At a hearing before the House of Lords economic affairs committee, chaired by Lord Hollick, representatives from the software companies were grilled about whether they would be able to deliver products to support HMRC’s plans for Making Tax Digital, the plans for beta testing and free software options.

Although the software representatives were trying to be confident about the 14-month rollout period, there were concerns about the lack of dialogue and information sharing between the commercial software developers and the tax authority.

Kevin Hart, council member of the Business Application Software Developers Association (BADSA) and head of payroll and third party integration at B&CE  told the Lords: ‘Certainly we’ve been engaged with the industry for a while and there is commitment to the timescale HMRC is targeting but it is dependent on HMRC being able to deliver clarity of services.

‘We’re in the direction of travel; we’re not ready, but it’s hand in glove [with HMRC]. There is a commitment to be ready but we need more information.’

When the Lords pressed the issue of industry readiness and the market size, asking: ‘Are you saying the industry is ready and HMRC is not?’; there were concerns that the volume of work required to push for an April 2018 full rollout created risks.

Kevin Dady, group CEO, IRIS Software Group said: ‘Iris is as ready as it can be – we’re talking to HMRC on a weekly basis but we could be better prepared. We could be ready by October/November this year if we get the right information. We still do not have final specifications on all the items required from HMRC.

‘The acceleration of the information flow has to pick up the pace. I think the information flow is accelerating but is it quick enough? We are as ahead as we can be in terms of the information available.

‘We don’t have live sight of the HMRC systems – we’ve got a reasonable degree of certainty about what they want to do with our systems. Ideally we would have more time to pilot this depending on how the final system looks.’

Timing

Dady said: ‘I think they [HMRC] need to accelerate dialogue with all the developer community. Target audience for beta testing to start in April but how will HMRC get 400,000 testers, what is in it for them? Having been involved in rollouts for DWP and DfE, I think there needs to be more dialogue.’

When pressed on the viability of the April 2018 launch date, a cautious Dady said: ‘There is an ability within the industry to make Making Tax Digital live by April 2018, it is possible, but there needs to be a greater tenacity on the part of the HMRC to know what success looks like, what measures need to be in place. But I don’t think we should give up on that target.

‘If we are to keep to this timetable, we need to know so we can resource adequately. If they can’t get through to HMRC, they [customers] are going to ring us.’

Excel spreadsheets survive

Software developers were not told about HMRC’s decision to retain Excel spreadsheet reporting under Making Tax Digital; the first they heard about the move was when HMRC confirmed the retention plan on 31 January. This had not been communicated to the developers in advance, according to the software representatives at the Lords hearing.

Although the decision was welcomed by the tax profession, it raises compatibility issues as HMRC’s internal IT system will not be able to directly import data from spreadsheets; it will have to go through a third party tool before it can be used by the tax authority.

‘That is a concerning development, if you’re already an Excel user it is good news, but from a software developer perspective it is incredibly difficult to continually translate out of Excel. People who have been told that they are going to be able to continue using it so HMRC will have to provide clear guidelines. It is quite critical that we can address this uncertainty around Excel, said Kevin Hart, council member of the Business Application Software Developers Association (BADSA) and head of payroll and third party integration at B&CE.

Kevin Dady, group CEO, IRIS Software Group said: ‘Excel creates an extra conundrum for the software supplier, as to how the supplier software can convert the spreadsheet into the data files for HMRC. It was only announced last week.’

The Lords committee pressed the witnesses on whether they would be providing free software for Making Tax Digital, asking why there could not be a single free app, effectively an open source solution, which anyone with simple accounts and reporting requirements would be able to use.

There is as yet no decision on which software providers will provide a free software tool, although HMRC is pressing for a minimum of three companies to step in to offer these so-called ‘freemium products.

‘We have not formally decided if we are going to offer a freemium product,’ said Dady. ‘We are not sure how many people will be in the cohort that requires free model – maybe for sole traders or two or three person setups, producing one or two invoices a year.

‘Once we have the final specification we would be in a better position to decide. We do offer freemium products for RTI [real time information reporting].’

While HMRC has decided on free tools, it is not prepared to fund them nor has it identified the size of the market, with the Lords unable to get answers to the question, ‘how big is the freemium camp?’

We’re not in that camp yet,’ explained Dady. ‘There is a real challenge as there is not a clear understanding of what is required. It makes it incredibly difficult to come up with a viable option.

‘There are already freemium products in the market but HMRC is looking for something almost identical to the paid product.’

Although free tools have not been developed, there was some resistance to the Lords’ suggestion that a free open source app could meet the needs of the smallest traders and landlords. ‘Wouldn’t it be a damn sight easier for HMRC to give a free app – that would be the best overall package?’, adding that if 47% of SMEs use a bookkeeping product, we are talking about a significant number of companies doing accounts by hand. ‘Wouldn’t it be better if HMRC, and after all HMRC are selling digital tax services, why don’ they offer a free app? asked one member.

Hart said: ‘There are merits in that, but what do we mean by free? There is an ecosystem already in place, we could have a carousel selection process, but it is down to who knows the customers best.’

Making Tax Digital is set to go live from April 2018 for sole traders, self employed and buy-to-let landlords.

Report by Sara White