Making Tax Digital has been an undercurrent to larger discussions, like Brexit, for some time. Many are still unclear what the impact will be and when. In short, under the new rules select businesses will need to submit their tax data electronically via HM Revenue and Customs (HMRC) approved accounting software.
The new rules are set to go live on 1 April 2019, just days after Brexit. They will apply to businesses whose annual turnover is above the VAT registration threshold of £85,000, estimated to be in the arena of 1.2 million businesses.
There are mixed opinions as to efficacy and priority of this initiative from the HMRC. The administration claims that Making Tax Digital is a key part of their long term plan to transform tax so that it is more effective and efficient.
Conversely, The House of Lords have warned that the HMRC have not adequately prepared small businesses for the changes and that they will not be ready for the significant upheaval to their practices.
Progress, poorly planned
The only consistency that we have seen from HMRC is the poor and mixed messages they have provided as to how important Making Tax Digital is and how high on the political agenda it lies.
After it was delayed a couple of times through general elections and distracted from by the noise of Brexit, most thought it was safe to assume it would keep getting pushed back.
Businesses and accountants alike redirected their priorities, believing it would take effect eventually but not anytime soon. The announcement in early October that the initiative would be going ahead as planned took many by surprise.
Those that have taken notice are now scrambling, as this is not going to be a quick fix. On the one hand it would be easy to agree with the Lords who have rightly pointed out that this will be expensive, disruptive and has not be implemented very well.
On the other hand, business could choose to take an arguably more productive route. To view this as an opportunity to run their businesses more proactively.
Under the current system most businesses submit tax information annually and in any format they choose. Moving to an electronic system will enable greater visibility, down to a quarterly or even monthly basis.
Business owners need to grasp the potential power this information holds to facilitate better business management through more consistent, accurate records.
Rather than operating in denial or protesting based on the way Making Tax Digital has come about, businesses need to seek to understand how they can implement this well in order to achieve a business wide benefit.
The way forward
By moving away from sending in financial books once a year to quarterly or even monthly, businesses achieve greater visibility into their operations and outgoings. This facilitates the ability to formulate more informed plans and generates additional information to base business advisory on.
The long term benefits of the change are clear but businesses will need to make adjustments to get the most out of the new policy.
It is easy to become complacent, utilising the same systems for years. But the world has moved on and this will force businesses to look at all their business systems, not just financial, and uncover platforms that will enable leaders to help shape up their businesses for the future that’s around the corner. The common mentality of ‘we have always done it this way’ does nothing for progress and will not allow businesses to reach the next level of success.
As it stands today businesses tend to send in their books and meet with their advisors once a year. With the increased visibility business owners will be able to seek advice more frequently and armed with more knowledge. These additional touch-points with advisors will allow business owners to demand more of their accountants, ultimately leading to better service and growth at increasing speeds.
HMRC forcing small businesses to reassess internal systems will shake up complacency and encourage a fresh perspective. Accountants in particular need to take it upon themselves to encourage their clients to take this seriously and begin to plan for Making Tax Digital’s inevitable go-live date.