From the moment HMRC announced the launch date of Beta testing for Making Tax Digital for Income Tax (MTD IT – formerly MTD ITSA), Aaron Patrick was “beating down the door” to get involved. As Head of Accounts at cloud-based accountancy practice Boffix, Patrick saw it as his duty to help put the system through its paces. Yet he had to be quite persistent to land a place on the testing roster.

“This was three years ago,” he explains. “It was a no-brainer to put myself forward, but HMRC had very specific criteria about who could take part. For example, the tester’s method of tax payment. I asked my client base whether anyone was interested in signing up, but nobody was, so I geared my own tax payment towards self-employment. However, that was just one of the areas that HMRC screened people on, and they turned me down several times before accepting me.”

A major point that worked in Patrick’s favour was that he had a strong working relationship with QuickBooks – a software vendor set to be a key link between taxpayers and the MTD IT system when it goes live next year.

Once Patrick was on board, he had his own specific thoughts on why he was there. “More than anything else, I wanted to look at MTD IT from the accountant’s point of view, rather than the user’s,” he says. “I was always confident from a UX perspective that the vendors would design nice, clear processes for users to submit their quarterly updates. But I had a series of more profession-related questions, such as: ‘What if there’s a loss in a given period? What if you go from a loss to a positive? And what if you have a capital item to account for?’”

He notes that it was about being critical, and occasionally breaking the system, to find out what needs to be changed, so it will work as smoothly as possible for mass adoption.

Missing piece

Based on his experience of Beta-testing MTD IT through QuickBooks, Patrick was surprised by how “smooth and straightforward” the submissions process was for quarterly updates.

One feature he found particularly helpful was a checklist that appears just before the user pushes the button to submit. That gave him confidence that the UX is being developed with as much accounting relevance as possible, and with a view to ensuring that the end user will be reminded to provide all the essential pieces of information they are required to file.

On the other side of the ledger, Patrick was less impressed by the process for consolidating the quarterly updates in the annual submission. Indeed, such a process was conspicuous by its absence. “Replacing the need to do an SA-100 – the standard, traditional tax return – becomes more complicated,” he says. “This was a conversation that went back and forth between the testers and developers, and the issue still hasn’t been cracked.”

In self-employment, there will be many high-earning entrepreneurs who each have different income streams from a variety of sources, he explains. “What we found was that this would require you to have a central hub for your annual submission that would talk to the quarterly element and pull all the data in. As such, HMRC would have to find a way not just to store the quarterly data they’ve processed, but to give the accountant, or agent, access so that they’d know what the client has already submitted. But that was completely missing.”

From the first-person viewpoint of a tester, Patrick points out, he would quite readily be able to recreate the quarterly data in the annual return, based on his memory of the test updates he had filed. “However, if I were an accountant overseeing a real client’s annual submission, I’d have no chance. I’d be completely blind to what they’d already submitted. So that’s a big functionality gap that they’re still struggling to nail.”

Closer links

In Patrick’s assessment, getting the solution right is critical for MTD IT to achieve acceptance and adoption within the profession.

“The way we’ve sold this new system to ourselves as accountants is that it should take the pressure off annual returns, because we would have already done them in quarterly stages,” he says. “So in theory it’s just a final roundup to make sure that, for example, accruals and prepayments have been done properly, and so on. But right now, it seems that we’ve almost got to ignore everything that was submitted before and recreate the data for the annual filing in our own little ecosystem. As such, the previous submissions just end up being extra bits of compliance to do. They don’t have full relevance to the final return process.”

That, Patrick stresses, is a “disconnect” – one that is already, through the power of hearsay, chipping away at professionals’ confidence in the new system. “I’ve spoken to accountants who’ve said: ‘If this isn’t fixed, I won’t be offering the quarterly service to clients. They can do their own, and we’ll pick up the pieces at the end for the annual.’”

For Patrick, the disconnect should ideally be resolved through closer links between HMRC and practice management software vendors. This would enable accountants to view the submission statuses of their clients on a single, consolidated dashboard.

“Companies House has opened up its API to the practice management solutions vendors. As a result, if I have 500-odd limited companies’ accounts on my books, Companies House will feed through all the due dates to the software platform and we’ll have a list to work through. That isn’t being replicated at HMRC. So the big disconnect we have is that HMRC is building this new MTD system without properly understanding the needs of accountants and bookkeepers.”