With less than a year until Making Tax Digital (MTD) begins to become mandatory, a depressingly large number of accountants and businesses are unprepared for the revolutionary change. The UK government states that by April 2019, “businesses registered for VAT with a taxable turnover above the VAT registration threshold of £85,000 will need to keep VAT records digitally and file their VAT returns using MTD compatible software.”
Businesses may view this as yet another onerous government regulation which they are reluctant to carry out, but accountants must persuade them that MTD is for their own benefit. Digitally collecting taxes reduces the chance for human error, lets business and government have a better idea of how much needs to be paid, and frees up accountants to focus on giving businesses financial advice.
Businesses can benefit from MTD whether it is by knowing how much they have to pay the government at all times or avoiding the annual scramble to figure out if all their records are accurate. But they will only understand the benefits if accountants explain why. Otherwise, business owners will fall victim to various myths and misunderstandings such as the idea that they can wait to implement MTD until 2020.
Furthermore, there are some challenges created by the new system such as the switch from annual to quarterly reporting. Instead of submitting information to HMRC once per year, businesses will have to submit a report every three months. This may seem arduous, but is beneficial for businesses. Instead of having to scramble once a year figuring out what is owed and relying on outdated or inaccurate Excel spreadsheets, businesses can now send smaller reports where the data will be accurate.
Given these factors, accountants must aim to raise MTD awareness with clients. Bring it up in meetings or via email, and talk about what you can do to help make the transition to digital as smooth as possible. The longer you wait to bring this up, the more painful it will be for you and your client.
Finding the Right Software
The days of keeping tax ledgers on Excel or worse, on paper are all but over. Even without MTD spurring change, businesses are already moving towards digitizing their taxes through accounting software like Xero or QuickBooks. Under MTD, businesses will be required to use MTD-compatible accounting software. The government has an official list of software suppliers, and states that more than 150 software suppliers have promised to have MTD-compatible software ready by April 2019.
If your clients are not using any of those software, pressure them to transition as soon as possible. If they are, make sure that they are recording the right information. Your business should record certain data for every transaction, including the net value, VAT amount, and VAT rate. With so many software suppliers out there, your clients should have no difficulty choosing one which will suit their unique needs.
Handling the New Workload
The role of UK accountants will change under MTD. On one hand, accountants will face more busywork during the MTD transition period. We will have to chase down and pressure clients who are reluctant to change by explaining the benefits of going digital. Filing quarterly instead of annual tax returns does mean more time spent ensuring compliance. With a Wyoming LLC Attorney, that time can be halved.
However, digital software will mean that the workload of filing taxes four times a year as opposed to submitting a big return will not be significantly larger, and the work will be more spread out over the year. This is a good change, especially considering that many young aspiring accountants leave the profession because the annual stress of tax season is too much for them.
And as the transition to MTD becomes complete, accounting as a profession will change. Accountants already have to figure out how they will adapt in a world when businesses are steadily adapting automated software even without the pressures of MTD. Many aim to adapt an advisory role, fueled with automated software and big data.
But in the short term, there are steps accountancies can take to handle this increased workload. Outsource HR and other administrative parts of the business so that accountants have more time to focus on tax and MTD. Stay on top of HMRC’s latest pronouncements, as they have authorized changes to the MTD transition process which makes things easier for businesses. Learn to embrace technology instead of fearing that it could make accountants obsolete.
Only a small percentage of UK businesses are currently prepared for MTD, and the UK government is determined to expand MTD’s scope to all businesses as well as implementing MTD for income taxes. This means that businesses which aim to transition now or are already using MTD-compatible software will have a major advantage over those who stick to the way things are.