With the prospect of corporation tax going fully digital from 2026, and the onward march of MTD in the meantime, how will your accountancy firm adjust to this new landscape?
Smart practices saw the way the wind was blowing a few years ago and started embedding cloud apps in their systems and processes.
They saw it not as a threat but as an opportunity – a chance to operate more efficiently and carve out time to spend on undertaking more complex, more interesting advisory work for higher-value clients.
They also became passionate advocates of online accounting, proud of their ‘app stacks’. They also worked hard to win over one sceptical client at a time – doing the Government’s MTD PR for them, in effect.
Firms that have been operating this way since, say, 2017, have a distinct advantage when it comes to MTD.
On the other hand, those who are still clinging to the hope that it might all just go away – that there’ll always be demand for old-fashioned accountancy – are, frankly, deluding themselves.
What’s happening next with MTD?
It was easy to miss it among the many momentous events of 2020 but there were some big announcements around Making Tax Digital this year.
They were buried – that does feel like the right word – in a pile of papers dumped by the Government only a fortnight after the Chancellor’s summer economic update, at the end of July.
We now know that from April 2022, all VAT-registered businesses, regardless of turnover, will be expected to keep digital records and submit VAT returns using MTD-compatible software.
Then, from April 2023, MTD will extend to cover self-employed people and landlords with business or property income of more than £10,000 – AKA MTD for ITSA (income tax self-assessment).
What wasn’t confirmed was the next big step: MTD for corporation tax. But we know it’s coming. A and those in the know have their money on 2026 as the date it’s likely to come into force.
What 2020 seems to have brought home to the Treasury and HMRC is how little information they had on the financial situations of British businesses. There was no “single point of truth” they could use to administer support in the form of loans and grants.
Of course there are other, less generous reasons why the Government might want closer scrutiny over the finances of British businesses. Surveillance, basically.
HMRC is certain many firms, especially those with relatively lower turnover, are significantly underpaying tax. In fact, it estimates that around £2.1 billion of “tax lost annually through avoidable error” can be attributed to corporation tax.
Digital recording will leave less room for manoeuvre when it comes to how businesses present their financial position to minimise tax liabilities. It will be less about interpretation and more about data.
Yes, you can waste time and energy arguing against it and, if past experience is anything to go off, it might even end up getting delayed once, twice or more. But it’s going to happen eventually.
With that in mind, we say, embrace it, and start building MTD-compliant corporation tax systems and processes for your clients today.
Capium’s cloud accounting and practice management software makes MTD compliance easy. Book a free demo to find out more