Making Tax Digital: What does it really mean for accountants?

Have accountants really considered the implications of HMRC’s Making Tax Digital (MTD) initiative? From April 2018, you must comply with HMRC’s digital vision for tax collection, and you will have no choice about it.  Accountants must prepare for and adapt to this new regime or professionally they will perish.

MTD is inevitable, regardless of what final form it will take or what happens politically at a national level.  Society has become technically savvy and digitally dependent on online services, and expecting HMRC and the accounting profession not to move with these times is naïve and unrealistic.  Technology will impact accountants’ and their clients’ relationships not only with HMRC, but also with each other.

What is behind MTD?  It is the government’s intention that by 2020, HRMC will be fully digital, meaning:

• bureaucratic form-filling will be eradicated; taxpayers should never have to tell HMRC information it already knows;

• unnecessary time delays will be eliminated; the tax system will operate in ‘real time’, keeping everyone up to date and removing the risk of missed deadlines, unnecessary penalties, debts arising and errors in the system being carried forward from one year to the next;

• taxpayers will have access to their own digital accounts; the information HMRC needs will be automatically uploaded, bringing an end to the traditional tax return.

These are lofty aspirations but they are feasible, notwithstanding the government’s IT track record, and mirror the standards of other services that people have now come to expect in the internet age.

These three aspirations could imply an existential threat to the accountancy profession as we currently know it.  Real-time automation and processes in the hands of accountants’ clients could eliminate many of the traditional functions of accountants as we know them in 2016.

This may sound alarmist, but just think about the changing demographics of your own client base and their skillsets. As Tony Margaritelli of the ICPA has succinctly put it:

“Check your client base for clients who don’t use a computer, or if they use spreadsheets. If they do then you could be in trouble”.

The final form of MTD has not been completely finalised, but it is apparent that there will be no fudge or halfway houses for those accountants or those clients who are and wish to remain paper-based.

A recent webinar on MTD seems to imply that HMRC is ushering in the digital age via sly semantics; by saying that accountants are now required to log ‘up-to-date’ records rather than ‘adequate’ records, the paper age being laid to rest as a consequence.

As Winston Churchill once said, “never let a good crisis go to waste.”  Albeit MTD will clearly create opportunities for cash-strapped central government to achieve significant cost savings, it would be churlish to think that MTD is solely for this purpose.  Indeed, in the aforementioned webinar they make a coherent case for MTD:

“Through keeping up-to-date records in near real time instead of by processing paperwork at the year-end, businesses are less likely to lose receipts or to make basic errors. This also makes good business sense, gives them a better overview of their position through the year, and ensures that businesses have ready access to their financial information. Prompts built into digital tools will eliminate common errors, giving businesses greater certainty that they’ve got their tax right first time.”

There is nothing that one can really say to counter the above argument; it makes perfect logical sense, if one assumes that the system put into place by HMRC is robust and reliable enough.

Luckily, accounting software companies like Diamond Discovery are already ahead of the trend with such changes to business working practices. Take for example Prelude Accounts, our Cloud-based accounting software designed for both accountants and their clients, with a particular focus on smaller companies and sole traders – both accountant and client can access/update the accounts at any time or place where there is an internet connection, and the software itself consolidates and automates many existing business processes such as invoice generation and despatch.

By proactively moving their clients over to a digital accounting platform of their own choosing, accountants can cement their existing relationships with those clients and modify their own processes in preparation for MTD.  Failure to do this will ensure that existing and new clients may look to do their own accounts with whatever new tools HRMC launches in the future, bypassing the accountant completely.  As Tony Margaritelli puts it;

“Pushing the send button will become very attractive for clients – why would clients send you anything and guarantee a bill. Are they going to ask you to check it?”

Efficiency liberates time for the accountant, and additional time gives accountants the scope to offer new services.  As I have argued in past articles and as I will continue to argue in future ones, the digital age will provide opportunities for new accountancy services and reinventions of traditional ones, such as bookkeeping.

 

For more information on technology that can help with your accountancy services, please visit www.preludeaccounts.com, call 01656 725800 or e-mail info@preludeaccounts.com.

 

Prelude Accounts can also be found on Twitter via @PreludeAccounts / https://twitter.com/preludeaccounts.