This article was first published in the July/August 2017 UK edition of Accounting and Business magazine.

Can you remember the last time the accountancy profession faced such a seismic change, and the same level of opportunity – and threat – that this momentous upheaval brings? Some might be old enough to remember the missed opportunity of inflation accounting in the 1970s, but it’s hard to think of another point at which so much has been at stake. 

One part of the current disruption is the government’s Making Tax Digital programme. Despite being delayed by the general election, this will be with us sooner rather than later. 

Practitioners who think that the decision to drop Making Tax Digital from the Finance Bill is anything more than a brief respite are probably deluding themselves. By 2020 or very soon after, HMRC will have moved to a fully digital system. 

Although this prospect might be daunting, to say the least, it is a once-in-a-lifetime opportunity for the accounting profession to change the way it operates. It offers accountants a real opportunity to provide clients with a better service, while also increasing the profitability of their practice. There’s no option to opt out, and firms that are not on the front foot with the changes will suffer. 

The profession is already dividing along the lines of those firms that have grasped the move to cloud accounting and those that haven’t. It is hard to see how firms that are not striving to be at the forefront of these developments will be able to make the most of the window of opportunity offered by Making Tax Digital. Paper records will be a thing of the past, and that familiar but long out-of-date software will also be obsolete. 

A lot of small businesses have used their professional accountants as a bridge between themselves and HMRC. They keep their records during the year in a way that requires a lot of work by the accountant at the year-end. 

Making Tax Digital will depend on the integrity of the data, submitted at regular intervals during the year, and will not simply be about record-keeping. The flagging of key information each quarter for tax purposes and relief, and the authentication of this data, will be of paramount importance. 

Easier payments

Although this might initially seem a burden, the opportunities are there for firms to show their clients that the new system will make it easier for small businesses to pay tax. The availability of much improved information, supplied more promptly, will allow them to plan for tax liabilities. Businesses’ annual information will be enhanced, too.

With information reviewed at least four times a year, rather than just once, accountants will have a clearer view of their clients’ finances, and more opportunities to sell added services. ‘Virtual FD’ and business growth advice become realistic possibilities. Tax advice can be more effective, too, with the third-quarter information being a key point for year-end planning. 

For those businesses that will struggle to get their financial affairs in order each quarter (and many struggle now with once-a-year filing), the penalties and fines for late submissions and errors could become very material. The administrative burden will increase, and the time that an owner of a small business will need to spend on their fiscal affairs and reporting will grow. However, accountants can assist in minimising this significant burden on clients by offering know-how and giving advice on systems. 

What changes will be necessary within the accountancy profession in the face of the challenges that Making Tax Digital presents? How should the opportunities be embraced by firms and individuals alike? Those who are prepared for digital tax will be able to take advantage of good-quality information before other firms and will be better equipped for the changes in information required by HMRC. 

Option to outsource

Outsourcing may be a credible option for many firms, especially if they don’t have the capacity to take advantage of the opportunities that digital tax will bring. It has the advantage of being flexible and responsive to a firm’s growth. Firms and their clients will need the right software, and many will have to invest in new packages. For accountants, this is again a real opportunity to look at how your firm operates and where the efficiencies will come from.

Practitioners will need to advise clients on the implications of any new accounting systems and help them with decision-making, training and managing the systems. 

Many practitioners still provide an end-to-end service for their clients, but this will no longer work under Making Tax Digital. Either clients will need to be trained to use software, or bookkeeping services will need to be offered. 

Forward-thinking firms are already committed to cloud accounting. Clients recognise that those firms predominantly using a cloud product are more valuable to them than those that have yet to make the move, or have yet to encourage their clients to do so. 

Subscription billing

Making Tax Digital represents some real challenges but its introduction can’t be ducked. It has to be seen as part of the wider opportunity to change the way your practice works. If you do this successfully, your practice can become more attractive to clients, more efficient and profitable, and consequently worth more at retirement or sale. 

The process of change can affect all areas of practice, including how fees are billed. Again, the gulf is widening between those firms still billing on a traditional, annual basis and those adopting a regular subscription-based model (usually including the cost of the cloud software). This second group are already seeing many benefits in their cash flow and profitability figures. It also seems very likely that the value of a practice with a regular, monthly set of recurring fees will move ahead of those that stick with an annual billing model. 

There should be little sympathy for the practice that fails to embrace new technology. This is a unparalleled opportunity for the accountancy profession, which can use Making Tax Digital services as a marketing tool and lever to change the way it works with clients, to the benefit of all parties. The consequent improvements for the practitioner, both financial and qualitative, should follow. 

The precise timetable may still be uncertain, but Making Tax Digital is coming, and coming soon. Those firms that get on board now can reap the rewards on offer. 

Phil Shohet is a senior consultant at Foulger Underwood