When MPs return from their summer break in September they will debate a second version of the Finance Bill. But one measure missing from this will be the biggest piece of new tax policy in years. Under HMRC’s Making Tax Digital, from 2018 onwards businesses will have had to start filing more regular, quarterly mini ‘tax returns’ through a new range of online software.
After the outcry over red tape, the government pulled the measure from the Finance Act, with the new requirement delayed until 2019 for VAT payers and 2020 for other business owners.
Tending to your accounts and submitting returns more frequently is a good thing, eliminating the torture of annual receipt hunting and giving business owners a more up-to-date picture of their company’s health and tax liability. My own cloud accounting software company was ready to go, with systems primed to help customers file their new-look reports to their HMRC digital dashboard.
I also welcome the fact that MPs now won’t need to debate Making Tax Digital this autumn, and that business owners and accountants have more time to prepare.
The timescale makes much more sense now. Not only will HMRC developers have more time to overcome engineering issues - an extra two years to get all their systems and connections right - but the delay also benefits taxpayers and their accountants.
VAT-registered businesses already file quarterly VAT returns. For them, quarterly tax filing in two years’ time will be little to no extra work.
By the time other businesses have to do the same one year later, accountants will have had plenty of practice in filing the new regular digital returns, they will know how the software works and a lot of bugs will have been sorted out.
Despite the outcry against Making Tax Digital, the majority of accountants I speak to recognise the benefits of more regular filing, and the inherent efficiencies the new system will bestow. Now is their time to shine and agents now have a fantastic opportunity to prepare their clients and their own practices, which is where Making Tax Digital will succeed or fail.
Adapting may be tough for some accountants. With some extra client work required on their part, they may have to work out a new fee structure for their services. They may need to recruit extra staff and will need to be mindful of potentially losing clients as a result of either fee increases or clients’ new belief they can manage and file their own affairs.
Every accountant now has the luxury of more time to rethink the tools they use they and their clients to do their work. It’s my opinion that at this kind of volume of operation, dedicated cloud accounting software will likely be robust, easier to use and more scaleable than continuing to use spreadsheets. This pause in the policy will give everyone plenty of time to pick their best solution.
More than that, they now have time in which they should educate those clients about how they should best keep their own records. For sure, many business owners will continue to dump a shoebox of receipts on their bookkeeper at year’s end. But smart agents will set up clients’ accounts in a cloud accounting package and, in the next couple of years, look to migrate their customers to use it in a self-service fashion.
The earlier they act the better. Business owners who are educated in the benefits of keeping up to date invariably stick with the new regime and run more effective companies. In fact, the optimum outcome for everyone in the next couple of years will be if practices can manage to bring clients into a quarterly filing regime, even if it not formally mandated by HMRC.
If the industry can develop muscle memory for how this will all work, everyone will be in a better place by the time it becomes a requirement.
Whilst the government’s delay to Making Tax Digital is welcome, I only wish it had implemented a pilot programme, one in which savvy businesses could choose to voluntarily submit as regularly as they like. Because there is no time to act like the present.