Finance
Making Tax Digital: getting past the hurdles and disbelief
Global Banking & Finance Review®
Company
Making Tax Digital faces hurdles and misconceptions. Accountants must educate clients on its benefits to ensure a smooth transition to digital tax records.
By Steve Cox, Head of Accountancy at IRIS Software Group.
Making Tax Digital (MTD) is an accountancy revolution like no other. It’s one of the largest and most significant changes to tax legislation for decades and has already had a major impact on accountants and their clients. But it has a negative stigma.
HMRC’s decision to postpone the next phase at the height of Covid was welcomed within the Accountancy profession. The government has listened to vendors, institutes and the profession, delaying MTD for Income Tax Self-Assessment to April 2024 (one year later than had been previously announced) and delaying MTD for general partnerships to 2025. HMRC’s reasoning is to give those impacted by MTD more time to prepare following the pandemic – in fact, 83% of plumbers are not MTD ready according to a recent Mazuma Accountants study. While this is the right move in the long run, the news has been met with judgement from many in the profession.
If MTD’s reputation does not change in the lead up to 2024, we risk dangerous consequences – chiefly falling behind in the race for innovation to become the most digitally advance tax regime globally. However, with HMRC continuing to delay the mandates for this, they risk a slower digitization in the accountancy profession and overall adoption of digital records by taxpayers. While delays to MTD are par for the course, more needs to be done by accountants to re-establish MTD to their clients as the innovation every business needs. HMRC have delayed the mandate, but not the pilot. Accountants now have two years instead of one year to show their clients the new world under MTD and fine tune the benefits for them.
Misconceptions behind MTD
Accountants have a critical role to play in building trust around MTD. For most businesses, MTD is at the bottom of their long to-do list, particularly following what has been their toughest year yet. Accountants must do more to separate fact from fiction when it comes to MTD; busting the common myths and reinforcing the positive outcomes with clients to make it easier for them to change.
Some say that switching to digital records is too much hassle. While clients have stuck to traditional and manual processes to manage their books and tax for years on end, in reality, it is the fear of change that’s preventing many from switching to digital record keeping. A key misconception is that MTD means extra workload, but HMRC has confirmed that businesses following MTD for VAT rules do not need to keep any more records than they did previously, nor provide any more information to HMRC. It is the number of submissions that have increased five-fold in the majority of cases, but this additional review work can be overcome through process automation.
Accountants need to reassure their clients that MTD is no hassle and that it’s in fact easier, with minimal additional workload but instant benefits to their businesses. With increased visibility and fewer costly mistakes made through automated systems, accountants can set aside more time to deliver smarter, more strategic higher-value advisory services to their clients. So how do you put this into action?
Jumping over the hurdles
Transparency is key for accountants to effectively communicate the benefits of MTD and what’s expected of their clients. HMRC need to publicise MTD for Income Tax Self-Assessment across the UK, but they are unlikely to do this until much closer to the 2024 mandate. Thus, it falls to Accountants to discuss with and educate their clients. Robust practice management systems are a great tool to help achieve this. They enable practices to systemise regular contact between both parties by putting client information at accountants’ fingertips. This can create a step-change in the ability to communicate the benefits and simplicity of MTD.
Automation is critical. It enables accountants to help their clients adapt to MTD and prepare for upcoming deadlines, including 2024. Online bookkeeping tools are an extremely effective way for business owners to easily capture and digitally process receipts, invoices, purchase orders and bank statements. These records are saved on a cloud-based platform and provide the convenience for accountants to review and compile VAT returns when needed. This drastically enhances efficiency and productivity, alleviating stress for all involved.
The key component here is for accountants to be smart and utilise technology tools to access accurate and real-time data to ensure no hiccups with the delivery of MTD. Specialist tax compliance software streamlines processes like tax returns, which if done manually can be extremely time-consuming, taking up precious time that accountants do not have. These solutions save time and reduce the risk of error, all by automating tax calculations using real-time data.
Busting the MTD myths
MTD is the future of accountancy. While it’s delayed, it’s not abolished. It might take a bit of time and convincing for clients to get used to MTD, but when they do, they’ll reap the benefits it has to offer. Now is the time for accountants to step up and re-establish MTD as the digitization spark within accountancy. To do this, they need clear communication and automation to make the process as simple as possible.
Only will they then be in the best position to put to bed any MTD myths and move forward with confidence in a post-Covid world.
The article discusses the challenges and misconceptions surrounding Making Tax Digital and the role of accountants in facilitating the transition.
HMRC postponed MTD to give businesses more time to prepare following the pandemic, with new deadlines set for 2024 and 2025.
Accountants can educate clients about MTD, dispel myths, and use automation to simplify the transition to digital tax records.
Explore more articles in the Finance category
