The right direction
In principle it is hard to argue with HMRC’s overriding vision of a more technology led tax system. Many public sector bodies have already implemented systems to bypass manual processes, a great example being the abolition of tax discs for motor vehicles by the DVLA in favour of online registration and tracking. As with HMRC’s new making tax digital (MTD) initiative the primary motive is centred around compliance, however, this does not mean that there are not benefits that businesses can take from it, automation being the most significant.
Research confirms many businesses are not ready
HMRC’s own research shows that 85% of businesses file their VAT returns via their government gateway. It is not only anecdotal evidence that suggests that many of these businesses will be surprised to hear that the majority will no longer be able to submit their VAT returns in this way come April 2019. Research from ICAEW shows that 40% of affected businesses are not even aware of MTD. In addition to this, 25% of businesses use paper records of which 13% fall within the MTD remit.
Some of the figures are clearly worrying and there is a hope that HMRC increase their efforts to reach out to those that still have no knowledge of MTD as we approach the deadline. So far publicity around making tax digital has been restricted to the accounting and software community, this approach may account for the knowledge gap at present for businesses.
Figures show that 30% of businesses will be submitting VAT returns through accountants. There is an expectation from businesses that their accountants will keep them informed on developments such as making tax digital will be communicated to them. Accountants who embrace MTD early could make a competitive advantage if they position themselves as MTD experts. Accountants must make sure that they are engaging with software providers who are MTD ready. Joining the live pilot scheme for MTD prior to April 2019 will allow accountants to gain an appreciation of the changes before mandation and give them the confidence to speak knowledgably about the process to their clients.
Software providers who are actively engaging in MTD are probably the closest to HMRC as they collaborate with them to develop the changes needed for the software to be compliant. This makes them probably the best placed to empower accountants with knowledge of MTD to go on and inform businesses responsibly. Software providers who are not already engaging in the MTD pilot are behind as April 19 approaches and accountants and businesses who are using software which is not MTD ready should consider whether they have the right partner going forward
The options for businesses
There are many businesses that will trade in their spreadsheets for software ahead of MTD. MTD for businesses already using accounting software will have little impact on their operations providing they have picked a software provider that is MTD savvy. Despite the worry that many businesses may not be ready for April, those that have prepared by engaging with the right providers will find the transition relatively easy and may wonder what all the fuss has been about.
Spreadsheet ‘Bridging software’
HMRC have conceded that there is can still be a place for spreadsheets in the new MTD world. All VAT returns captured under the MTD remit will still need to use the MTD API’s (Application programming interface’s that allow software to ‘talk’ to HMRC), so in some way or another software must be part of the solution. Bridging software is designed to bridge the gap between spreadsheets and HRMC and soften the impact of MTD on businesses that are not yet ready or have no interest in signing up to accounting software. Bridging software will allow a spreadsheet to be uploaded to software which will populate a VAT return for submission. This, HMRC has agreed, will thereby retain the ‘digital link’ between the VAT figures and the underlying transactions.
Work still to do
ICAEW’s research shows that there is still a lot of work to bridge the knowledge gap for a large proportion of businesses. HMRC, accountants and software providers will all be instrumental in minimising any disruption of MTD on businesses come April 19. A wise choice in software, whether it be accounting software or bridging software, should make the transition much less painful come mandation.
If you are looking for any assistance with Making Tax Digital and your bridging software options get in touch at 0161 925 6162 opt 2.