Making Tax Digital – Health warning, what follows is Dull, Boring, but Important
I know those who read these blogs (yes, I've used the word 'those' as I'm convinced the plural is correct) read them for entertainment value, but every now and again (like now) there is an educational element. So, whilst it's not positive, it's certainly important...
Making Tax Digital – MTD – has been with us for a couple of years now and so far it has been limited to requiring VAT registered traders with sales of more than £85,000 to use electronic accounting records, and to link the results of those accounting records to HMRC’s computer. Contrary to popular expectations, the world didn’t end when it came in.
From April next year all VAT registered businesses, regardless of turnover, have to comply. That’s evolutionary, not revolutionary
But look what’s coming next - HMRC have decided that as business owners you don’t have enough meaningless administration to do, and so in April 2023 are requiring all those affected to be keeping their records electronically on an approved system (eg Quickbooks, Xero, Sage).
What's wrong about that ? Keep reading - the accounts system has to be linked to the HMRC computer, and they are requiring full quarterly accounts to be submitted. Within 28 days of the quarter end, with a penalty for late submission of £400 per quarter.
Who does this madness catch ? To start with, all unincorporated businesses – essentially sole traders and partnerships – with sales income greater than £10,000. Oh, and landlords with rental income (before costs) of over £10,000.
Companies will be caught at a date to be confirmed, most likely 2026. (Don’t get me started on the irony that those most able to comply are the ones being given the longest time frame !)
In the fullness of time HMRC are looking to abolish the annual self assessment tax returns.
Just think about the implications of this.
Anne Accountant is in business as - really, you couldn't guess ? She employs no staff, has 100 tax returns/sets of accounts to do each year. On average each one takes eight hours, including taking the client through it and seeking agreement.
At the moment all 100 need to be done sometime between 6th April and 31st January. Her most punctual client, Iona Pony, brings her horse livery business accounts into the office on the 15th April. Her least favourite client, Stuart Fu (Stu to his friends) brings his restaurant accounts in on 29th January.
So between about the end of April and the end of January (nine months), Anne works 800 hours on accounts and tax returns. That’s about 22 hours a week on average, leaving the other hours of the week to do non tax-return work, manage her own business and generally enjoy life.
Being an avid reader of her rival’s publication, The Positive Accountant, she has just realised that from April 2023 she has to do the 100 tax returns four times a year, each in 28 days. Let’s assume optimistically under the new system that overall she still only spends 8 hours per client, i.e. 2 hours four times a year.
So in four months of the year she now has to do 200 hours. That is 50 hours per week in those four months. She gets really worried when she realises that the 28 days includes weekends, which post lockdown she was looking forward to enjoying. That means for the 20 working days she is working 10 hour days. Just on tax returns.
That is kind of do-able (who needs to go to the school concert anyway ?), until the bombshell hits her.
At the moment Iona, her most punctual client brings her records in two weeks after the period end. If every client is ready to go two weeks after the end of the period (and remember that Stu Fu isn’t normally ready until nine months !) then for those two weeks she is going to working 20 hour days.
At this point Anne has decided that accountancy isn’t for her after all and is now retraining for a much easier, less stressful job as an astronaut. Her friend and former colleague Adam Upp isn’t taking on any more clients for the next two years, and larger firm Clueless, Expensive, Boring & Co are actively getting rid of clients.
Fortunately The Positive Accountant is more constructive than any of them, and as a fan of Douglas Adams repeats the famous words ‘Don’t Panic’.
But what he is going to be doing, with slightly less than two years until the rollout, is working with all clients affected in finding a solution that works. As part of this year’s return/accounts he will be discussing ways to ensure compliance and agreeing a roadmap to make sure we get where we need to be.
That was dull, surely there must be some positives out there ?
1. I've had my annual haircut
For some time I've been an advocate that haircut pricing should be based on a spreadsheet I have designed called the Follicle Coefficient Model. Under the FCM those of us with, shall we say, hairlines that are slightly higher than maybe they once were, should pay less than others with a somewhat fuller head of hair - simply as the stylist has less to cut.
My friends and clients at https://slogandhustle.com think otherwise. But today, having not seen them since the back end of last year, Mark certainly earned his fee.
2. Gobsmacked is officially a word
I think this was a word that was invented when I was young and regarded as slang, not to be used with one’s elders.
Imagine my surprise then when an octogenarian peer of the realm I was discussing finances with told me he was 'gobsmacked' by what he was hearing. So that makes it official if nothing else.
3. Lizzie has a full tank of fuel
Lizzie, our eldest, is 17 and doing what most 17 year olds do – learning to drive. A whole new set of skills – pulling away with the engine still running, five point turns, hill stalls, using indicators*, and filling up with fuel.
Now, the problem is that we’ve got her a little Peugeot 107, which has a tiny fuel tank prone to air locks when filling up. So out she hops… fuel cap off, petrol pump in, squeeze the trigger and hey presto the pump cuts out - so it’s obviously full. ‘That was quick’ she says and starts pulling the pump out. I had to point out that she had delivered a full £1.06 of fuel and that perhaps a littlemore patience was needed.
All I need to teach her now is the bit where she walks into the shop and pays for the fuel…
* fellow BMW drivers will need to google this. It’s apparently something the left hand can control when not holding your coffee cup. There are some hints below.
Incidentally, earlier today whilst waiting outside for my haircut, there was a faint smell of sausage and onion in the air. I commented on it to the chap next to me, who explained 'That'll be the barbercue'
On that note, stay safe and stay positive. Enjoy your weekend
Don't say I'm not informative. Pull it down when you're stopping on yellow lines. Push it up just before you do a handbrake turn And if you pull it towards you several times when 3m or less from a rear bumper, the car in front pulls over.