From April 2018, Digital Tax and Quarterly reporting are coming to the UK. These sweeping changes to the taxation system will have serious implications for all UK businesses and accountants. According to a survey conducted by the Chartered Institute of Taxation, businesses with turnovers under £1,000,000 are least prepared for the coming change. Unless small businesses adapt to the new reality they will face much higher accounting fees, late penalties and a period of disorganised confusion.
Small accounting firms which provide accountancy and taxation services to small businesses are facing their own problems. The advance of cloud-based bookkeeping and accounting systems, business automation and gradual eradication of manual data entry present an existential threat to the profession as a whole. If larger firms have the capacity to restructure and offer more value-added services and have the resources to cope with the change in the taxation system and competition from cloud technologies, smaller firms face a real threat of extinction. If larger accounting firms offer an automated tax and accounting solution at an acceptable price to small businesses, faced with the challenges of digital taxation and quarterly reporting they will be forced to reduce their accounting and taxation costs and will be likely to change their accountants.
These two coinciding events are likely to generate a perfect storm that will create winners and losers; the companies and accountants who adapt most quickly will win. They will push to modernise, become more efficient and productive and therefore more competitive. Losers will be the ones who believe that they can address these issues by increasing their accounting and tax expenditure or, in the case of accountancy firms, increasing their fees. The decline will be inevitable but not apparent at first. By the time those locked into the old way of thinking realise that they lost their competitive edge, it will be too late.
For small businesses and accounting firms who can adapt quickly, this revolution represents a chance to get ahead and use the new technologies to their advantage. To get ahead, change must be embraced. This means adopting new technology and implementing new working processes. New technology will allow smaller accounting firms to take on more clients while expending less effort than their competitors. Small businesses will benefit from new cloud-based technologies, automated processes and flows, access to live information, vital for business operations, and significantly increased productivity. These advantages will materialise as man-hours saved which can be redeployed to other business activities or converted into higher earnings or more competitive prices, ultimately creating clear winners and losers.