With Making Tax Digital (MTD) now in full swing, HMRC is one of the most digitally advanced tax administrators in the world. But for many small business owners, MTD is new territory and HMRC is a black hole of information.
Due to COVID-19,
HMRC made the swift decision to delay phase two of MTD, meaning businesses who were preparing to put digital links in place in 2020, had an extra year and were only required to have completed this by April this year.
For accountants, the rush of clients needing to adopt MTD over the past few months has required a considerable amount of work. And to make MTD effective and truly succeed in the long-run, they’re going to need a clear, robust strategy.
Luckily, there is an answer to their problems.
Unleashing the power of Open Finance
While specialist accounting software streamlines tax administration processes - such as reducing the time spent on manual tasks and providing a much more accurate overview of their clients’ financial wealth - for savvier accountants, there is a new wave
Open Finance, the ultimate end goal of Open Banking, brings together far more in depth data sharing - such as account mortgages or other lines of credit that may be exempt from tax duties - to enable accountants to make far more accurate tax decisions for
For example, businesses need to provide their accountants with an extensive range of information for their tax assessments - including purchases, investment holdings, loans and pension contributions. These are not only decentralised but often still come
in paper format. Sifting through and deciding what is relevant and what is not, wastes a great deal of accountants’ time.
Accounting software that harnesses Open Finance infrastructure would centralise all their clients’ financial information in one place, all in real-time. This would enable them to quickly and efficiently assess and submit all the necessary information to
HMRC for self-tax assessments. Allowing for more effective cash flow management, insights and forecasting for small business owners.
Added to this, for those small businesses who choose to pay their taxes as they go - paying every month rather than waiting until the end of the year - harnessing Open Finance would allow accountants to have delegated consent from their clients, to review
their tax returns as they go and prepare accurate tax assessments.
Tackling the misconceptions about data sharing
However, there is still a mistrust from small business owners over sharing too much of their personal data with HMRC. Many believe that the adoption of Open Finance will be used to catch people out to make them pay more taxes. It is essential this misconception
If anything, Open Finance means HMRC can prevent business owners overpaying when it comes to tax. As they’ll have a much clearer, accurate overview of what’s owed. This is especially important right now as overpaying taxes can have a very distressing effect
on any small business looking to recover.
Open Finance also adds a layer of security to data sharing. Sensitive financial information is shared securely as all data is collected via PSD2-compliant APIs, in one place. For accountants, security is critical when managing MTD as digitising tax could
increase the chance of lost or sold data. Open Finance solves this issue as it delivers fast and highly secure data transfer across accounts.
What’s more, from the government's point of view, Open Finance also reduces tax evasion -
something we know is a growing issue
right now. With access to more information, tax assessments can be carried out far more accurately, minimising the risk of error in all submissions.
It’s time to make MTD truly succeed
Accounting software that harnesses Open Finance infrastructure presents accountants with a real opportunity to make a significant difference to their clients’ lives.
Only by working smarter and ensuring that all paths for tax administration are streamlined, will MTD truly succeed.