The UK’s taxation system dates back to over 200 years. Until recently, most accountants completed tax filings for clients by keying data from a shoebox of receipts into Excel or a desktop accounting package.
However, this is changing with the rollout of MTD, which will eventually require all businesses and individuals to maintain digital records by utilising software that connects directly to HMRC. This has been a key contributor to increasing the adoption of MTD compliant cloud accounting software and is facilitating businesses adopting a fully digital audit trail.
This benefits both firms and their clients, with close to real-time data and automation capabilities empowering accountants to provide advice on timely management information. This seamless flow of data is also allowing accountants to complete compliance filings with more ease, and if they choose to do so, take on additional clients to scale up their practices.
The MTD Roadmap
MTD is being introduced with the aim of the UK becoming one of the most digitally advanced tax administrations in the world. This will make it easier and more efficient for accountants and businesses to complete tax filings and make sure that they pay the right amount of tax.
MTD for VAT was first rolled out from 2019. All VAT-registered businesses with a turnover above the taxable threshold (£85,000) are now required to submit their quarterly returns with MTD compliant software.
The latest HMRC figures reveal that over 1.4 million businesses have signed up to MTD, with over four million VAT returns being submitted.
It is planned that MTD for income tax will be introduced from April 2023, with corporation tax to follow from 2026.
While there are short-term technological workarounds to making MTD submissions with bridging software (connecting Excel to HMRC), businesses and their accountants should switch to MTD compliant software to reap the many benefits that being in the cloud can bring.
Presently, HMRC has an extensive list for VAT and is publishing a list for income tax in advance of its mandate.
Many firms are changing from desktop to cloud-based software earlier than previously planned in order to comply with MTD, which is allowing accountants and businesses to benefit from automation and to use technology to complete tasks in an efficient and fast manner.
These cloud-based tools automate most of the workflow associated with bookkeeping. Manual entry is significantly reduced by software pulling bank feeds into core packages and third-party receipt scanning tools capturing data from invoices and receipts.
Automated bank reconciliation features commonly include looking for matching data on bank lines and invoices/receipts (e.g. the name of the vendor and the same transaction value on both the bank line and receipt) and a rules-based approach to automatically code frequently occurring bank lines, such a taking Transport for London to the travel category.
Many payment processes can also be automated by using tools such as the Modulr Payments Dashboard. This allows accountants to easily manage payments on behalf of their clients by using the dashboard to create a seamless workflow; connecting accounting software and bank accounts so that payments can be made in a timely and efficient manner, before being automatically reconciled and marked as paid.
An additional benefit of MTD and the move to automation is that accounting firms can have the capacity to serve a larger number of clients.
Compliance workflows are becoming easier to manage thanks to a continuous, near real-time flow of bank and receipt data, allowing accountants to keep a more regular eye on their clients.
At a minimum, accountants review the client’s digital data once per quarter, in line with VAT submissions. This leads to higher integrity data, which requires fewer adjustments and gives firms additional bandwidth to take on new clients.
Additionally, this allows junior staff members to develop and become involved in MTD tax filings, with senior members with specialist tax knowledge just needing to review their work.
MTD also has the potential to solve the UK’s low levels of productivity (a UK worker’s output over five days is completed by their German equivalent over four); something which has been on policymakers’ agendas since the financial crisis.
The required shift to digital record-keeping is likely to enhance accounting firms and their clients' productivity levels. Accounting professionals are spending less time on manual data entry by leveraging automation, and clients can benefit from closer to real-time insights to make better decisions; optimising the use of resources and capital to enhance their productivity.
So, while some accountants may encounter short term disruption to update their software, the introduction of MTD and the digitisation that it brings should be embraced as, over the longer term, it will create opportunities for both firms and businesses and make the UK economy fit for the 21st Century.
If you want to reap the business benefits of digitisation and automation, then join Modulr’s Accountancy Pathfinders Programme - an exclusive community for forward-thinking accountants and practices. The Accountancy Pathfinders brings together the industry’s innovators and forward-thinkers to discuss, debate and develop new innovations that will shape the future of accountancy services and unlock the game-changing accountancy technologies that will help you deliver premium products and services to your clients.