an ICAEW event, MTD Live. Combining insight from HMRC and practitioners with demonstrations by software providers, the event helps attendees prepare for making tax digital for income tax which starts for many soul traders and landlords from April this year. I'm Stephen Relf, a technical manager for tax at ICAEW. In this episode, we'll catch up with Craig Ogilvie, HMRC's director of MTD and the opening speaker at MTD Live. We'll discuss HMRC's plans for implementing MTD income tax, including how it plans to respond to any issues that may arise.

[Teaser audio] Craig Ogilvie: Will it be absolutely perfect? I don't think many things in life are, but I think those small wrinkles we'll be ready for. We've set up teams and experience to help us do that.

SR: And we'll talk to some of the panelists from MTD live's closing session. We'll hear about their experiences of preparing their practices and clients for MTD income tax.

[Teaser audio] Nikhil Sangani: The main focus in the past 6 months or so has been educating clients about the fact that the process is coming and also the requirements that will be there and how tax is changing.

[Teaser audio] Hannah Miller: Accountants who aren't embracing it are going to miss out because they won't be able to offer these services to their clients.

SR: Let's begin with HMRC's Craig Ogilvie. After his keynote address, he spoke to our roaring reporter Mark Rowland.

Mark Rowland: Craig, thanks for being with us.

CO: Oh, it's lovely to be with you, Mark.

MR: In your session, you described MTD income tax as a significant societal change for the UK. So, obviously, it's going to bring in the corporatory updates, the digital record keeping... It's a lot to take in. How confident are you that people are ready for the change?

CO: Not everybody is ready. Let's be really honest on that. But we've made a huge amount of progress. So, we've got lots of confidence, so 50,000 people have signed up for April 26 already. People will determine whether that's good because it's 860,000 that will be in the first year. Self assessment peak has just finished. We've got lots of internal research that shows universal awareness amongst agents, accountants, tax agents, bookkeepers. And we're seeing huge increases in unrepresented customers in terms of researching their readiness as well as the research that I see from externals. So the guidance is really good. The media is in place, both in terms of government advertising, but also from software companies and I think professional bodies are doing a really stellar job. So is everybody ready right now? No. But so many more people are ready than were a few months ago. I think we're making really strong progress.

MR: Yeah. And you mentioned HMRC Assist as well, didn't you? In your talk, the tailored nudges sort of help people kind of get on board with it. So, how far along are you rolling out that functionality? Is it pretty much there now?

CO: Yeah, so it's done through two-way APIs and they're there. So, I think we've got… don't fully quote me in the figures… There's about seven software developers that are actively using and engaging in it. There is a choice for the developers as to whether they use that, but as it stands right now, that's developed. It's ready to go and it's like anything else in life – you iterate it, you make it better as you go.

MR: So it will develop itself.

CO: It will absolutely develop. But one thing I want to drive forward is that most or more of the software developers use that HMRC Assist product to help their clients and customers.

MR: Now HMRC will provide in-ear tax estimates. How accurate will these be? Is this a first step in requiring taxpayers to pay their tax earlier?

CO: Quick answer is no. It's not a first step in payments to be made earlier. What these are is it takes the quarterly update information and other information that we have such as pay information, construction industry scheme information and it provides a tax in ear, we call it an in-ear tax calculation. It's essentially an estimate of what the liabilities will be at the end of the year. So that gets more accurate as a year goes on. For some people it won't be accurate. Seasonal workers was the one that I mentioned earlier, but we're really clear in the caveats, but for the majority it will be accurate and it will build throughout the year. And what we're seeing in testing and from accountants that use it and customers that use it, they really like it. For the first time, we can start to estimate that liability earlier in the year so they can manage their tax affairs better, but it isn't a precursor of turning on earlier payments. Making tax digital doesn't have that within our plans at the moment.

MR: So you mentioned exemptions in your address earlier. It's quite complicated, potentially a little bit confusing. How well do you feel this is understood?

CO: So I think it's probably a bit a mixed bag in how it's understood. So I think the first thing is we've announced these exemptions as early as possible and we've built the guidance with industry. So professional bodies… we're getting loads of great feedback on the quality of this guidance that is easy to follow, because real accountants have helped us develop the guidance and make it interactive. There is quite a bit to it, but fundamentally the majority of the exemptions we will apply based on the 24 / 25 tax return. So it's just about knowing those are where you have to apply for an exemption and is where you believe you're digitally exempt. So it may be your geography, disability, religious reasons or your circumstances have changed for the 24 / 25 return and are different in the 26 / 27 year. So for example, residency and the use of the SA109, we can't know if that's a new thing. So it's very simply set out on GOV.UK based on what we will automatically take care of based on what you'll have to apply for and it is fairly straightforward to follow. So I think we're in good shape for it. I think we've produced it early. We've consulted well on it and we'll constantly iterate the guidance to make sure that it helps people get that part right.

MR: So coming back to the scale of it. It's a big roll out as you say – it's a huge change. So there's bound to be some wrinkles right in there. What's your plan for dealing with those? Are you ready for whatever wrinkle that turns up? How are you going to deal with that first issue?

CO: I like the word ‘wrinkles’. That's good. I use ‘mumps’...I think ‘wrinkles’ is probably better. So, like you described it, this is a major replatforming, a critical national infrastructure, the tax system. It's using third party APIs, it's intermediating that with the software market and it is a societal change for accountants, bookkeepers, and tax agents and customers. Having done huge change on a number of occasions, things don't always go perfect. So you plan that wrinkles will happen. So I've got team set up behind the scenes to both be able to ensure that the system’s so well monitored. We can see those things, but we're also connected with external world. Only thing that's different from delivering big chains compared to 10 years ago is people will be on LinkedIn to me before I even sometimes hear about it internally. “Craig, there's an issue with the payment account. Can you look at it? Craig, I'm not being able to sign in” and you know not everyone takes you to where you need to be. But I think that rather than worry about that openness, you embrace it and you listen to customers and you fix any issues that you come up against so will it be absolutely perfect? I don't think many things in life are, but I think those small wrinkles we'll be ready for and we've set up teams and experience to help us do that. Final point is we're also really connected I think as partners, not just with the software market, but with professional bodies. In the chat earlier you heard me talk about “we don't always agree on everything”. What we do agree on is that we work really well together. So partnership with professional bodies, fix things, fix them as fast as we possibly can and communicate really openly. That's what we'll do and I'm confident we'll be absolutely fine.

MR: Yeah. So you feel very prepared. You're confident you're going to handle it?

CO: As much as you can be. Yeah. You need to be really honest. This is a huge scale. But we're set up and we've had an NISTA review. That's a national infrastructure authority that comes in and audits where we're up to and they feel we're in good shape for going live as well. But it's an art as well as a science, you know the whole delivery of the scale. And I've got a brilliant team that are ready, most of whom have done this before and MTD for VAT, so the real corporate experience has been retained and I think that's really important.

MR: Yeah. Moving on to the role of agents – obviously they've got a critical part to play, they're a key cog in the whole machine. What should they be doing now? Obviously, one of the things, you know, in the beginning of with the polls, quite a few people haven't started the sign up process. You mentioned that people should be doing that. What's the main sort of points they should be looking at right now?

CO: Great question. So, first thing is segmenting, knowing what clients are in. Don't wait for the letter. I would suggest. I You can know based on the details of the client who's who's likely to be in prime the agent service account. I demonstrated a YouTube video from HMRC that shows how easy it is to map those existing relationships. So your agent code, you may have a few of them. It's a no regret activity. Ensure the agent, the new agent service account is ready. And for each client, you then have to sign them up using the sign up service in GOV.UK, roughly 4 minutes per client. If you're sitting right now and you don't have a plan for those three things, that's notwithstanding keeping digital records, having software, and submitting quarterly updates. If you're not doing the three things, I would suggest now is the time to get ready and act. You've still got time. As I mentioned, 50,000 people have signed up for April. That will grow and we want to be supportive and help people get this right. Those are the three things. If you're not doing them right now, start to think to yourself, get a move on. You can see it easier than I can, but yeah, maybe ‘get a move on’s a nice way of saying it.

MR: Final question for you. Obviously, you thanked ICAEW and the role of the members in sort of developing MTD and making it work. Would you continue to work closely with ICAEW and the members as it progresses?

CO: 100%. So everything I've touched in my civil service career… I was a director in the cabinet office in Brexit, even leading pandemic furlough scheme etc. I've always worked closely with professional bodies and I think when you go live it becomes even just as important, I was going to say even more important, just as important. And what we set up, actually, we set up in a sort of forum to work together so that it can also be quite fleetfooted and agile so that they can take some responsibility for understanding members needs and have a direct route in. So it's it's an absolute sort of pivotal part of getting this right for us and as I said we don't agree in absolutely everything all of the time but there's more we agree on and you know responding to things when they go wrong or listening to feedback is something we absolutely agree on and we'll make sure we do a good job of that.

MR: Brilliant. Thanks so much for your time Craig.

CO: Oh thanks, that was really good.

Stephen Relf: Following Craig's opening session, attendees had the opportunity to view software demos from Sage, Free Agent, Zero, and Zoho. If you couldn't attend MTD Live on the day, there's no need to miss out on the demos. The four software providers will host webinars in March. See the show notes for details. The closing session of MTD Live was a panel discussion where practitioners shared their experiences of testing MTD income tax and preparing both their practice and their clients for the challenges to come. Let's go back to Mark Rowland who spoke to some of the panelists. Here he is in conversation with Hannah Miller, director Chipperfield Accounting and Nikhil Sangani, chartered accountant, Serge and Co.

MR: Hannah Nikhil, thanks for being with us.

HM & NS: Thank you.

MR: You're very welcome. You're both a little ahead of the game when it comes to MTD preparations. First off, what have you learned from that process? I'll start with you, Nikhil.

NS: Thanks very much. We started thinking about this almost a year and a half ago. Not least with regards to trying to prepare clients for the change. And highlight in advance in preparation particularly for the last set of tax returns who may be in scope, where the direction of travel is and also the fact that MTD actually is coming. There's been lots of discussion about this in the past and delays in the coming years. The main, I suppose, focus in the past 6 months or so has been educating clients about the fact that the process is coming and also based upon their most recent information, the requirements that will be there and and how tax is changing. From there we then look to understand their existing setups, what their intentions are as to how to navigate more timely submissions of and provision of information to us or potentially for them themselves. And also think about how that relationship can enable other elements attached to planning and business focus and forecasting which perhaps under the current system and setup that exists is slightly more challenging to do.

MR: Does that ring true for you Hannah?

HM: Oh yes, completely. I think it has been up to small practitioners to spread the word about Making Tax Digital. It's great to be back at MTD live today. I came last year in April, last April. We had already sent out all our communications to all our clients. We had an optimistic outlook at that point. We were hoping that everyone would start on software from April 25. We're a year on. We're still waiting for the ICAEW engagement letter. As soon as that's there, we will send it out to our clients. We have agreed processes with all our clients and sadly the ones who probably you know, could have been on software were already on software. So, it has been a hard sale and we have different options we have offered them and we have that agreed with all the first cohort that are coming in in April 26.

MR: So, how has this got you both thinking about how you offer the service to your clients, like how you're pricing this up? Will that vary based on the level of support you're giving? Like what are your thoughts on this? Where are you kind of landing with it?

NS: We've kind of broken down, you know, by way of background, my father started the practice 30 odd years ago. So, we have a pretty wide demographic of clients with different abilities, different ‘intentions’ and different levels of resource. I think the main element that we've been focusing on is what works for their setup and what works for how they like to be serviced in that respect. Often it tends to be a lot of the younger clients and we've seen that also similarly with the VAT. I think that's a great kind of parallel to mention. Some of the younger clients tend to be quite digitally savvy and digitally able. In fact, often the ones which we support to meet deadlines isn't a function of ability, it's a function of time. Some of the older clients who actually have probably quite established self-employed or associate or property portfolio work to be performed, they have I think leaned on us a little bit more and looking for more additional guidance attached to that. And they tend to be more focused on just trying to be able to navigate the change as opposed to wanting to radically change their own setups. Where my underlying kind of concern lies and one thing I've communicated quite regularly ever since probably the advent of cloud software in a meaningful way, is doing simple things badly that requires senior review to untangle is always inefficient and always most expensive. So to the extent that you have the available resource internally to navigate the changes and we're very happy to kind of support in a lower touch fashion. If you don't have that resource and probably want handholding for the first year or so, probably that's where our intervention will be the ‘largest’ and thereafter if you end up setting up an internal bookkeeper, or versions of that, which we always encourage… for us the key is to get as efficient solution as we can that's appropriate for the client and of course as the administrative requirements are higher and actually the timeliness of that information provision is certainly kind of much more focused, we still want to maintain quality and ensure that if we are involved that the information we're presenting is reasonable and meaningful. I mean the extent of partner review that would entail, we're still trying to understand. We have some relatively seniorish individuals within the firm who already we've been working through kind of a process of review and control. And understanding what's, you know, still retains quality, but is also economically efficient for clients is probably where the challenge lies. And to your point, I think from the… I sit on a number of different committees within the ICAEW, the National Practice Committee, the tax practitioners community as well and the small practitioners community… and listening to some of the different members around our area… I think between 15 to 20% additional work seems like the reasonable number to start thinking about with regards to resource provision.

MR: You guys are obviously a little bit ahead of the game. Do you think that people are kind of understanding how extensive the preparations are for this? You know, do you think people get how much effort they're going to have to make to make sure that their clients are on board with it?

HM: Yes, there is a huge issue of affecting practitioners that HMRC have only just started writing to to these taxpayers, represented or unrepresented. If accountants haven't got the messaging out… and at the talk at my networking group a few weeks ago, people had not heard from their accountant and that is concerning. So yes, I think that, you know, I run a commercial business like my clients. I will use that opportunity to see how I can help them. Accountants who aren't embracing it are going to miss out because they won't be able to offer these services to their clients.

NS: There's a couple of points on that. I think the other is and I've spoken to some practitioners who have tried the pilot and I think the reality is the software companies in particular have been aware of a moving timeline and for them to be in a position where even here we're hearing that there are different levels of development and there still elements which are either going to be rolled out in the next quarter or some elements which, you know, I suppose they're progressing at different paces. It's difficult if the software which you're going to be relying on almost definitely, in some shape or form, is still in pilot stage for a pilot version of the MTD to start being able to make extrapolations about the difficulty or the challenge or the elements attached to how to go about the process. The big challenge here is you end up turning into… every quarter ends up being in your worst case scenario, kind of ‘31st of January last minute panic’ internally with potentially staff members who feel overworked or aren't available to understand and challenges with client relation. I mean there's a number of ways where ‘this could go wrong’ but I think the other side to it is if you're able to single early we're certainly at the moment now trying to get everybody's 25 / 26 return who are going to come into scope in early, so immediately they can see the change because we want to have a base starting point that makes some sense bringing clients onto software, which historically perhaps may have had some sort of reluctance to join this might be the final straw to bring them on. Which means that there's a client-patient element along with a process / transformation element. There is an element of AI and that process attached to it and again that quality element, which I'm still somewhat wary of. Sometimes I prefer having a base set of rules using advanced Excel, rather than trying to rely on third party AI, which I'm not yet necessarily comfortable with and am still learning. But I think that's something which as a firm we are going to be focusing on going forward because I think that technology element will have a big part to play.

MR: How well do you feel clients… how well do they understand what's asked of them? Do they understand for example that for the first time you'll be working on two taxes at once? Do they understand that sort of thing? And do they understand that the quarterly updates isn't another return?

HM: Well, yeah. And I've spent a lot of time learning the rules while practice is obviously up to date with that. We did recognize there were quite a lot of quirks in the rules, like you've just mentioned and therefore I'm a member of an accountants community called Accountants Therapy. And we have hundreds of practitioners discussing this kind of monetary about the rules, and giving each other support because it's not just us understanding it. And there's a huge number of technical stuff to understand and some of the members have a direct line to Craig Ogilvie and Sam Wood and they can ask them questions as they appear in our group. So that's been really helpful, but it's not just that. It's really sort of supporting practice practitioners that we have to then give the message to our clients, because as I said, HMRC hasn't written to them until now. We also have the issue with the soft landing, so in one side we're telling our clients this is really important and trying to sort of act like we're providing a solution to a problem. If there's no penalties then what it's very, it's a harder sell for us and they announced the soft landing probably earlier than they probably should have. It should have probably been about now, so I think that makes it difficult.

MR: Are you still finding, even with all the work you've done, some clients are still resistant to this?

HM: All clients are resistant. If software was a benefit to them, they'd already be on software. These people are annual clients and yes it has been a hard sell to them. But yes, to the extent that you know there are any benefits, we would obviously try and sell them to them that obviously, if they could invoice from their software or see when they're getting paid or put it on their phone or look at how much tax they have to pay, any kind of benefits would be good, but I don't think there are many. I think that there is a huge cost. That's why I'm looking at free software to try and bring the cost down as much as possible. And obviously, we can help as much as we can, but no, I don't think that it has been in a very easy discussion. And this is the cohort where people have income of more than £50,000. I have several clients who obviously have different sources, a few property businesses, soul trade, maybe more than one, and actually telling them that you have to use different software and different submissions and pay us different fees. Yes, it's been a really tough time of explaining that. And I think that it's not just about understanding the rules. It's also about becoming a salesperson. So, those are the kind of courses that I might be looking at for my CPD this year.

MR: Nikhil, on a scale of 1 to 10, how resistant have your clients been? And are you considering becoming a salesman yourself?

NS: Rather than sales, I think actually here is much more for me about support. I think the reality here is – this is not an additional service offering which we are voluntarily ‘providing’. The tax legislation has gone through some huge change, there are big software changes, as you rightly mentioned earlier, that we as taxpayers have to now accustom ourselves to. And the reality here is – I don't think they necessarily need to be sold because it's something we have to do. I mean, it's here. It is a requirement for businesses that meet the relevant threshold and the question really becomes as to how to navigate it. And the next point then on that, is an understanding, as I think I probably mentioned before, is how to organize their own processes and data to help that overall process. So one thing which I mentioned to all clients, number one: try to remove anything personal from a soul trader account or property account that exists. If you're able to, in the first instance, change your activities… I've told pretty much all the clients who we cover that anything to do with your personal activity or not to do with the business, I should not see. You can have a lump sum drawing or withdrawal or whatever you want to call it, but identifying the elements that are personal in a mix bank account, which can exist for rental income or self-employment etc. Really we want to have as little as possible of unknown data to question or go back and forth from the client on as we can. And if that can be avoided by clients just changing their behavior.

MR: Okay, last question for you. In your experience, is there anything else that HMRC could do to make this easier for you?

HM: Yes, as I asked Craig Ogilvie this morning, I think we need a client list in the agent services account. I think they know about that, that would be really helpful for practitioners.

NS: I'll probably echo the same point. I think that the fact that agents are looped into all communication attached to MTD is one challenge. I think the second is, as rightly mentioned, if there was a method of understanding how HMRC are looking at your client base from the perspective of who’s in scope or not, that would also be helpful. But I think actually HMRC do have a number of resources out there. I think there is data if you're able to find it. I think the reality is just that there is always this, I suppose the idea in their minds as to how well understood this concept is by businesses. The reality here is I think accountants are certainly the best place to spread and explain that message. And I think as the process evolves, communication with them is going to be really, really important because I think it's the unknown unknowns at the moment which are probably going to cause the biggest challenge.

MR: Brilliant. Thank you both for your time.

HM & NS: Thanks very much Mark.

SR: Finally, let's hear from Rebecca Bennyworth, soul practitioner and a board member of ICAEW's tax faculty to get her views on the day.

Rebecca Bennyworth: So MTD live I think is a perfectly timed event. We are, think, 28 days working days away from commencement. So really important for people who maybe have let this go a little bit, let it slide over their tax return season to actually now roll up their sleeves and start really getting practical with MTD. There's such a lot to do. And there are loads of people here, absolutely excellent turnout. So I think people will be going home and setting up a plan of action now.

SR: That concludes our special episode recorded at MTD Live. Many thanks to everyone who contributed to this episode. All of the topics we've discussed today are covered in more depth in the articles linked in the show notes. If you found this episode useful, then don't forget to subscribe so you never miss an episode. You can rate and share the podcast, too. We'll be back next month with the next tax track. In the meantime, why not check out the sister podcast from ICAEW. Accountancy Insights provides business, finance, and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selected topic.

Philippa Lamb: Top up your CPD with our two monthly podcasts, Accountancy Insights and Behind the Numbers, the latest in business and accountancy news and analysis with me, Philippa Lamb, and expert guests.

SR: If you're not already a member of ICAEW's tax faculty, remember that institute members can join the faculty for no additional cost. Faculty members receive our monthly TAXline bulletin. In addition, anyone can subscribe to receive our weekly TAXline newsletter, containing the latest tax news from ICAEW. Thank you for listening.