The world of accountancy starts to be turned completely upside down as Making Tax Digital for Business (MTDfB), to give it its full title, fast approaches.
Deep pockets for accountancy fees?
With the need for all businesses to report figures to HMRC four times a year, with a fifth period for adjustments and what have you, businesses will have to take on more of the bookkeeping than ever before unless they have really deep pockets to shell out on increased accountancy fees necessary for this enhanced reporting.
Why are businesses reporting so often?
Well that’s a good question and one which does seem to be lacking a clear definition from anything which HMRC have published to date.
Although there is an exemption for the very smallest of businesses (less than £10,000 turnover) to report in the new regime all other businesses, regardless of size have to adhere to the new requirements. In fact it is the small of businesses which have to report first starting in April 2018, followed by VAT registered businesses in 2019 and businesses paying corporation tax in 2020.
There’s no obvious logic to this approach. Common sense would tell you that those who report figures quarterly already ought to be the starting point; that’s VAT registered businesses, particularly those not using the VAT Flat Rate Scheme.
Whilst these businesses only have to report the totals of purchases and sales on the VAT return clearly they would have the detail behind the totals in their accounting systems.
So why not start there? Why put the burden on the very smallest of businesses. Why start with those businesses that may have already had to deal with Real Time Information (RTI) for employers and auto enrolment?
Red Tape Burden for Small Businesses
Didn’t the Government promise to cut down on the red tape burden for businesses? Yet another empty promise?
And what about this burden as businesses are just coming out of austerity and into the unchartered waters of Brexit. Really? Isn’t this madness?
All that said HMRC tell us that businesses have to report four time a year; so that is what we all need to do. It’s a JDI situation (just do it)!
Accountant as Educator not Historian
What is evident is that the role of the accountant will change beyond all recognition with MTDfB. In the past accountants have acted as historians. They receive data after it has happened; often a long time after the transactions have taken place. Accountants process the data often just to meet the reporting obligations for the business; the year end accounts and tax returns.
MTDfB changes all of that.
Will businesses be able to have accountants providing their services throughout the year rather than once a year, after the year end to meet the statutory obligations?
If businesses can’t afford accountancy services multiplied by four, will the role of the accountant move from historians to educators?
Educators who show the client how to correctly account for things. How to use accountancy software? How to complete their books accurately. How to complete them quickly. How to meet the deadlines. Where to go for critical updates as rules and legislation changes. When to do it themselves to save money. When to admit defeat and ask for paid help.
So it’s all about the bookkeeping isn’t it? Well yes actually it is. The old adage of Garbage In Garbage Out (GIGO) is really applicable to MTDfB.
So accountants need to become educators providing bookkeeping support when needed. Add into the mix deadline management, effective communication and good software, not just good accountancy systems but a robust Practice Management system, and you’ve got the components to successful MTDfB compliance.
It’s the software providers’ problem?
So putting aside the issue of a robust Practice Management system for the moment (that’ll be the subject of another blog) and moving onto focusing on Accountancy Software, once the data is in the system then MTDfB becomes a software provider’s problem doesn’t it?
The software provider just needs to suck the data out of the system in the format that HMRC require and plonk it over to their systems, if of course the HMRC’s systems are ready and working on time.
Well yes that is pretty much what MTDfB will look like; just in the same way that some suppliers already suck the data out of the accounting system into accounts, VAT returns, self assessments and corporation tax return which are sucked over to HMRC already.
It’s an IT project
Well yes to a certain extent that is exactly what it is BUT (and it’s a very big but) this IT project has the biggest impact of ANY IT project that has ever been implemented in the UK.
This IT project impacts on every business and landlord with a turnover over £10,000.
This IT project requires a HUGE shift change in the frequency that many businesses keep their accounts.
This IT project changes the role of the accountant beyond recognition.
This IT project is being delivered by a Government department with a very poor record of successfully delivering IT projects.
This IT project is being delivered at exactly the same time as the biggest change this country will experience as we leap into the post Brexit world.
This IT project is so ill defined, lacks clarity of objective with such utterly unrealistic timescales plucked out of thin air without little thought or appropriate planning.
This IT project will cost £980 million of tax payers’ money to deliver, assuming it comes in on budget of course!
What can possibly go wrong?