Making Tax Digital: Q&A with co-founder and managing director at Xero UK

Accountancy Age speaks to Gary Turner, co-founder and managing director at Xero UK, about what software providers can do to help businesses comply with MTD

Making Tax Digital was removed from the Finance Bill in April ahead of the debate on the bill in the House of Commons. What does this mean for the digitalisation of tax?

I think once the elections are out the way the expectation is that it will come back. They had to put it on hold from a time perspective to get the Finance Bill through, but I think it’s not gone away, it’s just having a bit of a break.

So, we expect that from late June to July it’ll then come back onto everybody’s radar. HMRC is still building out the new technology platform for accounting software to connect to,  so the communication and education stuff hasn’t really begun yet. One of the challenges that the accounting profession has is actually not just getting the software right but thinking about educating clients, because it’s only a year away, and what that means for the practice’s work flow and their staff and training and everything else is that there is a huge amount of work to be done and not a lot of time, and so we are right in the thick of building, designing, working out what the software needs to do.

One of the concerns that we have is we believe that Making Tax Digital is ultimately a really important project as the UK has to have a digital tax system. We’re digital advocates, anything that’s digital we’re going to sign up to. But the speed of introduction is really aggressive. It’s going to be two years for nearly 3.5/4m small businesses to adopt digital tools. And you’d think that as a technology company we’d be like “excellent, more sales for us!”. But, actually whether that’s the outcome or not, I’m quite worried that all of the UK’s accounting firms and bookkeeping firms could get swamped with lots of really low value inefficient client bookkeeping and compliance work, just to get Making Tax Digital up and running.

We’ve been educating accountants for the last 20 years about the need to move away from compliance and into adding value and, done badly, Making Tax Digital takes everybody back to the dark ages of compliance again and that’s-not great. We see our job as how do we avoid that outcome, how can we build tools and software to help accountants avoid that kind of pretty disastrous outcome, because that’s not great for the accountant, it’s not going to be great for the business, and it’s not going to be great for the HMRC either if accountants can barely breathe because they’ve got so much bookkeeping work and chasing up clients.

We just published a report that shows how much time accountants spend just chasing up clients for information, and with Making Tax Digital they’ll have to do that five times a year for every single client. And so, I think it can be done but it means change. It means accountants learning new ways of working, it means we have to bring new tools and to that problem, and if we do that it’ll be fine but still a lot of work to do.

What can software providers do to help taxpayers comply with these new measures?

Build great software. Build software that demystifies accounting. So, we have over 1m customers globally and every month we look at the behaviour of small businesses that use Xero and over 3m errors are processed in Xero every month, where people just don’t understand accounting. They spend money on petrol for their car and they don’t analyse it to the right expense code because they don’t know, because they’re not an accountant, and accountants have to go in and fix that.

So, if we think that although we have great software, clearly accounting is still hard for small businesses.

So, our focus is how can we almost make the accounting invisible? How can we simplify accounting so that anybody can do it, and do it accurately and not make mistakes and not get confused by it? So, we’re spending  a lot of time building machine learning models and artificial intelligence, but where does that take us and how can that help?

Should businesses see MTD as an opportunity to improve their efficiency and embrace the digital world in which we operate?

Absolutely. They’ll have to, because if they don’t it’s going to be painful because they’ll fall foul of HMRC, and nobody wants to do that.

But, the efficiency and profitability of small digital accounting roles is growing really quickly away from traditional. It’s not like “here’s a whole load of new rules and regulation that will make you less efficient”. Actually that means if you improve your technology then you’re going to be a better business anyway. So, we think that’s why ultimately it’s a good thing.

What can businesses with little digital experience do to adapt to the measures?

They should go and speak to an accountant. The accountant is the principal adviser to small businesses, on lots of things like technology. Start that journey, getting ready now rather than March next year. Because that last minute mentality is not going to help you. Get ready and by the time the rule comes in you’re living the dream. So, speak to an accountant.

Do you think we’re still on track to become the most digitally advanced tax administration in the world by 2020?

I think we will. No other country is being as audacious as we are, and there is so much happening. It’s this kind of perfect storm of Brexit, banking deregulation with PSD2, automatic enrolment regulations so 750,000 businesses have to roll out a pension scheme this year, we have Making Tax Digital. It’s all going off and there’s never been a more critical time for the accountant to step forward and be helpful. And they already are the most trusted advisors to small business, so as big as the change and uncertainty is, I think we’ll get there. I think we’re probably late to the party but we’re going to jump a whole generation in one go.

Interview by Alia Shoaib, reporter on Accountancy Age.