Postby etf » Tue Jul 01, 2025 7:33 pm
I've discovered a bit more about Kevin Ringer...read the following (my bold).....someone clearly interested and very knowledgeable in his subject...HMRC and the professional bodies should listen and address the concerns of people like Kevin (seemingly nothing has been learnt from the NRCGT debacle).
Kevin Ringer – Written evidence (DFC0064)
I am one of ten partners in a firm of Chartered Accountants. This submission is in a personal capacity and does not necessarily represent the views of the firm.
My practice is located on a modern business park in the city of St Asaph in North Wales. The majority of my clients are based in north Wales those some are based much further afield: as far as USA, Japan and China.
The majority of my clients are businesses, the remainder being private clients. Over half of my business clients are family farming partnerships with the remainder being a diverse mix of sole traders, partnerships and limited companies covering all manner of activities such as tradesmen, travel agents, beauticians, locum doctors, psychologists, market traders, bailiffs and so on. Businesses size range from part-time traders to those with turnover in excess of £1 million and employing up to 20 members of staff. Many of my clients are well established businesses currently being run by the second or even third generation though I also have a healthy number of start-ups.
I fully engage HMRC at all levels. I was an active member of Working Together from its inception in the build up to Self Assessment in 1995 through to its demise. I am now an active member of its replacement: the Agent Forum – at one point I was raising almost half the posts on the entire forum. I have participated in all the HMRC MTD consultations and have read every document and fed back fully. Indeed I have been invited to the Treasury on one of my non-MTD responses because it was so comprehensive. I also feed back to my accounting body: ACCA.
I have 35 years’ experience in practice. I am an early adopted of new technology with one caveat: I will only adopt it if I believe there is a benefit to myself or my clients. For example I have been submitting digital Tax Returns since 1998. MTD is MAKING Tax Digital and many people are under the false impression digital tax returns are new. But tax has been digital for more than 20 years. I decided to switch to digital Tax Returns in the second year of Self Assessment because HMRC was taking so long processing paper returns and making so many errors. It cost our practice time and money to digitise the Tax Returns but it generated clear benefits: elimination of HMRC errors and processing of returns within 24 hours. The benefits outweighed the costs. I didn’t just switch some clients to digital tax returns, I switched all of them. I started submitting online VAT returns way back in 2006 before it was compulsory. I switched to digital PAYE and digital CIS years before that was compulsory too. I signed up for the RTI pilot the year before it became compulsory. I have been an early adopted of every IT initiative launched by HMRC apart from one: MTD. I completely oppose MTD and the following evidence will support my stance.
The majority of my clients maintain their own VAT records. The vast majority of these use paper records using Simplex style VAT books. Some have built their own spreadsheets. A mere 2% of my clients use software. None of the software is MTD compatible.
The majority of my clients do not require accounting records to help them manage their businesses. My clients are completely immersed in their businesses and at any point in time know exactly how their businesses are performing without the need to refer to any financial analysis. My clients know exactly who owes them what and who they owe money too. The largely paper based systems my clients have developed over the years meet all their requirements and in turn require minimal time to maintain. This leaves my clients free to run their businesses.
What key improvements have occurred, or new concerns have arisen, since the Sub-Committee’s report on Making Tax Digital for Business was published in March 2017?
Having become accredited for MTD software and gained experience and having read all HMRC publications and listened to every HMRC webinar on MTD I am greatly concerned that there have been no improvements since March 2017. Indeed additional problems have arisen. Key concerns:
9.1. MTD hinges on the availability and functionality of the new APIs. HMRC have been making a big thing about their new APIs. Unless you’ve been invited to participate in the private MTD pilot, the only API accountants will have encountered is the Self Assessment API. This was introduced after HMRC stopped supplying accountants with taxpayer pay and tax data. The Tax Return filing window runs from 6 April to 31 January: 271 days in total. The first year the API was running was 2017 when it became available on 18 May 2017 so was not available for the first 42 days (15%) of the filing season. Being the first year of operation teething problems were expected. All accountants expected the API to have greater availability and functionality for the 2018 filing season but this has not been the case. The API did not become active until 4 July 2018 so was not available for the first 89 days (33%) of the filing season. This is a significant reduction in availability compared to 2017. But to make it worse, the API is returning less data 2018 compared to 2017. In 2017 it retrieved data for 50% of my clients. For 2018 it is only retrieving data for 16% of clients. I have raised this on the Agent Forum and been given all sorts of excuses but none with address the fundamental issue. Many other agents have reported the same: the API’s performance is considerably worse for 2018 compared to 2017. This is the one API that most agents are using and if this is not performing then it does not give us confidence about MTD APIs.
9.2. Though none of my clients use MTD software, several were using software that did permit the filing of digital VAT returns eg Sage 2015. Since March 2017 HMRC has switched off the Gateway for older software so it no longer can file digital VAT returns. Instead, businesses have to log into GOV.UK and manually input their VAT return data. HMRC tells us it wants MTD to avoid businesses filing through GOV.UK, so why switch off the Gateway for older software forcing businesses to file through GOV.UK? HMRC says one things buts its actions are forcing the opposite.
9.3. As a practice we are QuickBooks accredited. We have integrated clients’ online banking with QuickBooks enabling the software to download bank statements straight into the software. Within the last week there have been times when QuickBooks has not been available. There have also been times when Barclays and RBS have not been available and many times when HMRC’s servers have been unavailable. Thus businesses using the software will find it not fully available. This is disruptive for businesses but at least at the moment businesses can make a commercial decision whether the cost of downtime justifies the benefit. When MTD is compulsory all businesses will have to carry the cost of down time. Businesses should not be compelled to comply with MTD until all participating suppliers have much more robust availability.
9.4. I have trialled a number of businesses on MTD software. I selected a few businesses that I felt would benefit from software for commercial reasons (ie MTD was not the reason). I only selected business owners that I felt had the ability to use the software (ie computer literate and had the time needed). I set all of them up on software and gave them clear help and instructions. At the end of the trial period none of them had continued with the software. All reported they felt it was too complex and time consuming compared to their existing business systems. I am extremely concerned that if these computer-literate business owners were unable to make a success of the software, how are my other clients going to cope. Am I going to end up supplying hours and hours of computer support?
9.5. One point that came out of the above is that most business owners work all day and do their books in the evenings. Most accountants are only available 9 to 5, Monday to Friday. Most software support has longer hours but few are open during the anti-social hours that most SME owners are doing their books. How are such owners to address support issues when they need the support? With manual or spreadsheet systems owners can leave a space and return to the data later. But this isn’t possible with software eg when reconciling a bank, the user has to reconcile a day at a time and cannot go beyond that day until that day is reconciled so if the user does not know how to deal with a transaction they must halt all input until they have resolved the matter. This is very disruptive.
9.6. Legacy desktop accounting software permits the users to access data indefinitely. If a business decides to switch to another accounting software product the user could retain the old product and data and access historic transactions. Back in 2017 the impression was given that businesses could switch from one product to another and could easily export all data from one product to another. It transpires that the format one software exports in is not the format another software imports in. So businesses will have to spend time altering the format of the export to make it suitable for import. Most businesses do not have the technical capacity to do this. Though most software will import lists of invoices, payments etc, the import process won’t reconcile. Therefore businesses will have to go through all their transactions and re-reconcile. Depending on the size of business this could take hundreds or even thousands of hours to do.
9.7. HMRC requires businesses to retain MTD data for six years but MTD software usually only imports data for two years. Thus if a business decides to switch from, say, QuickBooks to Sage One, Sage One will only import the last two years of data so to preserve the accessibility for six years the business will need to subscribe to both QuickBooks and Sage One for four years. This assumes both QuickBooks and Sage One are available: the situation will be worse for users of products that are withdrawn or suppliers that go out of business. One of the four businesses that has MTD Income Tax approval is Iris. Several years ago Iris released their cloud product: OpenTax. Their plan was to phase out their desktop products and switch all users to cloud. Despite investing heavily in OpenTax it could not perform like a desktop product and Iris had to abandon OpenTax which caused problems for accountant users. Of the 130 software developers involved with the MTDfV pilot many are new to the market and are unlikely to be around in 12 months. Businesses that used those products will find they can no longer access their data. Indeed it is possible for the data to become inaccessible before the users even had time to export it.
9.8. HMRC say they want businesses to use MTD software to reduce errors. This assumes the software is accurate to begin with. Sage has been the leading supplier of accounting software in the UK for the last 20 years. But it has several key failings:
it cannot automatically deal with VAT partial exemption;
it cannot automatically deal with VAT retail schemes;
it cannot automatically deal with VAT margin schemes;
it cannot automatically deal with switching between FRS cash based on non-FRS invoiced based;
it defaults all transactions to T1 so automatically reclaims VAT where there is no VAT eg on insurance, business rates and even drawings!
All the above (apart from FRS) have been part of VAT since VAT was introduced in 1973 yet the software cannot handle them. Businesses assume the software can handle them so, unlike accountants, aren’t checking how the software deals with transactions. HMRC say that the above adjustments should be calculated outside the software and input into the software. But these adjustments are complex and are the one area that businesses are likely to get wrong so are the one area that the software should handle robustly. In my view HMRC should force businesses to use software until that software is 100% reliable and able to handle these common areas of VAT. The above criticisms are not confined to Sage: I have yet to experience any software that can handle all the above correctly.
How prepared are HMRC, businesses (small and large) and software providers for the implementation of Making Tax Digital for VAT in April 2019, and what are the challenges of concurrent preparations for Brexit? The Sub-Committee would be interested in hearing about the experiences of individual businesses preparing for implementation, as well as more holistic responses.
The majority of my clients are in rural locations and have little or no internet connectivity. Here are a few typical cases:
11.1. GR runs a farm which is a mere 1 mile from the local telephone exchange. I live 1 mile from the same exchange. I enjoy fibre with speeds of up to 100 Mbps. GR has no internet at all. He obtained a broadband connection from Plus Net about 10 years ago and for several years enjoyed a stable connection. Being on a farm, the phone cables are above ground and are subject to damage from wind and frost, trees and high vehicles. About five years ago GR noticed his internet was often down. Within a year it had deteriorated to such an extent that it didn’t remain connected long enough to send and receive emails. GR has contacted Open Reach on numerous occasions and had engineers on site seven times over recent years. They believe there is a break in the cable but unable to locate the exact point. Because the landline works for voice calls Open Reach have refused to replace the cable. GR looked into alternative ways of getting internet into his office and obtained a mobile dongle but the farmhouse walls are over two feet thick and the signal will not penetrate the walls. GR has looked at obtaining an external 4G antenna which relays into the office but the cost is prohibitive and the sparsity of 4G coverage in our area means it is unlikely to work. Both GR and I live 1 mile from the same exchange but our experiences are very different.
11.2. AV runs an agricultural contracting business. His home and business premises are in a deep valley on the edge of a village. He too obtained broadband 10 years ago and for several years enjoyed a good service. His phone cable is above ground. It was caught by a vehicle loaded with hay bales. Thereafter his service ceased. He has had Open Reach on site more than 10 times and he has shown them exactly where the lorry caught the cable but Open Reach refuse to do anything about it. AV has even contacted his MP: the MP contacted Open Reach but still the situation is not resolved. We prepare the payroll for AV and used to email the payslips to AV but because he can no longer receive emails we have to print and post the payslips to AV. AV’s home and business is in a deep valley that has no mobile phone coverage. AV spends all day every day on site with his customers and can only be contacted by mobile phone. He is a Vodafone customer and when home used a Vodafone Sure Signal which enabled him to make and receive calls when at home. The Sure Signal relays these calls through the internet. The loss of internet also means the loss of the Sure Signal which means AV can no longer make or receive mobile calls at home and this is impacting his business.
Many clients have reported similar experiences but it isn’t just clients that have these problems, our practice does too. We are on a modern business park on the edge of the city in North Wales. We have fibre to the cabinet that we obtain through BT. The cabinet is a mere 100 metres from our office. Surely we should have a good connection? When it is working we have good speeds of 76 Mbps. But the connection is not stable and we are frequently without internet. We handle about 1000 payrolls which means we need to submit RTI filings just about all day every day. The absence of internet has a significant impact on our workload because it means staff have to spend additional time returning to that payroll later in the day when the internet has reconnected. We cannot afford such downtime. To mitigate this problem we have purchases a sophisticated router which can switch to the EE mobile network when the wired internet is down. This means we have to subscribe to two internet providers: BT and EE. Though we are on a modern business park on the edge of a city, the mobile signal is very poor (we cannot make or receive any calls from within the office) and though our router has external antennae to connect to the EE service, it is a poor signal and is adversely affected by weather and leaves on trees. This means there are times when we have neither BT nor EE. Our setup means we have internet about 98% of the time but our setup is very expensive and few of our clients would be in a position to afford it.
These examples demonstrate how difficult it is to obtain a good internet connection in rural and semi-rural locations. But it isn’t just the loss of connection at the accountant/taxpayer’s end that causes a problem. The loss of connectivity at the server end is also a problem. I am writing this on 20 September 2018. Yesterday HMRC online services went down and we could not access any services: HMRC issued an email confirming there were problems. Last week Xero was inaccessible for 7.5 hours. Our practice is QuickBooks accredited but we’ve had periods when the QuickBooks servers have been down. The lack of connectivity at the user end is frustrating but the loss of connectivity at the server end is particularly annoying. HMRC are constantly saying how they are making their services more robust but even after 20 years of online filings they still frequently go down. The majority of MTD software is cloud based and requires the user to have connectivity at both ends all. The loss of connection is disruptive and results in additional costs and lost opportunities (management having to divert resources to recover when connectivity is restored). When RTI is down we have to rearrange our staff and when necessary pay overtime to get cover to make up for lost time. Taking all costs into account (staff pay, employers’ NI, office costs etc) this costs us £20 per hour per member of staff. We have three full time payroll staff and two part time. Thus HMRC downtime costs us £60 per hour. Multiply this by the number of employers affected and the cost must be in the many tens of thousands per hour. This is the cost to business that HMRC does not see and does not consider. There are similar costs when MTD software server goes down. There is a difference when MTD software goes down: customers can vote with their feet and switch software supplier. But users can’t switch from HMRC.
The majority of my clients are farmers. The average age of a farmer in the UK is 59. The average farmer would have left school many years before computers were in school. I can remember my school buying its first computer in 1978. At the time most people were only aware of computers from science fiction and movies. The average farmer would have left school having never used a computer and then gone to work on their parents’ farm where of course there were no computers. The average farmer would have been aged over 50 before smartphones appeared and having never needed a computer or used the internet would see no reason why they should buy a smartphone. So these farmers would not have the basic computer experience to even begin to learn how to use MTD software.
The introduction of compulsory online VAT returns in 2010 was a challenge for many of my clients due to the lack of broadband coverage and the lack of computer experience of my farmers. But there was an easy way to work around this: my clients continue to maintain their manual VAT records and every quarter phone their VAT return totals to the accountant who files on their behalf. Clients needed a Government Gateway account to be able to file their VAT returns. Clients were completely incapable of setting up such an account so we did it for them. In fact most clients are still completely unaware that we ever did this: they didn’t want to know and just wanted us to do what was needed to enable the VAT returns to be filed. For the last 8 years we’ve been filing the VAT returns for our clients online. For many of those years we used the clients’ user ID and password. This means HMRC thought it was the businesses themselves filing the VAT returns. It has only been since 2SV (two-step verification) that accountants have started to file using their own user ID and password. In 2010 HMRC said that businesses that were unable to file their VAT returns online could apply for exemption. I did apply but was told that clients could go to the local library to file. That was an impractical suggestion because if the 59 year old farmer who had never used a computer went to their library, who is going to show them how to setup a Gateway account and file a VAT return? The farmer could phone HMRC Online Services but remember the farmer is in the library and librarians discourage their visitors from making phone calls which can disturb other users. And in any case, the farmer does not want all the other users of the library to hear his business. I implemented our work around and because that only took minutes per quarter it wasn’t worth appealing against HMRC’s decisions not to grant exemption.
Since 2010 the Welsh Government had introduced a system which requires farmers to submit their Single Farm Payment grant claims online. It is a complex system requiring the claimant to download and upload maps and to submit a huge amount of data. This is beyond the ability of the majority of my clients. Some of my clients make a business decision to engage an agent to prepare the claim form them: the client expects to receive £x so it is worth spending £y on an agent to handle the claim. But the majority of clients will use their farming union, either the National Farmers Union or the Farmers Union of Wales. As part of the members’ subscriptions, the farming unions will deal with the claims for their members. It is a very time consuming process but is only done once a year and there is a clear financial return to the members so it is worth the unions doing it for their members. The FUW have told me they will not be offering such a service for MTD.
These work arounds for online VAT and Single Farm Payment are practical because they are only required periodically and do not disrupt the business. But MTD is completely different because MTD requires the digitisation of all transactions ie. every day of the year. VAT Guide 700/22 says businesses can apply for exemption from MTD by phoning the VAT Helpline. I phoned the Helpline to apply for exemption for my client AV above. I was told that exemption would not be granted if it has not already been granted for online VAT returns: this is incorrect. I was then told that very few exemptions would be granted and that none would be considered until HMRC issue more detailed criteria in November. By November most accountants will be working fulltime on Tax Returns so most accountants will not be in a position to apply for exemptions until February. This will be less than two months before the start of MTD. I intend to apply for exemption for up to 100 of my clients. I am concerned that HMRC lacks the capacity to handle the flood of exemption applications it will receive.
What are the potential costs of Making Tax Digital for VAT for businesses? Businesses involved in the pilot programmes are encouraged to contribute their experiences.
Until recently software was purchased with perpetual licences. I have several clients who have purchased Sage then continue to run that same version of Sage for many years. Unless a client needs some of the features in newer versions of Sage there’s no need to incur the additional expense of upgrading. Clients will typically us the same version of Sage for 5 to 10 years. It is my opinion that MTD is being driven by the software industry. By making MTD compulsory the industry is given four million customers who have no choice but to buy MTD software. So the industry is selling MTD to HMRC by saying how wonderful it will be. To cash in on MTD all the software companies have switched to perpetual licences to monthly subscriptions. Take Sage as an example. A perpetual licence of Sage Instant (the most basic version of Sage that was suitable for most small businesses) could be purchased for about £85. If the business ran the software for, say, seven years, the total cost would be £85. If a business purchased the software today it would cost £22 a month = £1848 over 7 years. Therefore an overall price increase from £85 to £1848 = 2174%.
But it gets worse because the software suppliers have been changing their prices regularly. When we first signed up with Sage One it was free. To my knowledge there have been four price changes since then and it now costs £22 a month. Businesses will not want to sign up for something that has such price swings.
From my experiences reported elsewhere in this document I know most of my clients will be unable to handle their own MTD software and will need to engage someone else to do it. I therefore selected one client to trial whereby we did the work for them. That client previously kept manual records. We charged them £700 a year to prepare their accounts. Using MTD software the cost in our time was £2300 because it takes so much longer to input and process using software compared to mixtures of manual lists and spreadsheets. Therefore I expect most clients to experience a threefold increase in costs when forced onto MTD software.
I have a number of clients who use industry-specific software. TS is a travel agent using TARSC produced by Vertical Systems. This software accounts for all the customer and supplier ledgers and includes functions specific for travel agents such as ticket handling, agent accounts etc. I contacted Vertical Systems to enquire about their MTD plans. They told me they have no plans to comply with MTD because (a) they are too busy complying with legislative changes that affect the travel business and (b) they have in the past invested resources in getting ready for HMRC changes that have never happened so they don’t intend to do it again. I asked HMRC how my client is expected to comply with MTD if their software does not. HMRC told me my client must therefore maintain a second accounting program that does comply. So my client is expected to maintain two accounting records: one for their own business use and one for HMRC use. Based on the volume of transactions, my client would have to engage a part time member of staff just to maintain the second record for HMRC.
How could the penalty regime and the new VAT interest regime proposed in the draft Finance Bill be improved or simplified?
See below.
What are the implications of having different penalty regimes for different taxes?
Before addressing this HMRC needs to take a look at MTD and address the filing differences for different taxes. MTD requires businesses to digitise all transactions and make digital submissions to HMRC. Businesses would therefore assume that their MTD submissions would cover all taxes, but it does not. The smallest category of business is a sole trader. A sole trader builder with an employee and a rental property will be required to make the following submissions:
4x MTD for VAT – deadline the end of the month following the reporting period
5x MTD for Business for the trade – 30 days after the reporting period
5x MTD for Business for the rental property – 30 days after the reporting period
12x CIS – 14 days after the reporting period
54x RTI – on or before the employee is paid
1x MTD finalisation – 9 months after the reporting period
That’s a total of 81 submissions. If the business is using a single piece of software, eg Sage, to digitise all their transactions, why must the business make so many submissions each with different reporting periods. HMRC must address this before even considering penalties. Take CIS and RTI as an example. Both use payroll software but one requires HMRC submissions in arrears and the other in advance. Where’s the logic in that? Businesses really struggle to understand the deadlines. HMRC needs to streamline these before considering penalties.
1 October 2018
