Announced during the March 2015 budget, the UK government set itself an ambitious target for a fully digital tax system by 2020 – Making Tax Digital (MTD) – whereby all businesses and individual taxpayers will have access to their own tax affairs online via digital tax accounts.
The vision is for a transformed tax compliance system underpinned by four foundations:
- Tax simplified: Taxpayers will see the information Her Majesty’s Revenue and Customs (HMRC) holds through their online tax accounts and be able to check and complete their details at any time.
- Making tax digital for businesses: Businesses should not have to wait until the end of the tax year to find out how much tax they owe.
- Tax in one place: Taxpayers will be able to see their complete financial picture in their digital account, similar to their online banking.
- Making tax digital for individual taxpayers: Individual taxpayers will interact with HMRC digitally and at any time that suits them.
The ultimate goal is that all of us in the UK benefit from a more transparent and accessible tax system, in much the same way that the digital revolution has helped transform our banking habits with 24-hour, real-time access to online banking.
This digital transformation is long overdue, but not without challenges. Not least, the end of the tax return as we know it and uncertainty over proposed changes. Quarterly reporting, in particular, is the main worry for accountants with anxiety about the current compliance process increasing fourfold, as well as the yet unknown impact on those digitally excluded, i.e., those businesses without Internet access, some 19% of small traders,* plus extra administrative burdens and unwieldy client management issues.
As it stands today, the UK accountancy profession is still awaiting the delayed release of HMRC’s consultation documents on MTD. As the devil is always in the detail and until the consultation documents land, it is unsurprising that there is much speculation and concern about what the new digital era will really mean for accountants, their clients and the industry as a whole.
UK accountants split on making tax digital
In taking the views of 354 accountants during our Making Tax Digital: Refresher webinar we asked, “How do you feel about the move to Making Tax Digital?” and found a real three-way split of opinions:
- 38% feel positive/very positive
- 34% feel negative/very negative
- 28% feel indifferent
At the same time there is much desire for more information about MTD, with 91% saying there is not enough information available on the subject. This may well account for why only 25% of respondents had started to discuss the changes with clients.
The question on every individual accountant’s lips is still, “How will making tax digital affect me?”
Since day one, we have been working closely with HMRC on the MTD initiative to discuss processes and software development in a structured way through discovery workshops, software usability testing and interactive sessions. The drive for better data received in a more timely way is seen as a cornerstone of how the government seeks to create and modernise aspects of its relationship with taxpayers.
Ultimately, MTD will affect us all and it’s coming whether those affected are ready or not. With the approach of digital tax accounts imminent, Thomson Reuters is empowering accountants to be proactive and begin planning the changes. Make sure your clients are ready and your internal workflows and client-facing processes are as efficient as possible to cope with the future deadlines and changes.
Whether MTD will have a positive or negative impact on you and your clients will ultimately depend on the approach you take. In my view, the move to digital tax accounts offers real opportunities for you to build closer relationships with your clients and become even more involved with their businesses – improving client loyalty and retention.
Instead of waiting to round up all of the information once a year, the tax account will be updated as new information arrives, so you will be able to advise clients throughout the year to mitigate problems before it’s too late. This use of real-time data to give advice on cash flow or other kinds of management reporting could really open up new revenue streams for accountants.
There’s also much that can be done now to help prepare for digital tax accounts and limit any potential negative effects. Here, the introduction of user-friendly tools such as portals, online apps, electronic signatures and online storage will really help automate workflows and speed up processes ahead of a digital switchover. Also, these things will help clients see firsthand the benefits of cloud accounting.
Most importantly, start talking to your clients. In the words of our customer Alex Falcon-Huerta, owner of Soaring Falcon (the award-winning cloud specialist accountancy practice), “My clients are all already aware of the arrival of digital tax accounts through my regular newsletters. We are working in advance to upload all the information onto the cloud, and I’m sure it will be a smooth transition.”
The introduction of digital tax accounts has the power to change how everyone works for the better, and it’s certainly an opportunity for practices to become more efficient and profit from increased advisory work. Who can argue with that?
* HMRC Research Report, 2015: Digital Exclusion & Assisted Digital Research. Digital exclusion is much lower amongst micro-businesses with one to four employees (2%), but higher amongst the self-employed with no employees (19%). Many of the digitally excluded self- employed felt the Internet was not relevant to their business.
View our on-demand webinar Making Tax Digital: Refresher where we discuss how digital tax accounts will effect your clients; the timeline for the changes; the affect on your practice’s workflow and software use; benefits and concerns in relation to the digital era; what Thomson Reuters is doing in preparation; and Q&As.
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