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Open Banking evangelists see promise amid Making Tax Digital chaos

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As the drumbeat for pausing Making Tax Digital (MTD ITSA) grows louder, accountants struggling to convert clients to electronic record-keeping may find salvation in a new wave of Open Banking tools.

10th Sep 2021
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In association with
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The UK’s top industry bodies have urged the government to delay the electronic tax collection scheme for small businesses and self-employed people as the double whammy of Brexit and Covid-19 is “drowning” companies in paperwork.

At the coalface, such a hiatus may be essential not just to reduce the digital education gap but to further impress on clients how the rapid maturation of Open Banking solutions can reduce their compliance burden.

“When it comes to producing simple accounts and tax returns, many accountants still find their smallest clients are reluctant to use digital record-keeping systems,” said Matthew McConnell, director at new Open Banking startup Streem Connect “It’s not easy to get hold of the bank statements, sales, purchases, expenses, needed for compliance work.”

Under MTD, approximately 4.3m self-employed individuals and businesses will start reporting their income to HMRC on a quarterly basis from 6 April 2023. The tax basis period will be altered in the 2022/23 tax year so that earnings are reported on a ‘tax year basis’ rather than a ‘current year basis.’

Incoming car crash

The bête noir of many AccountingWEB community members, MTD has experienced major turbulence since it was announced in 2015, with delays, fierce criticism and technical problems plaguing many of the early rollouts. 

The landing does not look like getting any easier following a rebuke from five tax and accounting bodies (including ICAEW and CIOT) that companies need more time to get used to the changes.

Their words echo that of the Federation of Small Businesses (FSB), which claims the majority of firms are not aware of MTD or its consequences. FSB chairman Mike Cherry told a Lords committee: “We do not believe that our members understand it, or are anywhere near ready for it.”

Cherry was rather more diplomatic than Lord Hollick, who while investigating MTD said it “seems to be a recipe for a bit of a car crash”.

Epoch-making changes

In December, HMRC put out a request for information to learn how it can use small businesses’ and self-employed individuals’ real-time financial transaction data, obtained through Open Banking and so with relevant permission, to calculate and collect tax.

The tax collector’s probe into ‘tax-compliant banking products’ was a clear sign that the government is interested in using Open Banking across public services. 

The FSB cautiously welcomed the news, as did others watching the space, cost and trust have repeatedly been floated as two issues that may stymie the proposals. 

“We found last year that only 15% of small firms were sharing banking information electronically to help aid productivity – two-thirds said they wouldn’t consider doing so, primarily because of fears about safety,” said Martin McTague, national policy and advocacy vice chair at the FSB.

Amid the melee, advances in Open Banking may hold the answer for simplifying tax compliance and improving MTD uptake with small businesses and the self-employed, industry experts have said.

“Open Banking has the potential to overcome these challenges,” said McConnell. “With epoch-making changes taking place in tax compliance, and several million taxpayers due to make the transition from self-assessment to MTD for income tax, the opportunity here for practitioners cannot be overlooked.”

Early adopter advantage

For accountants, regardless of whether MTD is stalled, the battle for hearts and minds with regard to accepting Open Banking has to continue, McConnell said.

“Taking on and managing Open Banking feeds will massively improve efficiency for accountants and bookkeepers,” said McConnell. “It will allow them to import all necessary client banking transactions into accounting software and direct accurate trial balances into their compliance software of choice.”

When your firm’s key processes are based around an online accounting platform, this puts you in a far better position to cope with MTD ITSA, said Chris Findlow, head of partnerships at MarketFinance.

“A digital platform streamlines the key accounting processes and, most importantly, keeps you and your clients MTD-compliant,” Findlow said. “In any business economy there will be a mix of tech-savvy early adopters and reluctant technophobes. But it’s the businesses that fully embraced cloud technology and online accounting early that have found it easiest to get up to speed with MTD.”

Build on cloud advances

Accountants concerned that digitisation of filing could eat their lunch should instead use the technology in combination with their own expertise to offer more sophisticated and valuable advice, said Capium’s Joanna Bassey-Edim.

“We’ve already seen the difference cloud accounting alone can make when it comes to giving you more access to your clients’ data,” she said. “Open Banking should build on that, putting more information in your hands and saving the time you would otherwise have been spending on repetitive manual tasks. It should push your firm to offer more data-driven services to clients, helping them to navigate the high volume of financial tools and information that will become available.”

For all the concern MTD is generating both within the profession and through its impact on clients, the efficiencies that Open Banking can unlock offer some hope that something positive can emerge from the mess, said McConnell.

“Open Banking in the time of MTD is a massive opportunity to take on and support a new generation of clients,” he said. “Even to those for whom the thought is not appealing, practitioners need to think very seriously about cost-effective solutions that will allow them to support clients into the new regime.”

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