2016 will probably mark the tipping point when the relationship between business owners, their accountants and HMRC changed forever.
The role of the accountant in the year-end compliance process is already shifting from one of being the ‘gatekeeper’ of the information flow to HMRC and Companies House to the application of review, checking, correction and optimisation services to the data “on its way through”.
But the future is one where small business owners work directly with the accounting software companies (Xero/Kashflow/FreeAgent) for their compliance needs – who needs an accountant getting in the way, and adding cost? Of course, the software vendors know this.
In the meantime though they need accountants to help them on-board new businesses and the accountants need them – to be able to connect with the new breed of business owner who “gets” software as a service and wants an accountant who is comfortable with that.
Let’s not kid ourselves though, that the relationship between the accounting software companies and accountants will be anything like as cosy in 5 years’ time.
And from what we currently know of the government’s plans for Making Tax Digital (MTD) this is exactly what HMRC want. It is now totally clear that MTD will also mean keeping accounting records digitally.
Although HMRC has been holding informal consultation events around the country to gather feedback from businesses and agents on the MTD proposals so far announced, one aspect in particular has not been as clearly articulated as it might have been. It is that MTD will also include a requirement for digital record keeping by businesses.
While HMRC has said that it does not want transactional data in the proposed quarterly returns, what it will want is for businesses and self-employed people themselves to keep their accounting records digitally. Verbally we have been told that using Excel is not digital record keeping; it will have to be accounting software. If so, this will have serious book keeping consequences for many businesses and it is certain that the old brown paper parcel approach to book keeping will be dead.
If there was any doubt, the following extract is from a recent speech by the Financial Secretary to the Treasury, David Gauke:
“We’ve also seen the rise of companies providing digital accounting services, using exactly the sort of technology and processes that will be needed when we make tax fully digital.Just last week, I met FreeAgent, one such company, whose software is already being used by 45,000 customers. And we are working with other innovative firms, such as Intuit and Xero. That is where the market is heading.”
What this means is HMRC taking their information directly from the the business owner’s online accounting software with no recourse to the accountant. This explains why HMRC are so keen to work with Xero, Intuit and FreeAgent. This move was foreseeable, and should be less of a shock to forward-thinking business owners who have already started to take control for their bookkeeping.
Although I suspect that many business owners will still want and value the services of an accountant when the alternative is that entrepreneurs just trust HMRC to interpret and then tax their numbers properly.
For those business owners who have not accepted the inevitable – that they will have to adopt digital accounting software in the very near future – time is running out. Make sure it is on your agenda for your next meeting with your accountant even if it isn’t on theirs.