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Accountants rise to MTD tax challenge with tech

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The adoption of Making Tax Digital (MTD) will remain a concern for accountants over the course of the next 18 months. Kevin Sefton considers the challenges, opportunities and education that will arise between now and April 2023.

25th Aug 2021
CEO untied - the UK's personal tax app
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The next chapter is MTD for Income Tax Self-Assessment (MTD ITSA), mandated from April 2023 for self-employed people and property landlords turning over more than £10,000 – 4.4m people. It will require quarterly digital submissions ‘in year’ with an end of year wrap up. 

Helping the self-employed navigate the journey towards digital tax reporting

Taxpayers range from the very analytical and organised, to those who need many reminders before delivering paper records just before the deadline. 

While there’s an obligation to keep digital records, the reality is that most businesses already do some of this – even if it’s as simple as online banking. 

MTD ITSA brings new reporting obligations, and deadlines every twelve weeks. This will affect those who may not even see themselves ‘in business’ – from Etsy craft hobbyists to online influencers. For them, most will be able to use the short tax return approach rather than needing to worry about detailed classification.

Filing quarterly returns is not necessarily complex, but there will be questions to be answered. Who will help educate them, inform them of their tax responsibilities and help them navigate the journey towards digital tax reporting?

A massive opportunity for accountants

With 62% of returns currently submitted by agents, accountants seem like the obvious solution. What does MTD ITSA mean for them?

We see some clear themes:

  • Will small businesses pay for the extra time to prepare quarterly submissions? Should accountants continue to support them? What does this mean for chargeability?

  • How can we deal with edge cases of people who really don’t use technology?

  • What’s the migration process for existing clients?

  • How can we use this as an opportunity to use software to simplify onboarding and support a new audience of potential clients who may pay less on a per-client basis, but collectively will be valuable to the practice?

Practices that choose their approach early will be best placed to benefit. This will enable them to see MTD ITSA as a full programme rather than simply a migration. It also means seeking opportunities to use MTD ITSA as a way to streamline working and to bring insights to their clients.

This will come soon – it’s just over 80 weeks to April 2023. HMRC will also be putting a rush on – thus a slew of consultations, including one over basis period reform which is due in at the end of August.

MTD ITSA does not exist in isolation – it’s just one part of an individual’s tax needs. Will you be taking the trading income from an MTD ITSA solution to enter elsewhere into a tax return, or will it all be in one integrated place?

The march of technology

Firms should not miss this opportunity to assess what systems and technology will really transform how advisers work and communicate with clients. Particularly so when considering the scale of the opportunity and the need for some deep thinking – such as managing submissions that are all due at the same time (vs the staggered periods for VAT).

Next-generation systems are developing at a rapid pace to enable taxpayers to manage their financial obligations, to make it easy to refer questions to accountants, and to support a relationship based on value and trust where you’re an expert adviser.

Accounting software moves on, and new entrants are often the right solution. When Xero emerged, it didn’t have the burden of a legacy of desktop users and architecture.

It’s much easier for a new product to integrate into other systems than you may expect, and to support more than one product for your clients. The trends to look for are around software built using APIs, which sync bank data and other sources such as portfolio information, capital gains reports or property records, all via an intelligent interface. No rekeying – data is automatically submitted straight to HMRC.

Embrace the future

We’ve seen first-hand how accountants succeed by embracing technology and moving their business model. The reality is that small business owners want to get on with their lives, and care about their livelihoods – rather than their actual accounts.

For some advisers, MTD ITSA could mean more work – it will certainly involve more reporting. That’s why it’s particularly important to use software that makes things as smooth as possible.

Together we can help the millions of self-employed people to file the right information in the right way as we head closer to the start of MTD for income tax. 

We’ll be asking not what does MTD ITSA mean for accountants, but what does it mean for businesses? And what can accountants do to support them?

Replies (6)

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By Paul Crowley
25th Aug 2021 20:37

Disagree with a lot of content
You will make money from software sales with zero client interaction
4.4 Million new customers are available
MTD is a software explosion in available sales
Having a bank account does not mean having digital records

Look at the Rebecca Cave articles to get a view of what accountants really think of MTD ITSA

Thanks (7)
Replying to Paul Crowley:
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By Hugo Fair
25th Aug 2021 23:35

Quite right, Paul.
"While there’s an obligation to keep digital records, the reality is that most businesses already do some of this – even if it’s as simple as online banking" ... no idea how you quantify 'most', but I've got clients with > £.75m t/o who only use Word & Excel (no mobile phone or apps, and banking = paper statements.
This article is trying to find mugs to part from their money, not solve anything.

Thanks (4)
Replying to Hugo Fair:
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By Hugo Fair
25th Aug 2021 23:47

Oh, and why on earth does Kevin think accountants will be interested in "an opportunity to use software to .. support a new audience of potential clients who may pay less on a per-client basis"?
What he appears to envisage is not accountancy - it's the A&E version of book-keeping (triaging & patching things up before the consultant arrives).

Worst of all, he is only interested in the incredibly simple end of development (APPs knocked-up by schoolkids using APIs that work briefly before dying) ... but it all comes to naught when the data enters govt portals and gets transmitted on via not fully tested channels to hit the fractured databases of HMRC et al.

Thanks (3)
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By GHarr497688
25th Aug 2021 23:38

Rubbish article . You don't work with small older self employed so how would you know.
You have no idea about the future and if this will work or not. You just want you subscription in from a captive audience. All my clients have tried and failed on computers using everything from Clear Books to SAGE. Even if constant help from me they have failed and 9/10 times the computer records are ignored. Unless we as Accountants keep the data then most client produce rubbish. If we keep the data then the fees go through the roof. Look at the garbage HMRC spew out - this site is littered with bad reviews of MTD, HMRC and Software Houses. If the IT companies had an sense they would lobby HMRC with the Accountants to delay MTD until a proper stages introduction was organised in a constructive way. Sadly the pound of flesh is more important and the use of HMRC's name as a marketing ploy.

Thanks (5)
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By BrianL
26th Aug 2021 11:48

Is an author's knowledge and experience of the real world 'tested' before their article is accepted for publication?

Thanks (4)
Morph
By kevinringer
27th Aug 2021 13:42

The author says:

"Practices that choose their approach early will be best placed to benefit."

Similar statements were made way back in 2015. I know one practice who put all their clients on QuickBooks Online. They incurred no end of grief trying to teach clients. Since then 90% of their clients have abandoned software, much to the practitioner's relief because of the mess the clients got into and the huge amount of hand-holding needed and unbillable time. Most MTD VAT products didn't appear in the market until about the time MTD VAT was mandated, so those who adopted early found they may have been better waiting until more products were available.

Or maybe I should re-read the author's statement:

"Practices that choose their approach early will be best placed to benefit."

I have chosen my approach: do nothing until nearer the time. That was the approach I adopted in 2015 and it has served me well. It isn't that I'm a technophobe. Far from it, I've been filing 100% digital tax returns since 1998 and have participated in just about every HMRC pilot (still in some now). But I only adopt technology when I can see a benefit to me or my client. I have digitised some client's records when I see a commercial or operational advantage for my client, but most will find the cost (time and and money) of digitisation will be more than the benefit. Thus I believe my policy is the best. And my clients agreed:

Me "We're going to digitise your records"

Client "What's that, and why?"

Me "Coz HMRC say you have to in 2 years and once digitised you'll know where your business stands."

Client "But I already know where my business stands, and because I know what work I've got lined up, I've got a good idea how my business will be in 6 months. Can digitisation do that?"

Me "Er, no. We can use the digital forecasting tools but we're really only digitising the past"

Client "Why? I thought businesses were supposed to plan and look to the future. Why the obsession with the past? What good is that to me?

Me "HMRC want the past digitised, they're not interested in the future."

Client "Is this going to reduce my accountancy bill?"

Me "Yes, if you do the work and are accurate, otherwise I will have to charge extra."

Client "So HMRC are forcing me to digitise stuff which is of no interest to me and you are going to charge me extra for it. No thanks"

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