We are now less than eight months away from the first tranche of mandation concerning Making Tax Digital (MTD), which initially affects VAT registered businesses with VATable turnover of at least £85,000.
From 1 April 2019 those affected will be required to onboard (register for MTD), maintain a digital record of their VAT transaction and file MTD-compliant VAT returns direct from their own software.
Since MTD’s launch by the then-Chancellor George Osborne, way back in 2015, the order of the proposed roll out of MTD has changed. It is, however, still viewed as a key component in the Government’s plans to make it easier for individuals and businesses to engage with their affairs, as well as transforming HMRC into one the most digitally advanced tax administration in the world.
Doubts about MTD
Right from its launch, I have noticed a gradual acceptance of the move towards digital and to quarterly reporting. Indeed, in some quarters there has been a genuine enthusiasm for it. Which was particularly noticeable at the recent AAT Annual Conference that many of the 300 or so members who were despondent about MTD two years ago were at least more accepting of the new scheme.
MTD is designed to be revolutionary, aligning HMRC’s processing of our taxes with how banks and many other financial institutions handle our finances. But doubts clearly remain in place. In a recent webinar I took part in for Accountancy Age, 54% of the 200 or so accountants participating in the event admitted they remain unclear as to what is expected from them under the MTD initiative. Furthermore, 41% said they were not very prepared at all for MTD, compared to 21% who said they were moderately prepared and just 2% claiming to be well prepared. Stats that do not make for positive reading when we are nine months or so from the first go-live date, and when many pilots are already taking place.
Simplistic or suicidal?
The biggest challenge, as noted by the poll results following the webinar and supported by a chunk of the comments and questions we were seeing, revolves around the move from annual to quarterly reporting, which will start with VAT before income tax follows suit. On the face of it, it’s easy to see why people think this could cause an issue. Switching to digital reporting is one thing and clearly an advantage over having to sift through piles of invoices. But why the need to do this every three months, when many clients barely cope with annual returns?
With increasing levels of data capture automation led by cloud-based technology, many accountancy firms are already able to provide real-time information in the blink of an eye, and so a switch from annual to quarterly returns should prove inconsequential.
In fact, as advances in technology are harnessed by software developers, the future of accountancy will be less about MTD and more about accountants acting as consultants through advising their clients about their business activities in real-time.
At the time of writing, there are at least 30 developers with VAT-MTD ready products, at least 40 more expected to follow and a total of more than 150 stating their interest in providing the necessary software required. Therefore this should be feasible for businesses to do, but many software providers really need to act quickly if they are to prevent their competitors from stealing a march.
I believe that MTD presents a massive opportunity for agents as those that can educate businesses who are VAT-registered with what they need to do to move their taxes into a real-time scenario.
MTD: an opportunity for efficiency
Without doubt, MTD creates more opportunities for accountants than threats, even if this could equate to an initially high workload. In addition, efficiency gains can be made for businesses who may have previously lost many working hours around the time of the annual tax return.
All of which, of course, allows the accountant to use their time and effort on greater value-add for their clients, taking more of a consultancy role, creating more trust and most likely longer-term relationships.
A version of this article first appeared on Accountancy Age.
Brian Palmer is the tax policy adviser for AAT.