Will cloud-based software change the role of the traditional accountant?

17 March 2019

Cloud-based software has the capability to be transformative for businesses, but could it also change the role of the traditional accountant?

In this article we discuss how initiatives like Making Tax Digital and the rise of online accounting services may impact both SME’s and accountants, and identifies the opportunities this trend could offer to both.

How has the rise of online accounting services changed how SMEs approach their tax and accounting processes?

SMEs are the heart of the UK economy, representing around 99% of all businesses in the UK according to the Federation of Small Businesses. Studies have shown that SME’s are actually leading the way in Cloud Accounting, with 70% either already adopting software or intending to do so in the near future.

Much of the admin work such as invoicing and expenses can more easily be controlled in real-time as the process is automated and manageable from a portable device. Whereas in the past, a business may have needed to employ a bookkeeper to deal with balancing the books, reasonably tech savvy business owners are now doing away with these costs. Multiuser access has also allowed business owners to collaborate with different members of their team.

Owners are finding it much easier to monitor business performance. Investment decisions can be made more swiftly as, with the click of a button, there is visibility over the business’s current financial position. Software has also provided far greater data analytics. This has enabled business owners to make more informed strategic decisions.

Businesses have also found that by linking directly to the company bank accounts, it’s easy to match tax obligations to receipts and payments.

Is the ‘shoebox’ approach to accounting still prevalent? What is your advice to these SMEs about MTD, when all tax not just VAT returns must be filled electronically?

There is a prevalence of the ‘shoebox’ approach, but this tends to be amongst self-employed individuals or landlords who have turnover well below the VAT registration threshold, and the frequency increases the closer to the 31 January you get!

At this stage only VAT registered businesses need to worry about digitalisation of accounting systems. Until the landlords and ultra-small business owners are mandated to use software, which could come in April 2020, but it’s equally likely it will be deferred given the challenges HMRC has faced in meeting the VAT introduction deadline on time and Brexit, there is less of an incentive for these businesses to make the transition.  When MTD for Income Tax quarterly reporting was first proposed over three years ago, it was to apply to businesses with turnover in excess of £10,000. Business owners and the profession alike were very vocal on how the increased cost could cripple those businesses. HMRC had at the time declared Excel to not be suitable functional compatible software for these purposes and promised the availability of free software for those ultra-small businesses. Of course, there has not been any free software so it’s unlikely these businesses will voluntarily relinquish their shoes-boxes in the short to medium term. Having said that, however, where moving to software is not cost disadvantageous, it is advised. Just simply being able to keep better track of who owes you money and to have tools at your disposal to better collect these debts is, alone, a great advantage to smaller businesses.

Is MTD as transformative as many seem to think it is, or simply a way for HMRC to reduce its costs and improve efficiency?

Let’s not look at this through rose-tinted glasses. MTD was always about collecting more tax for HMRC. MTD as a concept was never going to be transformative for businesses. HMRC had always declared that the primary purpose of MTD was to help businesses reduce the number of errors they make in their record keeping in order to plug the tax gap that related to carelessness and errors (roughly £9.1bn (estimated in 2016-17)).

However, cloud-based software does have the capability to be transformative for businesses for all the reasons stated above, and for the fact that a professional adviser is able to identify strategic and future tax planning opportunities for a client with live financial data. But the MTD coming in from April this year in relation to VAT has permitted the exclusive use or combined use of Excel as functional compatible software and it is not Excel that is going to cause revolution; not anymore anyway….it is old news!

Do owner/managers of SMEs have the technical knowledge they need to make the most of MTD this year if they are VAT registered, or in the future when MTD rolls out to all businesses?

Cloud based software is generally relatively simple to use. It is designed to be user friendly. A little bit like the self-assessment tax return was designed to be capable of completion by the tax payer without requiring the engagement of services of a tax professional, the same applies here. The issue initially will be the fear of the unknown: ‘I don’t understand it therefore it will be impossible for me to deal with’. Not true. With a little education, businesses can become quite competent, very quickly, on their quarterly filings under MTD.

What is the role of the accountant with MTD? Are they becoming technical advisors that have to understand how APIs work, and how the many accounting systems available connect to MTD?

Well, I barely remember what API stands for let alone understanding how they work. But I do know that I can talk to any client about any business on the topic of MTD, functional compatible software and end-to-end digital links no matter how they currently maintain their financial records. That is by and large thanks to HMRCs VAT Notice 700/22: Making Tax Digital for VAT.

But if speaking more generally about how tech is affecting the role of the traditional accountant, if the authors of the book ‘The Future of the Professions’ by Richard and Daniel Susskind are to be believed our profession is in big trouble. This book predicts the decline of today's professions and describes the people and systems that will replace them. The book explains how in an Internet society, we will neither need nor want doctors, teachers, accountants, architects, the clergy, consultants, lawyers, and many others, to work as they did in the 20th century. This means accountants will have to embrace technology in more than just a cursory way. IT is already becoming a feature of professional accountancy exams such as the ACA under the ICAEW (Institute of Chartered Accountants in England and Wales). Artificial intelligence will be capable of doing both our compliance, and in the long-term, much of our advisory work. We have a choice as to whether we ignore it or embrace it and be part of the journey.

Going back to the original question however, until technology has completely redefined our role in the words of Susskind and Susskind, in the short and medium term the accountant’s role remains that of trusted business advisor. The opportunity presented is that while clients take on more of their business’s compliance responsibilities, this frees the accountant up to think more strategically for the client and offer a greater and more interesting array of services.

Contact us 

If you would like to discuss the above subject further, please contact Androulla Soteri from our Tax Services team. Alternatively, send us an online enquiry.