HMRC’s Making Tax Digital (MTD) initiative is a classic exercise in changing the law and thereby shifting the costs of applying the changes to industry.
They made it clear at the beginning of the MTD process that no software to link taxpayers’ accounting software to HMRC’s digital records would be provided by HMRC. Instead, suppliers of accounting software were provided with an API and told to develop their own links.
This has required a significant investment by the accounts software industry and one that will no doubt increase the costs of providing and supporting these services to accountants and their clients.
Recently, HMRC changed their stance on the use of spreadsheets by VAT registered traders. Previously, they had determined that the use of spreadsheets would not be allowed under MTD. Following lobbying by industry and the accounting profession, HMRC have now recanted, and spreadsheets can now be used. But there is a caveat.
The spreadsheet must be linked to HMRC’s API by bridging software. HMRC are insisting that data cannot be cut and pasted from spreadsheet. Instead, it must be linked electronically.
Consequently, developers are now scratching their heads to figure out how this can be done, and in the process, are adding yet more cost to their investment in MTD compliance.
Should professionals be weaning smaller clients away from Excel and encouraging the use of cloud based software alternatives?
And what about larger concerns that cannot accommodate their complex VAT position (partial exemption for example) within their accounting software and use spreadsheets to make the required adjustments?
HMRC’s decision has opened yet another can of worms for the software industry and in the process may have shot MTD in the foot.