The coming digital tax challenges and how to meet them

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For accountancy practitioners, the ever-accelerating pace of regulatory change can be overwhelming. In tandem with Intuit QuickBooks, the first Accounting Excellence Talks session in February set out a series of practical suggestions to help firms be more resilient in the face of change.

The compliance burdens facing businesses in 2018 are considerable. The topics covered in the webcast include: small business taxation changes; IR35; the General Data Protection Regulation; and VAT for Making Tax Digital.

The sheer scale of these changes makes it harder to assimilate and work out what to do, said panellists Rebecca Benneyworth, Fiona Fraser and Intuit QuickBooks head of business development Nick Williams.

“It’s the volume of change and on top of that is how to communicate it to your clients so they actually hear what you’re saying,” said Fraser. “And then to marry that with the digital and technology changes.”

Introducing the live webcast (now available for viewing on demand), AccountingWEB global editor John Stokdyk commented: “In the next 40mins we want to send our viewers away with as many practical ideas and strategies for managing that volume of change.”

The 45min live broadcast presents an overview of the underlying issues. To ensure that viewers are fully briefed on these points, Rebecca Benneyworth has produced a Small Company Tax Handbook. She will also be back for an Accounting Excellence Talk on Making Tax Digital (MTD) on 17 May.

Even the basics are changing

Yet even before we get to MTD, changes such as the dividends tax are complicating the decisions small businesses face.

“For many years the limited company was the answer because tax was cheaper and there was no national insurance,” said Rebecca Benneyworth. “Now it’s unlikely to be sensible for anyone turning over less than £50,000.”

Government policy tends to drive whatever business structure accountants recommend to their clients, she continued.

“I don’t think they’ve got a preference where they would prefer businesses to be. But whatever business entity you’re in, the government would quite like to take the same amount of tax off you. And of course, that’s not the case.

“I’m starting to think good old fashioned spousal partnerships are a cracking way to set up a business if both of you are involved. That’s old hat, but we’re going back to a place where you’ve got to think about these things. Limited companies are not the answer to everything anymore.”

Also complicating the picture for one-person companies is IR35, currently an “absolute mess” in Benneyworth’s view due to uncertainty about whether the public sector approach will be extended to the private sector.

“For the public sector, the off-payroll rules are clear enough to know what the tax liabilities are – but you’ve still got to answer difficult questions about status,” said Benneyworth.

For Fiona Fraser, the IR35 public sector regime was a classic example of the way advisers are having to live with ambiguity and learn how to communicate uncertainties to clients. “There were no rules, because we were waiting for the HMRC calculator to come out. That is no way to advise anybody. There is nothing you could say would affect the employers,” she said.

The different tax issues facing small business clients, and calculations associated with them are getting more complex too. Rebecca Benneyworth sets out all the figures and likely decision points in in the Small Business Digital Tax Handbook that accompanies her Accounting Excellence series.

General data protection regulation (GDPR)

But compliance isn’t all about tax. From 25 May, practitioners will also need to be on top of GDPR requirements for how they deal with data themselves – and to ensure clients are aware of the new requirements.

“It’s about how we as practitioners and the techology industry store data about your clients - all the multiple software systems and storage, spreadsheets, USBs, and unprotected servers,” said Nick Williams. “Now is the time businesses need to be advised appropriately to make sure this is all above board. People should not underestimate the task ahead.”

Practitioners have to get compliance right, but the risk for advisers is that it becomes the primary focus of their encounters with clients. To address this side of the challenge, the panel discussed own to make the switch from the “let’s get tax right” to “let’s get the business right” mode.

The digital approach

For all three panellists, digital record-keeping is the foundation for both compliance and advisory work. According to Nick Williams, it can really help to map out the sources involved in collecting client data and processing it through to compliance.

Rebecca Benneyworth explained the follow-on benefits: “For those I have got onto digital record-keeping, I can now see things like underpricing issues. Having the accounts at my fingertips, I’m ahead of them there. That’s transformed my practice.”

Being proactive extends beyond being an oracle on compliance issues to broader skills such as basic macroeconomic forecasting and an element of psychological counselling.

“You’re dealing with people and personality types,” said Fiona Fraser. For someone who’s a worrier, you could end up unnecessarily explaining the details of MTD for 90mins, while the “yellow line parkers” who don’t concern themselves with rules will never take in the details, no matter how often you warn them.

As his final tip for practice reliance, Nick Williams advised starting with a client segmentation exercise: “What types of businesses and sectors they’re in, their personalities and so on… to understanding clients’ workflows, and how they’re getting data into the practice. Is it as efficient as it can be?”

Watch the February webcast and request your small company digital tax handbook via the Accounting Excellence website.

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