MTD Apps – do they work?

As part of their preparations for Making Tax Digital (MTD), HMRC has been explaining how small businesses will save time, and therefore money, when they file their tax returns on line.

In their consultation document, HMRC used the experiences of ‘Eve the Carpenter’ to detail the benefits of MTD. Eve had always kept a manual record of her payments and receipts in a drawer and during the year frequently mislaid relevant paperwork or couldn’t remember the significance of every scrap of paper when it came to drawing up her annual accounts. However, by using an app on her smartphone, Eve was able to keep control of all her payments and receipts during the year and use the stored information to draw up her accounts with ease.

Although many aspects of Eve’s experiences of MTD made sense, a number of professionals queried HMRC’s assumptions that time will be saved by using a cloud storage system. Chris Mattos, editor-in-chief of Tax Advisor Magazine went further and tested the time it took to use three different methods of keeping records when drawing up a set of accounts.

Invoices and receipts from three businesses were used and given to a gap year student who had no experience of bookkeeping or tax. The student used a paper cash book, a PC with Excel and access to superfast Broadband, and an app on an iPhone. The time taken to input the information using each method was recorded.

The experiment demonstrated that inputting data by writing entries in the cash book took less time than the other two methods. The ‘old-fashioned’ way was 20% quicker than using the mobile app because the app’s software did not always record the correct function and had to be manually over-ridden. There were also a number of discrepancies in recording expenses which did not occur in the other two methods.

Mattos concluded that HMRC’s assumption that using a MTD app would save time was not correct. The full report of the timing experiment has been submitted to HMRC as part of the consultation process.