Making Tax Digital: a great and much-needed step towards digitsation

Richard Asquith is Avalara’s Vice President of Global Indirect Tax at Avalara, a tax technology business which helps companies manage their VAT and sales tax liabilities.

He and the rest of Avalara are currently busy with MTD preparations, and in particular taking part in the VAT pilot with 20 of their clients.

“Our specialism is harnessing the power of technology to support reporting more accurately on tax liabilities.

“Micro-businesses are very much Avalara’s DNA but we do also work with enterprise level up to the largest corporates, providing mostly technologies but also some services around VAT registrations and returns.”

Asquith is Big Four qualified, and spent around ten years working around the world for KPMG and EY. He then worked in various accounting roles in London before moving into indirect tax about 12 years ago.

“I chose Avalara because I could see automation coming. VAT and all the other taxes have always done a good job of hiding away from automation so I wanted to be part of the group that really had the power, energy, and resources to finally automate international VAT.”

Thoughts on MTD

For Asquith, MTD is a “great and inevitable and much-needed step towards digitisation of tax reporting for clients.”

Apart from making it easier to report tax and deal with HMRC, what the government is fundamentally trying to do with MTD is to tackle tax avoidance and evasion.

“I think the government have done a good job of tackling corporate tax avoidance and evasion, they’ve reduced that by a third over the last ten years. MTD is much needed if we’re going to close off these missing revenues.”

What’s important to get your head around is what’s going to change?

Everyone seems to think the emphasis is on small and medium-sized businesses for MTD. Asquith said he sees much less about larger enterprise-sized businesses.

“If they’ve got group VAT registration or if they’ve got multiple accounting systems then the particular difficulty they’ve got is the last mile of the filing cycle.

“We estimate that 25% of all VAT registered businesses are still in paper or excel accounting and that’s where the problems are and it’s well documented that they’re the groups that, to a degree, have the furthest to go with MTD.”

What’s Avalara’s involvement?

Avalara is currently taking part in the HMRC MTD VAT pilot, using ten small and ten enterprise-sized clients.

“We’ve registered and got access to the test environment. It’s just a play area really, to unleash people harmlessly to play around with the IT. So it’s good.

“HMRC are really well organised, it’s a nice team working on this and they’ve been very helpful, very open and they’ve actively asked us to find clients to work with.

“I think this is a baby step, the first bit, because it’s just a new way of submitting. The big leap, which other governments have already done, is requiring businesses to upload all their individual transactions. Parliament watered that down and delayed that requirement, much to the disappointment of HMRC. But that’s where the VAT gap lies, in that data.”

Asquith said that, on the whole, those involved in the pilot are fairly relaxed.

“There’s a lot of concern about MTD on social media and in the traditional media. We’re a technology company so we do this every day, we’ve done it five or six times now in other EU countries, which had much more demanding standards. We’re taking it in our stride and everybody else seems to be as well.

“I guess one exception is perhaps the SME companies that don’t have much technology. They don’t have an IT department and technology is not their sweet spot, they’re nervous. They’re worried understandably that they’re being forced into, for example leaving excel behind and having to purchase a new software package. Even it’s low cost, it still costs money and time in terms of learning how to use it.

“Until recently I had no idea there was so many businesses that were operating in the twentieth century.”

Where should businesses be now?

According to a recent survey by Avalara, 54% of businesses are not prepared at all for MTD.

“The medium sized companies should have at least spoken to their existing accounting software providers and have understood what their plans are.”

It’s tougher for SMEs because there are no packages available.

“This is why at the moment we’re looking at how we can create a very low cost simplified tool that you can put up on the internet for the smallest companies.”

Asquith believes SMEs will continue to face challenges as April approaches, and awareness will still be very low. This is why HMRC have said next year is a ‘soft year’, so there will be no penalties for failing to meet the deadline.

What impact will MTD have in the long run?

Out of the survey respondents, 59 per cent of businesses said they do not understand how the April 2019 launch of MTD will affect them.

The closing of the VAT gap is the big issue according to Asquith but there’s also the fact that HMRC will start to know the finances of a company arguably better than the CFO.

“An interesting cultural shift that’s going to take place – companies will be able to sit back and be responsive and reactive to the tax authorities.

“People always think technology destroys the jobs in finance but actually everyone’s just got more information to better qualify and understand the information and know what to do with it.”