In 2015, the government communicated the need for a digital tax system that would essentially confine the conventional process of “doing a tax return” to history. As a result, this change known as “Making Tax Digital” or “Digital Tax” will be achieved and fully implemented by 2020 for all taxpayers, with most small businesses starting to be affected by the changes as early as April 2018.
We spoke with renowned author, business consultant and Get Connected speaker Ian Fletcher and asked him why it was so important that accountants take the digital migration of tax on their practices seriously.
What effect will Digital Tax have on accountants?
Massive. The whole tax system is changing. HMRC consultations mean the end of the annual tax return for most tax payers and the filing of information digitally.
For accountants this represents a new way of doing things and a complete change from their usual way of dealing with clients and HMRC.
These changes don’t come into play until 2018 – do accountants have to make preparations right now?
Once the consultation period has ended (6 November) and (if) HMRC finalises the dates for implementation of Digital tax then immediate action will be needed.
They should educate the team on the consultations and make a plan to educate clients and convert them (if applicable) from their current methodology to a cloud based (digitally compliant) accounting system.
Accountants will need to make fast changes to their businesses. They will need to evaluate their client base to understand which clients are exempt, those that will need specific assistance and understand the tax simplifications proposed so they can plan for the changes.
What happens if the accountancy practices don’t comply with Digital Tax?
They will go out of business! Or at best left to deal with exempt businesses only.
HMRC are consulting on a new penalty regime for non-compliant individuals and businesses. If their accountant doesn’t file their accounting and tax information digitally they will be penalised and one therefore assumes will switch accountants or do it themselves.
Those firms that are clued up and can offer a fully compliant digital filing service will start picking up clients from those accountants who lag behind.
What is one of the (if not the) key activities accountants need to do first to get ready for Digital Tax?
The key thing accountants must do is educate themselves and their team on the consultation papers and what HMRC are proposing and then decide if their clients existing accounting and tax software is digitally tax compliant. If it’s not then they will need to make changes.
Are there any Digital Tax resources that accountants can access?
The consultation papers can be found here.
There are 6 consultations around specific elements of the making tax digital reforms:
A:Bringing business tax into the digital age;
B:Simplifying tax for unincorporated businesses;
C:Simplified cash basis for unincorporated property businesses;
D:Voluntary pay as you go;
E: Tax administration; and
F: Transforming the tax system through the better use of information.