Making Tax Digital: What Does it Mean for Accountants?

Making Tax Digital: What Does it Mean for Accountants?

Have you heard of Making Tax Digital (MTD)? Or are you one of the seven out of 10 small UK business owners that the HMRC say are still unaware of the initiative?^[1] It’s at the heart of the government’s tax reforms and will mean the end of the annual tax return and paper accounting for countless firms.

Accountants will help to make it work across the UK. In fact, those that embrace MTD will find new opportunities to build stronger relationships with their clients as trusted advisors. 

What is it?

MTD is all about making the tax system more efficient: so businesses stay on top of their accounts and HMRC can reduce the billions it loses in “avoidable taxpayer mistakes”. It will introduce improved:

Transparency: via automated digital communication with HMRC. Taxpayers will also be able to check all the info HMRC holds on them.
Accuracy: as digital tax filings will need to be made every quarter.
Speed: with HMRC promising to process tax info in near real-time.

Businesses have access to a digital tax account today. But they don’t need to comply with MTD until April 2019 — and even then only for their VAT, above a certain threshold. Although some businesses may choose to comply voluntarily, full compliance will start in 2020, at the earliest.

What does it mean for me?

Unfortunately, there’s still widespread unawareness about the new scheme. Plus, an estimated 65% of SMEs aren’t yet using software to manage their businesses^[2] — an essential requirement of MTD.

For accountants, MTD is a huge opportunity to inform the market and drive closer relationships with clients as tech-savvy experts. Sole traders in particular may be looking for expert guidance with the new laws. They’ll need to report more comprehensively and more often under MTD, so it will become important to separate business and personal spend more clearly.

What are the benefits?

MTD is all about enabling businesses to get their tax right: reducing errors to minimise costs, uncertainty and worry. Speedy processing of information by HMRC means businesses will know quickly and accurately how much tax they owe — preventing owed repayments building up over time.

The hope is that by 2020, all taxpayers will be able to view their complete tax liabilities and entitlements from their account, just as they can with online banking.

How can I prepare?

This is a big change so it’s important that accountants are prepared:

• Ensure your staff are fully trained in the basics so you can field any client questions
• Thanks to the quarterly filings, you’ll interact more frequently with clients. This may impact pricing and how you structure services — so it’s important to communicate the benefits of any changes with clients
• Consider new hires to cope with the increased workload
• Ensure any online accounting platform you use is compatible with HMRC filing, and get familiar with it ahead of MTD
• Consider building on the strong relationships you forge with clients via the MTD transition by offering additional services. But be mindful that the new scheme may not be popular with many businesses at first

The Cashplus Business Bank Account integrates with all leading accountancy platforms and offers data directly via API to support seamless bookkeeping. This could help you and your clients’ MTD plans.

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Sources

[1] http://businessadvice.co.uk/tax-and-admin/year-end/hmrc-report-reveals-startlingly-low-awareness-of-digital-tax-transition/

[2] https://www.theaccountancy.co.uk/articles/smes-not-prepared-making-tax-digital-7277.html

This content was created on 11th June 2018