Many advisors see Making Tax Digital (MTD) for income tax as something of a headache and they’ll tell you that it’s not going to positively affect their bottom line. The fear is that clients won’t see the point of it, and advisors could inevitably spend more time and effort with clients who don’t necessarily have the capability to pay them more than they’re currently paying.
However, if you dig a little deeper and flip the idea of MTD for income tax on its head, several tangible benefits emerge for practices, and these could lead to significant business growth and development opportunities. As a technology-driven digital business, we wanted to share some of the immediate benefits we see on the horizon.
A five million-strong pipeline
At the moment, about five million people file their own tax return through the HMRC website, but once MTD for income tax is fully in place, that website will no longer function. So, in terms of a sizeable market, that’s five million taxpayers who may suddenly need assistance from an advisor.
With MTD for income tax, individuals who currently need their advisors to manage their income tax once a year, will, from 2023, need to engage with their advisors quarterly. It’s an opportunity for advisors to build more robust relationships with clients and for an additional and immediate revenue stream.
The obvious prospects are the clients who already use the services of an advisor for annual filing, but there will undoubtedly be others for whom filing four times a year is simply too much work in addition to their day jobs. With increased interaction, perhaps clients will also feel encouraged to grow the relationship and invest in more sophisticated services.
MTD for income tax may also be an opportunity to pull in more services from the advisor’s existing client base as well as new clients. For example, often, advisors don’t offer bookkeeping services as they aren’t always a lucrative line of business, and as such, they frequently choose to outsource bookkeeping to trusted bookkeepers they know and have worked with in the past.
If more frequent filing means clients start to use digital tools to take care of bookkeeping requirements themselves, firms may decide to take bookkeeping back in-house as a service based on the new efficiencies that digital has introduced. Strong integration between digital tax and bookkeeping products will be a big help in this instance.
MTD for income tax will encourage more checkpoints throughout the year, and more visibility. This is important as for some clients, visibility is not a strong point, and they may not have transparency of what is happening until many months after the end of a given year.
With more checkpoints, advisors will have a better idea of how those clients are performing and may be able to offer them services such as wealth management. It’s about becoming a more effective business advisor.
An advisor may be the first to point out, for example, that sales are reducing, or clients are taking longer to pay. With more visibility, advisors are in a better place to interject and help earlier.
With more frequent contact, advisors are in a great position to build closer relationships with their clients. The best clients are those that you communicate with most frequently, and MTD for income tax is going to organically help to build closer relationships, which may mean that clients stay loyal for longer.
The accumulation of data is also going to help with this – MTD for income tax will mean we have more data, which can drive better business insight. Understanding a client’s position perfectly is the best possible foundation to offering them better value-add services over time.
By Dean Shepherd, tax digitalisation lead at Wolters Kluwer Tax and Accounting UK.