The Benefits of Making Tax Digital

danhind
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There is no denying that the implementation of Making Tax Digital (MTD) has been more difficult than initially expected. In July UK government announced that it will delay MTD implementation by a year. Businesses will not be asked to keep digital records or to provide HM Revenue and Customs (HMRC) with quarterly updates for taxes aside from the VAT until 2020. In addition to these implementation delays, accountants worry that MTD will increase their workload and could represent a security risk.

These concerns should be acknowledged, but the United Kingdom has so much to gain by a digitized tax system which will help the government collect missing revenue, make accountants more efficient, and make the old tax return a thing of the past. We already know that digitization and the cloud are coming sooner or later. By making it sooner, accountants and businesses alike have plenty to gain in this new, digital future.

More Efficient Businesses

At a basic level, HMRC’s plans make perfect sense. We already use the Internet to go shopping, do our banking, and communicate with the government. So why not use it and accounting software to handle taxes, instead of relying on paper ledgers or stashing receipts in a shoebox?

Relying on paper and submitting a single return once a year leads to mistakes which cost everyone. A small mistake in a financial ledger made at the beginning of the year can mushroom into a serious discrepancy over time, yet it may not be realized until it is time to file a return. Accountants and businesses have to spend time ensuring compliance, which results in lost revenue for the government. HMRC estimates that the Exchequer lost £8 billion a year due to avoidable taxpayer mistakes, and “In 2014 to 2015 over £3.5 billion of revenue was lost due to these mistakes in VAT returns alone.”

With cloud technology and accounting software, businesses can detect mistakes right as they happen. They can more easily claim business expenses back by entering them in QuickBooks as they happen with a detailed entry describing the expense, instead of having to go over every single receipt at the end of the year. And as accounting software is real-time, they can know how much they owe in taxes throughout the year instead of having to guess how much they will have to pay upon filing a return.

The benefits of digitization are real. Even if MTD did not exist, businesses are already on their own accord steadily moving away from paper accounting. MTD’s efforts to accelerate this change will help businesses who would otherwise stick with “the way things are” and get them to adapt a new, better method of accounting.

Changing the Role of Accountants

But while digitization may be wholly good for businesses, some accountants claim that MTD will make things harder for them. Modernising of the tax system will have firms very quickly yearning for a return to the good old days. The self-employed have to file taxes four times a year rather than once. This means that accountants will have to spend four times more effort chasing reluctant clients still using paper accounting to supply relevant information.

But as noted above, many of these supposedly reluctant clients are in fact steadily moving towards digitized accounting themselves and reaping the rewards. This will take time and pressure to fully implement, which is why precisely why MTD is necessary. But over the long run, accounting software will take over much of that chasing for information, as accountants will do more than ensure compliance.

In fact, these changes will help transform the accounting professional into something bigger and more creative. Accounting will no longer be a traditional 9-5 profession. Remote work will give accountants greater flexibility to be able to help clients as quickly as possible while having more control over their own lives.

What will accountants do beyond simply ensuring compliance? We will begin offering sound business advice, thanks to our financial skills and our ability to see both the big and small picture. With accounting software, we can take a look at larger and more accurate arrays of data, analyze them, and help business managers make better decisions.  

With or without MTD, accounting is going to change in the future as businesses will inevitably adapt new technologies like cloud technology and accounting software. Rather than panicking about how we may be negatively affected by this new technology, accountants and businesses should focus on how they can benefit. Making taxes digital will benefit accountants, business, and society, and so businesses should embrace MTD instead of viewing it with dismay.

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