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What the election result means for MTD, regulation, and you

5th Jul 2024
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IRIS makes accountants more efficient and productive.

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As polls predicted, Labour has secured a substantial majority in the General Election. 

Typically, we would say that change accompanies any shift in political power, but change is already happening in accounting, not least with Making Tax Digital (MTD). 

So, what does the election mean for MTD, and is there anything else accountants and bookkeepers need to be aware of? 

A quick recap of where we are with Making Tax Digital (MTD) 

Making Tax Digital has been a significant change for the industry. It was proposed as necessary to help HMRC collect revenue usually lost because of inaccuracies. These yearly losses were estimated to be in the billions. 

The idea is to have everyone submit quarterly updates of their self-employment and property income in addition to an annual submission of all other income. The new and more transparent system is designed to affect VAT-registered businesses and individuals who bring in more than £30,000 annually from self-employment and/or property income. 

VAT-registered businesses now have to use approved software and file digitally. After some delay, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is expected in 2026. There is a pilot for MTD for ITSA, which began on 22 April this year.  

What happens to MTD under Labour? 

With a Labour Government in power, will they want to keep an initiative announced under the Conservatives? 

Very likely, yes. 

In the run-up to the election, Labour has discussed what it sees as a need to modernise HMRC through digitalisation. In 'Labour's Plan to Close the Tax Gap', they set out how they will tackle a £36bn shortfall. In the plan, they say: 

In practical terms, these programmes [MTD and Single Customer Account (SCA)] involve changes to HMRC's ways of operating, such as: digitisation of existing paper-based systems; increasing real-time reporting and payment; and improving and integrating different systems. Digitisation is important in reducing the tax gap, especially from carelessness and errors. 

This heavily suggests business as usual for MTD. 

A need for recommitment and clarity on MTD

Of course, the suggestion of continuity is not official confirmation.

Michael Cox, Chief Finance Officer at IRIS Software Group, said: "Despite any rollout holdups for MTD, the last thing I think we would want to see is a reset. The reality is that if the Treasury loses billions, collection needs to be better – and both HMRC and the rest of the industry can use this as an opportunity to modernise where it helps the most. 

“Accountants and the wider business community will be anticipating the new government provides certainty and continuity on the digitisation schemes for HMRC.   

“Many will hope this includes a recommitment to Making Tax Digital, which is playing an essential role in modernising HMRC to avoid inaccuracies that arise from traditional collection methods -- and help thousands of businesses across the UK to digitise their practices.  

“If there are going to be any changes in direction, it is a must that they are well-planned and communicated effectively with accountants and software developers to ensure businesses have the time to understand, adjust and adapt."

Is there anything else? 

The party has also spoken about audit reforms as a way to boost transparency. There are also pledges to enhance R&D tax credits and retain a permanent full expensing system for small business investment. 

Michael Cox said: "The promise of new audit reforms presents an opportunity to boost transparency and improve quality through increased scrutiny and regulatory changes, impacting accountants’ roles and responsibilities, however any costs relating to this are likely to be passed on to businesses and they will need to quickly understand the implications.  

“Labour's commitment to enhancing R&D tax credits aims to foster innovation by reducing taxable profits for companies investing in research. This initiative is designed to boost technological advancement and enhance the UK's global competitiveness, representing a welcome change. 

“Additionally, the retention of a permanent full expensing system for small business investments ensures the immediate deduction of eligible capital expenditures. This approach eases financial burdens and improves cash flow for small businesses, contributing to their growth and sustainability. 

“SMEs should seize these incentives to drive innovation, enhance productivity and foster growth whilst promoting entrepreneurship, creating jobs and ensuring long-term economic prosperity. 

“While detail on new policy is still light, we expect that accountants and businesses will face heightened expectations in a more stringent regulatory environment under the new government.” 

How IRIS is helping with change

IRIS is always thinking about our users' best interests regarding change. For example, we have been involved in the consultations on MTD, discussing some of the key issues around implementing this sea-change for the industry.  

We are constantly readying software so that as changes like MTD move forward, you will too. 

Furthermore, we are investing in automation and AI to make it easier for accountants and bookkeepers to harness their data and provide better insights to their clients. 

We're also always seeking new ways to make your processes more efficient to help handle increases in compliance that MTD brings. That way, you save time and avoid passing new costs onto your client – or having to absorb any financial hit yourself. 

An investment in auditing 

IRIS has also rolled out an outsourcing option for those in need of auditing assistance. Half of the accountants we spoke to in a poll struggle to offer audit services because of recruitment issues. The new IRIS Outsourcing Audit Services are designed to help UK firms fill this gap in their team with a cost-effective solution, using experienced staff that will understand the latest regulations. 

Find out more 

To learn more about how IRIS can help accountants and bookkeepers – including with our cloud solution, IRIS Elements; our desktop solution, IRIS Accountancy Suite; and our outsourcing services.

Visit our site today.