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DELAY TO DIGITAL LINKS MANDATE: WHY ITS GOOD NEWS FOR CUSTOMERS AND TECHNOLOGY PROVIDERS

HMRC announced on 30 March that the digital links mandate, originally set to come into force in April this year, has been delayed for all eligible businesses until 1 April 2021. The decision was not unexpected due to the difficulty of implementing the mandate during the COVID-19 outbreak. Many organisations are struggling to remain operational and HMRC has over 60,000 staff working remotely from home, making it challenging to oversee the implementation and enforcement of the mandate. The delay will effectively see the compliance deadline extended by twelve months for the majority of businesses, and by six months for those large businesses caught under the original deferral period. In practice it is simply an extension of the soft-landing period for all businesses until 1 April 2021. Just how this will impact businesses will depend on the frequency of their reporting, be it monthly or quarterly, and their stagger period, as shown below: Filing Frequency Quarterly Stagger First Period Mandated for Digital Links Filing Deadline Monthly N/A 1 April - 30 April 2021 31 May/7 June 2021 Quarterly Stagger 1 1 April - 30 June 2021 31 Jul/7 Aug 2021 Quarterly Stagger 2 1 May - 31 July 2021 31 Aug/7 Sept 2021 Quarterly Stagger 4 1 June - 31 August 2021 30 Sept/7 Oct 2021 The message from HMRC has been that organisations should make the most of this opportunity. They have told us that customers should use the time “to ensure their administration and processes are ready for their business ramping up again and future requirements” and that this includes “ensuring that there are digital links in place between their software components.” This means that, while the tax authority acknowledges the disruption caused by COVID-19, MTD should not be shelved. Rather, businesses should continue to prepare for Phase 2 because it will help tax functions operate more efficiently and minimise errors, as shown in its recent MTD for VAT: Evaluating Making Tax Digital’s impact on record-keeping behaviour and scope for error among small businesses report. In our view, the delay is to be welcomed as it will give businesses that are already struggling to deal with diminishing revenues, absent staff, and little prospect of a return to normality for months to come, a much needed reprieve. Taking the pressure off will allow tax and finance teams to focus on priorities such as the wellbeing of staff and management of the company cash flow. But the delay also has the potential to improve the 2020 implementation of MTD in multiple ways, resulting in a more considered deployment that provides more value. Take a pause The delay will hopefully buy time for many businesses that were looking at MTD compliance only, enabling them to take a breath and review how they approach Phase 2 of MTD. This will allow them to extract more value from the time and effort invested, so that they can address the broader challenges associated with tax automation. The good news is that organisations are already recognising that they can use MTD to “drive profits and growth” (according to HMRC’s Making Tax Digital: An evaluation of the VAT service and update on the Income Tax service report) while our own research reveals that the software choices around MTD can help resolve a range of issues, such as process efficiency, data management, error mitigation and risk reduction. Long-term choices The same research reveals that 69% of businesses have been implementing MTD to achieve basic compliance i.e. are meeting the minimum requirements and have not used MTD as a catalyst to achieve wider improvements to their processes. This is at odds with their priorities and aspirations. The majority will readily admit that they believe automation of tax processes will improve data quality, increase accuracy, bring efficiency gains and reduce the risk of queries from HMRC. So, why are they stalling? Perhaps because they simply haven’t had the bandwidth and time to secure the budget for the very sort of investment in MTD needed to bring about this transformation. Also, MTD is regarded by many as disruptive. Over 70% of businesses are still using spreadsheet-based processes for MTD despite the fact that 80% of this audience don’t trust their accuracy. Finance and tax teams are reluctant to dispense with spreadsheets altogether, but the reality is they don’t have to. It’s possible to use MTD compliance platforms to augment and de-risk spreadsheet compliance processes. MTD software can add incremental value around areas such as checking the accuracy of tax data to ensure correct submission, tracing and justifying adjustments and, crucially, can create an end to end digital audit trail to prove compliance. Time for us to improve The deferral to April 2021 will also provide the software industry with the time needed to build new valuable capabilities into their platforms. Key requirements that the industry will have to provide in our view include the ability to automate special tax methods such as PESM, validated data cleansing through advanced data handling features, fully automated digital audit trails and time-stamped evidence of adjustments and calculations. We can also expect to see the thorny issue of data quality be better addressed. MTD is not just about creating digital records but about making sure source data is accurate and accessible – and this is still an area the industry is working on. As of today, errors tend to be detected by comparing the return being generated with returns from previous reporting periods. This offers limited insight. By using tax logic instead, it becomes possible to assess the values in the return with those expected using a range of parameters and the system can then automatically flag any anomalies. We also expect tax to become more autonomous, with help built into software to reduce the dependency of the tax team on IT teams. Balancing the books While this breathing space will undoubtedly act in everyone’s favour, there’s one caveat. When we emerge from the COVID-19 crisis, the UK government will need to balance the books to support the national debt and collect every penny it is due. According to the IFS, government borrowing in the next financial year could be in excess of £175 billion, equivalent to more than 8% of national income and more than triple that forecast in Budget 2020. It’s worth noting, too, that MTD is still regarded as a primary means of closing the tax gap. The latest published tax gap figures showed that avoidable mistakes made by taxpayers cost the Exchequer more than £9.9 billion in lost revenue. MTD for VAT was already forecast to deliver a reduction in the tax gap caused by error and failure to take reasonable care, leading to additional tax revenue (ATR) of £1.2 billion by 2023 to 2024, with steady state savings of around £300 million each year. The Chancellor of the Exchequer, Rishi Sunak, went further in the Budget, stating that “The government is investing in additional compliance officers and new technology from HMRC… enabling HMRC to further reduce the tax gap”. So, come April 2021, we believe the government is going to expect big things from MTD and that means it’s likely that HMRC will have to come down harder than it has done to date on those that have not used the time wisely. This will probably take the form of penalties issued to those who have failed to comply with the digital links mandate because the argument will be that we’ve all had more than enough time to get our houses in order.

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CBW’s Michaela Lamb promoted to Tax Partner

CBW, London accountants, Tax and Business Advisers has promoted Michaela Lamb to Tax Partner as part of its award-winning Tax Team. Michaela has held the role of Tax Director with the top 50 firm since 2014. Her promotion will be effective as of 1 April and will take the number of partners to 20. A key member of the tax team, Michaela advises on all private client issues for UK and offshore individuals, as well as for trusts and estates and is a full member of the Society of Trust and Estate Planners (STEP). She works with families to achieve tax-efficient planning and provides crucial tax advice on marriage and divorce, and any other major life changes. Michaela also advises start-ups and fledgling businesses on how to make use of the tax reliefs on offer, for instance, EIS and SEIS schemes. Previously, Michaela worked at Everett and Son Chartered Accountants for 12 years. On graduating in 2002, she joined the family firm as a Trainee Auditor and subsequently transferred to the Tax department in 2004, qualifying as a Chartered Accountant in 2005. The Everett Group merged with CBW in November 2014, when Michaela joined as a Tax Director. Michaela is a good communicator and she tries to make tax a little less daunting for clients by providing straightforward, practical advice. She is innovative and inclusive, which are intrinsic to her role as part of CBW’s internal award committee since 2017. The committee has recognised staff with on average 100 awards a year since then. In addition, Michaela is involved in fundraising activities for the firm and DFK’s* chosen charities. In her spare time, Michaela enjoys overseas travel, especially cruises. She is also extremely creative, making her own clothes and shoes. She is a wine enthusiast and runs CBW’s wine club and is due to take her L3 Award in Wines this year. Managing Partner Peter Winter said: “We are delighted to admit Michaela to the partnership. As well as through her professional development programme at CBW, she has taken part in DFK’s Young Professionals’ Programme attending numerous conferences over the last few years. She is responsible for a large and growing client portfolio, as well as being a pivotal member of the tax team. Michaela has the level of knowledge and experience in the trust space to lead this team with flair and confidence.” Michaela Lamb said: “I’m passionate about taking CBW to the next level. Being a partner will give me a platform to make that difference. I’m excited to see the talent already here at CBW and look forward to working with these people at a different level in the future.”

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FreeAgent makes admin easier with new Radar feature

~ Radar collates personalised important accounting information for small businesses ~ London | 26th March 2020 | Cloud accounting software provider FreeAgent has launched a revolutionary new feature designed to dramatically boost small business productivity in the UK. Radar, which is free to all FreeAgent users, is the latest addition to the company’s award-winning suite of small business financial admin features. Designed as a central hub for day-to-day financial management, Radar collates a unique, personalised list of the most important information and tasks that small business owners need to address in their accounts each day. Using smart data analysis from within each customer’s business accounts, Radar highlights important admin tasks that need to be addressed - including explaining outstanding bank transactions and reconnecting Open Banking feeds. Radar also contains a revamped version of FreeAgent’s Insights feature - which provides users with intelligent financial data insights about their best and worst-paying customers, forthcoming VAT bills and their top spending categories. The company plans to introduce more insights over the next year to provide deeper and more useful analysis of business accounts. Ed Molyneux, CEO and co-founder of FreeAgent, said: “Our mission is to provide small business owners with the most intuitive method of staying on top of their finances, and we believe Radar will be crucial to helping us achieve this goal. “Rather than our customers having to identify and plan their own daily admin schedules, we want FreeAgent to do the hard work instead. Using data to build a personal daily to-do list - which will become more intricate and insightful over time - we aim to save our customers valuable time and stress when it comes to doing their books. “Eventually, we envisage Radar as a complete central hub for small business admin, incorporating everything from daily accounting tasks right through to sourcing wider financial services like insurance and loans. It’s not enough for us to just provide great software that people enjoy using - we also want FreeAgent to be invaluable for teaching and informing people about how their business is actually running.” More information about Radar can be found at https://www.freeagent.com/blog/whats-on-your-radar/

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Arram Berlyn Gardner (ABG) welcomes new Tax Consultant, Tim Palmer

Arram Berlyn Gardner LLP (ABG), a medium-sized London based accountancy practice, has announced an exciting new addition to its consultancy team with the addition of Tim Palmer. Tim has agreed to become part of ABG’s rapidly expanding team and will be providing consultancy services, which will add value and additional expertise to ABG’s Tax team. Tim will be helping ABG meet the growing client demand for high level tax advice and will also help expand the firm’s breadth of services offered to practicing accountants and solicitors throughout London and the South East. As well as providing tax consultancy services, Tim is one of the UK’s most prolific and popular tax lecturers, lecturing regularly for the leading training companies and Institutes. Tim also writes regularly for the leading tax magazines. Commenting on joining ABG, Tim said, “I wanted to become part of a pro-active, partner-led firm that works in the SME and HNWI market but, at the same time, I was looking for a firm committed to improving the image and standing of the accountancy profession. I am very excited by the opportunities this presents, and I am keen to help develop ABG’s tax services further.” Mark Rubinson, Partner at ABG commented,” We are delighted to welcome Tim. He is joining us at a time when the firm is experiencing growth and when there is a high level of demand for tax planning and tax consultancy services both here in London and internationally. ABG has an excellent team of tax professionals and Tim will provide us with an additional level of expertise. Tim will help ABG broaden the range of advisory services offered to clients and, at the same time, share with us his wealth of knowledge and expertise.”

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