20 May 2022
Making Tax Digital: The death of the accountant?
Making Tax Digital (MTD) is a process which the government have slowly but surely been introducing to businesses and individuals alike since 2019.
At its inception, MTD was only mandatory for those businesses with taxable turnover above the VAT threshold of £85,000. A few years later (in 2022), MTD VAT became mandatory for all VAT-registered business and organisations. In just 18 months’ time (April 2024), MTD rules are being extended to all of those who have combined self-employed income and property income of over £10,000 – also known as MTD ITSA.
But why was MTD introduced?
After years of paper tax returns and physical filing causing havoc and a multitude of errors, the government and HMRC designed a process which aims to be more effective and efficient, helping taxpayers avoid unnecessary hiccups.
By using compatible software, such as Xero and QuickBooks, other than less errors in returns, taxpayers can expect time to be saved and have more autonomy in the process. Indeed, in research undertaken by Xero, 98 per cent of respondents reported that MTD has made it easier to prepare and calculate their VAT return.
It also can’t be missed that the government is aiming to cut down its ‘tax gap’ – the amount of money owed to HMRC that was never paid. In 2019/2020, this was estimated to stand at £35bn.
So, where does this leave accountants?
As with any automation, there will always be the concern amongst those within the industry that they are at risk of being ousted in favour of robots or technological advancements. Consumers may believe that these tools will free them up from the cost of a physical accountant thanks to the touch of a few buttons.
However, where technology doesn’t aid its users is the years of expertise accountants hold, the understanding of tax nuances and the face-to-face reassurance accountants can give.
Here are four reasons why MTD isn’t the time to let go of your accountant.
1: How much is your time worth?
Whilst MTD is designed to make the process of filing much easier for its users, there’s still a lot of administrative work – especially in the stages of set up. It can take HMRC up to three days to send confirmation of your MTD account alone, let alone taking the time out to input details, ensure compliance, submit returns, and keep up to date with inevitable changes in the system as the years go by.
2: MTD isn’t 100 per cent error-free
While the technologies and software used for MTD pride themselves on being straight-forward to use, which most are, they cannot, and should not, replace the expertise of an accountant.
The reason why accountants train for such a long time (nearly seven years in total!) is to ensure that every niche within the tax system is learned in-depth, that necessary compliances are met and that exemptions within the system are understood. This knowledge is what ensures, even in the virtual world of MTD, that customers avoid errors and potential inaccuracies that might prompt a time-consuming and very stressful HMRC investigation.
Additionally, your accountant will be able to ensure that your expenses and allowances are correctly applied, minimising the amount of tax you will need to pay.
3: It’s not easy to break habits
MTD for some is not only a brand-new system, but it’s a completely different way of working. If you are used to a certain system, whether that be excel spreadsheets or the old-fashioned pen and paper, then moving to something completely online, and cloud-based, can be a source of anxiety.
Accountants are fully trained and prepared for the changes MTD will bring and should be fully knowledgeable of most approved compatible software. Your accountant will be able to support you through the changes and ensure any worries you have are answered.
And it’s not only the software that is changing with MTD, so is the frequency of filing. With quarterly filing, instead of annual, taxpayers may need help with finding their rhythm with filing – again, something which their accountants can support them with.
4: Using the data effectively
MTD can be seen as a chore for taxpayers, but it is in fact an opportunity to strengthen your business – especially via the brilliant financial insights it provides. Through the quarterly filing system, you can work with your accountant to understand your incomings and outgoings on a far more granular detail than previously. Here, you can then work together to understand peaks and lulls in trading, plan forward for more expensive months, avoiding potential cash flow issues, as well as know how much you have available for savings or investments.
MTD was brought in to make the lives of taxpayers easier when it comes to filing their tax returns. And while, in principle, the technology is going to streamline the process for all, there are certain pitfalls of MTD that must be observed and approached with caution. With the helping hand of an accountant, you can ensure you are making the most out of this regulatory change and reaping its intended benefits.
If you need support with your MTD accounting, please get in touch with me or one of my colleagues today, and we’d be more than happy to help.