Andrew Moss, partner at DSG, discusses the impact that HRMC’s Making Tax Digital initiative has had on the market and what developments we can expect to see in 2020.
As digital transformation sweeps across all industries, businesses are constantly on the lookout for innovative tools and ways of working that can automate traditionally manual methods to streamlines processes and ultimately improve productivity. Once reserved for large organisations with cash to spend, digitisation is moving away from a ‘nice to have’ and becoming a necessity for all businesses, big and small.
The digital journey for the accountancy sector ramped up in 2019 with the introduction of HRMC’s hotly anticipated Making Tax Digital (MTD) for VAT in April 2019 – a new era for the administration of tax and arguably the most significant change to the system for many years.
MTD applies to all VAT registered businesses with a turnover of £85K or more, and many of these companies did not have any automated systems in place prior to this initiative. Even some larger organisations with turnovers of £3m – £5m had fallen behind the digital curve, so it has certainly been a step in the right direction to encourage leaders think more widely about their own digital transformation.
As with any new technology, some business owners are sceptical about MTD, citing that it means more compliance obligations and concerns over increased costs to have the right platform in place. There’s no denying that there have been some stumbling blocks in the initial MTD for VAT rollout, but the concept itself is one the industry needs and we’re starting to see that impact across the board.
Since its conception, MTD has provided businesses with the opportunity to move their accountancy and invoicing systems into the cloud, utilising available apps for business processes, such as stock management and HR, that link with the accounting system. It has also given many SMEs the kick-start they needed to update their historic processes and systems, making way for a more accurate, data-driven approach. Having a better informed view of how a business is performing allows for better cashflow management, as well as improving risk management and stock control, not to mention a considerable competitive adamantine. MTD is ultimately designed to, when implemented and executed well, streamline processes to free up valuable time to be spent in other areas of the business to generate additional revenue – a no brainer for a smart business leader.
Despite assertions that MTD is an outdated or old way of working, we are seeing greater demand for digitisation of accounting systems across the market, which tells us that it is working.
As more companies move their financial activity to the cloud, we will see a rise in demand for access to more information that will enable better data-driven decisions. These insights will be used to unlock growth for SMEs and level the playing field between big and small businesses. However, with a reported 3,800 businesses missing the first VAT deadline in August 2019, many are yet to reap the benefits of going digital. That is set to change in 2020, as we will see a mandate introduced for MTD for VAT and also a plan for HMRC’s launch of MTD for income tax and corporation tax starting as early as April.
It is clear that the implementation of systems is ongoing and there is still some way to go during this 12-month ‘soft landing’ period for MTD, but if it has achieved one thing since its conception it’s certainly highlighting the importance of going digital. If companies fail to get on board the digital journey, they will pass by the opportunity for improved and more timely management information which, in turn, will lead to better informed decision making and ultimately a stronger, more sustainable business. As for how the introduction if MTD for income and corporation tax will be received, that is yet to be seen.
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