How Making Tax Digital is Pushing Accounting Firms into the Digital Age
Making Tax Digital (MTD) is just around the corner, and many accounting firms are at the tail-end of completing the move to online tax management.xe
Whilst MTD for VAT may be compulsory for UK firms, businesses, and individuals with earnings over £85,000, it’s also pushing firms to dive into a world of digital that can make accounting services far less taxing.
By streamlining, and reducing the time that it takes to complete compliance work, Making Tax Digital is effectively promoting the realm of advisory to both accountants and their clients.
Making Tax Digital was first announced in 2015, and the deadline for MTD for VAT is the 1st April 2019, allowing both accountants and business owners the time they need to move the way they file their taxes online. But at the end of 2018, research by ICAEW found that a shocking 40% of businesses that’ll be impacted by Making Tax Digital for VAT were unaware of the changes about to be implemented.
Why MTD has been put in place
Making Tax Digital is not just an initiative to save the government time and money. Instead, it was built to establish these four foundations:
- “Better use of information”
Customers will be granted access to check and edit the information held on them by HMRC. Equally, HMRC will be able to access information related to that customer from other sources such as employers and banks.
- “Tax in real time”
With increased efficiency, comes the ability to check the amount of tax that clients owe throughout the year, rather than waiting for year-end. Everything will be done in real-time, increasing accuracy and efficiency.
- “A single financial account”
With everything in one place, in 2020, for the first time, customers will be able to access a comprehensive singular picture of their accounts.
- “Interacting digitally with customers”
Filing taxes aren’t the only things that’ll be digitised. In fact, the way in which HMRC interacts with customers and provides support will be further digitised. From webchats to online support feeding into one system of digital record keeping, nothing will ever get lost in the paper trail again.
What does it mean for compliance services
The government are pushing out Making Tax Digital incrementally in order to make the change as seamless as possible. In slowly releasing the legislation, HMRC (the UK Government’s Tax body) is allowing accounting firms, as well as businesses and individuals, the time they need to get the processes in place to make this initiative a success.
Being compliant with MTD is soon to be essential for businesses and individuals across the UK. Though, in the initial stages, only a small sector of businesses will be impacted.
Whilst firms are busy working out their MTD strategy and the future of their compliance work, it also means a chance to simultaneously organise the way that other processes are structured. Examining the way that they handle other compliance work and shifting to digital can mean a new way to organise their client offering.
The Making Tax Digital legislation is encouraging a move to digital for more than just compliance work. In fact, with the change to the way tax compliance is achieved, it drives the need for change in other sectors.
The move to digital, and the expansion of cloud-based accounting services, is making previously lucrative compliance services obsolete. Adding value to your service offering and encouraging confidence in your clients’ numbers, MTD is a catalyst for many firms to get involved in the online sphere.
Progressive firms have already seized the opportunity to make advisory services profitable, and keeping up is far easier than catching up. So it makes sense for firms of all shapes and sizes to begin on the advisory journey.
Using the cloud to encourage engagement with, and confidence in, their finances, businesses that use accounting apps and add-ons grow 30% faster than those that don’t.
Across the industry, there has been an astronomical pull towards providing advisory services. In fact, Will Farnell of Farnell Clarke recently wrote an article for Xero about the benefits of the cloud – encouraging those yet to embrace the opportunity to take it.
Making Tax Digital can be used as the first step towards wholly transforming the way that accounting services are done
MTD is the first step towards embracing digital, and is a huge indicator of the way financial services are going. The future of accounting lies in the cloud, and it’s best to climb on board before it’s too late.