MTD for VAT to change accountancy landscape?

MTD for VAT to change accountancy landscape?

Director of partner and product at Xero UK, Damon Anderson, provides some insights into how technological change in accountancy can better the industry

Making Tax Digital (MTD) has been one of the major topics circulating in the accountancy world for the past several months, and it seems set to continue as the deadline draws ever closer.

As Damon Anderson, director of partner and product at Xero UK, has succinctly summarised: “From April 2019, all VAT-registered businesses and organisations with a taxable turnover above the VAT threshold of £85,000 will be required to keep their records digitally. They will also need to submit VAT returns to HMRC using MTD compatible software.”

According to the survey listed in Xero UK’s Digital or Die report, one in ten businesses and one in five accountants who took part admitted that they still use paper ledgers. However, 45% of those who undertook the survey revealed that they believed practices need to go digital to survive.

MTD, Anderson believes, will “usher in a new era of accountancy, encouraging the technology adoption and working practices to bring the profession into the 21st century.” He went on to outline the five ways he believes the digital world will change accountancy.

-1- Digital tax will make cloud technology a must-have

“Through HMRC’s digital transformation agenda, greater numbers of small businesses will move to the cloud,” Anderson said. “This technology adoption [could lead to] huge benefits, from access to real-time data, increased efficiency, and better cashflow management.”

He continued: “Through cloud accounting, businesses will get a clearer real-time view of their finances and forecast their performance more intelligently. Firms failing to take advantage of this change risk falling behind competitors who are using real-time data analysis to improve their service offer.

“Our research shows that small businesses who use cloud technology are less likely to fail after the first five years than those who don’t.”

-2- Digital tax will end the paper-chase

“For small businesses, one of the most stressful and time-consuming times of year is [the time dedicated to] accounting for all the expenses, debits, and credits that have accumulated ahead of the tax submission deadline.

“A mistake in a financial ledger only noticed at the end of the financial year could cost HMRC (and the business itself) through lost revenues or fines. [With the uniform use] of digital tax returns, accounting errors will be rectified faster, and tax payments will become more accurate.”

-3- Making Tax Digital for VAT will drive accountancy towards smarter technology adoption

MTD is just the start of technological innovation for the world of accountancy, according to Anderson, for it will “drive [the] widespread adoption of digital technology, introducing new capabilities, such as AI and automation.”

Xero UK’s report showed that “71% of accountants think automation in the financial sector will be crucial by 2020.”

Anderson cited the Find and Record function used by Xero UK as an example of how technology can be effectively implemented in the financial industry.

“The personalised machine-learning system has delivered more than 750 million invoice and bill code recommendations, and more than 250 million bank reconciliation recommendations since the features were launched last March,” he explained.

“This technology automates admin for accountants and businesses, and consequently, small businesses have collectively saved over 370 hours in the first year of use alone. This increased efficiency will give accountants greater accessibility and transparency, ending perceptions of finance management as an opaque paper-pushing sector.”

-4- Accountancy culture will change

Despite the inevitably of practice changing, perhaps more pertinently, the impact technology will have on the accountancy culture is worth considering.

Anderson has argued that “technology is diversifying the role of the modern accountant,” through the “dispensing [of] time-consuming, repetitive tasks, [thus] enabling accountants to become business advisors.”

However, this calls up the question of how to prepare the younger generations of aspiring accountants for learning the skills that will be increasingly relevant, as well as ensuring firms remain up to date with digital changes.

Using MTD as a predominant example, the fact that there are qualifying businesses that are still unprepared for the change highlights that communication has not been effective.

Anderson has said that “digital tax will not only encourage the sector to be more intuitive and advisory, it will also encourage the sector to be more accountable.

“The access accountants can have with a Financial Director, and vice-versa, is now much more direct, with information between them shared faster. Digital tax will encourage greater accessibility and transparency, ending perceptions of finance management as an opaque paper-pushing sector.”

The digital changes are certainly to the benefit of accountants, but theory has not yet been put into practice.

-5- Accountancy will scale up

“Digital tax means a shift from archaic ‘month end’ accounting to real-time data-enabled accountancy. This will encourage the industry to be faster and more responsive, thus mirroring the dexterity so valued by small businesses,” said Anderson.

“According to one of our surveys, 81% of small firms serving more than 100 cloud clients are actively looking to make new hires, compared with 49% of firms with fewer than five small business clients using online accounting.”


The digital world is undeniably creeping in to accountants’ daily lives. Productivity – as the more menial, repetitive tasks are assigned to be completed through technological means – will be improved as accountants are allowed more time to focus on the client; this is the heart of the ‘people business’.

MTD for VAT is a major move that is acting as a vehicle for larger-scale change. Although the initiative has had a rocky start, Anderson concluded that, in the next five years, “accountants will experience a technological and cultural shift, in which paper and outdated desktop software will be replaced with the latest digital technology equipped to evolve with new legislation.”

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