Ross Martin Tax Consultancy – Written Evidence – (FBS0031)


About us:


We publish an online practical tax database for accountants and their clients. We are a growing business, engaging directly with taxpayers online and we have over a million visitors per year. We also run a tax consultancy: Ross Martin Tax Consultancy Limited, troubleshooting difficult tax for small firms of accountants and their clients.


MTD is a major challenge for our users. We are calling on HMRC to further simplify their plans for MTD. Our suggestion is very simple: maintain quarterly reporting but cut the requirement for expense reporting.


1) The evidence underlying the case for MTD and their suggested impact


HMRC has published its responses to its six consultations on Making Tax Digital (MTD). They underestimate the real impact costs of making the self-employed and landlords file five tax returns per year.


MTD represents a massive change, a huge cost to business and the UK's economy. HMRC's Tax Assurance Commissioner Jim Harra even admits (BBC Radio 4 Moneybox 1/2/2017) that this brings no cost savings to HMRC.


Looking at people who already have frequent reporting requirements with HMRC. A VAT registered business files four returns per year for VAT. At present less than 10% of VAT registered traders (source: HMRC VAT consultative committee) use their software to submit their own VAT returns. Instead they use HMRC’s VAT online system, which is simple to use and efficient. The reason that people don’t file using their own software is that the majority of software cannot deal with the adjustments needed for VAT. We make manual adjustments, usually on spreadsheets or on paper, then we simply enter our correct totals onto HMRC’s own VAT online.


Speaking personally, quarterly reporting is a hassle for a small business, and combined with monthly payroll reporting and our annual income tax return, I with my business currently file 18 returns with HMRC. I regularly don’t sleep because of these obligations and I also have to take a computer on holiday to file some returns.


Under MTD I will have to file 22 returns. I have better things to do in life, such as growing my business and recruiting new staff.


Under MTD HMRC apparently wants raw, unadjusted data to be sent directly from software four times per year: this is a major issue, as what if it is wrong? It then wants a final (fifth) return to be submitted which adjusts all the things that should have been adjusted in the first four returns. HMRC has failed to cost out the cost of correcting data incorrectly captured and there is no mention at all of how we are going to be able to make corrections should errors occur in submission. HMRC will also impose penalties if the mid-year submissions are wrong, and HMRC has made no costings of the cost to this.

Other costs of MTD


HMRC has underestimated the cost of software, hardware, learning to use software and the loss to the economy of attempting to turn 5 million people into daily bookkeepers. HMRC says it will cost just £210. I have no idea where this comes from.


Software: our basic small business accounting software costs £24 per month. = £288 per year.


A smart phone is upwards of £25 per month = £300


Time: learning new software – allow a couple of weeks per head, in terms of lost work this has to be £200 to £300 in terms of lost tax to the exchequer.


Down-time: when the computer/phone/internet goes wrong: I lose about 2 weeks a year, and if I have to do bookkeeping on a phone I would need to add a couple of days for that, taking into account the number of times I lose the phone, can’t work it abroad etc.


I purchased a smartphone in September 2016, it took two weekends to learn how to use it. I have tried out lots of expenses ‘Apps’ and abandoned them as a plan. I cannot do expenses on it because the keyboard is hopeless, the screen is too small and it is easier to use a computer with a keyboard and a big screen.  HMRC provides lots of data on how we are all using online. I use my phone to check emails and then for social media. I don’t use it as a tool for business other than for communication. I don’t trust data security to do any banking via my phone. Note, we have published a guide MTD: survival guide for the self-employed (link at the bottom) – we have analysed the different type of business and user of Apps or software to work out whether attempting to bookkeep on a phone is a viable option or whether you are better with a spreadsheet and a PC or accounting software and a PC.


Time to file returns: this is not easy to measure however, filing five returns a year instead of one is not ‘simpler’. In terms of totalling up expenses and bookkeeping it is quicker to enter 365 receipts in one batch than to enter one receipt in 365 separate batches.


Only very large companies do their bookkeeping daily. Most people understand that it is easier and quicker to enter receipts in batches and so we all have part-time bookkeepers. What logical or economic reason is there that leads HMRC to ask a self-employed individual to do their bookkeeping daily?


My employees of their own choice submit their expense claims to us annually. As Managing Director I submit my expense claims generally bi-annually. 


Recording of sales is another matter. Fraud or the ‘tax gap’ is made up between the difference between what is reported, and what is really earned and not reported. The real mischief is not the expenses mis-claimed it is the income undeclared. It therefore follows that we should focus on income and not on expenses. This will make the biggest impact on the UK economy.

Most people can manage to add up their sales or income, it is one total unlike expenses which are split into different categories with different rules for tax.


I suggest a 2 step new alternative proposal for HMRC:


1. Reporting of sales/income: quarterly in summary (as is currently planned). 


2. Reporting of expenses, giving two options, either:



Step 1. Is not difficult, it requires a summary of invoices raised or cash received, whether kept as a hand written list or on a spreadsheet. This one act of reporting this will focus attention on record keeping, it will serve as a nudge and hopefully reduce that tax gap.


Step 2. Gives those who are less numerate or not technologically savvy the option of reporting quarterly, or they may find like me that it is simpler to report expenses as an annual event.


In terms of reporting we already have an easy to use template: it is called VAT online filing. Taxpayers will need access to a pc or internet enabled device once a quarter. No special software or smart phone required.




MTD: our survivial guide (for the self employed)
What MTD really means for business

Making Tax Digital: the Grand Design
Useful links to all the latest updates on MTD, Treasury Select Committee and consultations.

MTD: Let’s Simplify Further
Proposal (as above) for simplified reporting of expenses: giving taxpayers the option of either quarterly reporting or annual reporting of expenses.


From Nichola Ross Martin FCA, Managing Director of Tiger Dog Media and Publishing Limited and Ross Martin Tax Consultancy Limited


7 February 2017