This month, most businesses above the £85,000 VAT threshold would have filed their tax digitally, using HMRC compatible accounting software.
Making Tax Digital (MTD) is part of the Government’s plan to create a digital Britain. MTD for VAT will solve the issue of costly filing mistakes and enable HMRC to better track tax payments.
“Despite impacting 1.1 million small businesses in the UK today, our research shows that a third of UK SMEs are not aware of MTD,” says Damon Anderson, Director Partner and Product UK & EMEA at Xero. “What many business owners also don’t know is if they fail to comply, they will be faced with fines.”
The MTD rules
The Making Tax Digital rules apply from the first VAT period starting on or after 1 April 2019. A ‘VAT period’ is the inclusive dates covered by a VAT Return.
“If you haven’t already got your clients ready for MTD, there is still time,” Mr Anderson says. “The simplest way to file your tax digitally is to partner with a HMRC MTD for VAT implementation partner like Xero. These are the software providers that are compatible with HMRC’s tax-filing platform.”
There are some exceptions. Non-for-profit organisations or trusts have a further six months, before they need to start keeping digital tax records.
“If taxable turnover drops below the VAT registration threshold at any point after 1 April 2019, a business is still required to continue to keep digital records and send HMRC their VAT returns using MTD-compatible software,” he says. “This obligation doesn’t apply if the business deregisters from VAT or if they are exempt from MTD for VAT.”
Making your clients familiar
Your clients will need to get used to filing digitally. All VAT registered businesses must keep and preserve certain records and accounts.
“Under Making Tax Digital some of these records must be kept digitally within functional compatible software. Records that are not specified in this notice, or that are not required to complete your VAT Return, do not need to be kept in functional compatible software,” he says. “Ditch the pen and Excel spreadsheet, the sooner you get used to cloud accounting technology the better. “
How digitisation is impacting the accountancy profession
Damon Anderson believes that MTD for VAT is the catalyst for large-scale digitalisation and smarter technology adoption.
“This will change the way accountants work,” he says. “It’s going to eliminate the need for repetitive manual bookkeeping tasks, freeing up accountants to offer more advisory services.”
The transparent and immediate nature of digital technology may also mean that accountants may find themselves working in real time on the same financial document as clients.
“This is a major shift, as we see more and more accountants use the latest technologies which enables them to shift from being number crunchers to business advisors,” he says. “MTD for VAT will usher in a period of technical and cultural change, but with the right preparation and software, the legislation can be an opportunity for accounting professionals to skill-up and embrace the digital future.”
An opportunity to help business and clients
Wendy Rowe, Director Tax & Accounting, Wolters Kluwer UK, says that companies which are already using digital bookkeeping or accounting software won’t have to make many changes, but those that are keeping manual records will need to look at their options.
“Accountants need to be having these conversations with their clients,” she says. “Some SMEs that may not previously have used accountancy services may decide that now is the time to use one. It is an opportunity for an accountant to help clients because new regulatory changes such as MTD will change the role of the tax adviser.”
She suggests that the role of the accountant will change as it switches to more of an advisory role, with the accountant playing a key part in the profitability and growth of the business.
“If companies embrace digital it reduces the risk for them and enables them to engage better with their accountant,” she says. MTD will mean companies need to contact accountants for help, and this opens up new opportunities.
“An accountancy practice can look at how to serve clients better, and what additional services can be offered to clients to add value.”
The role of a trusted adviser
Jon Wrennall, CTO at Advanced, says financial management in small companies and SMEs is just as important as it is in larger organisations.
“They too face the daily pressures of running a business, not to mention making contingency plans for the never-ending discussions around the potential impact of Brexit – all of which has the ability to influence to the bottom line,” he says.
As Making Tax Digital (MTD) came into effect on 1st April, there is also the danger that further strain will be put on SMEs’ time and attention.
“Some are not ready and, more worrying, some don’t even know if it applies to them,” he says. “Our recent Trends Report shows that just 57% of UK organisations are prepared for the new regulation and more than a third (35%) admit that they don’t know.”
New opportunities for company success
The role of an accountant is therefore integral for lifting the load on financial management so SMEs can focus on adding value to the business.
The accountant must not only be able to provide what’s expected of traditional accountancy, but business advice as well. This changes the relationship and gives accountants an opportunity to become integral to a company’s success.
“They should be able to provide guidance on a range of issues from how to set up book keeping and submit a VAT return digitally right through to ways to protect themselves from fraud – something which is ripe among SMEs,” he says.
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Marianne Curphey is an award-winning financial writer and columnist, and author of the book How Money Works. She worked as City Editor at The Guardian, deputy editor of Guardian online, and has worked for The Times, Telegraph and BBC.