What the election result means for accountants, MTD and regulation

Labour Wins General Election, Implications for Making Tax Digital (MTD) Unfold

As predicted by pre-election polls, Labour has secured a substantial majority in the General Election, marking a significant shift in political power. This development brings into focus the ongoing changes in the accounting sector, particularly the Making Tax Digital (MTD) initiative.

Overview of Making Tax Digital (MTD)

MTD represents a transformative change in the accounting industry, aimed at reducing inaccuracies and increasing revenue collection efficiency for HMRC. The initiative mandates quarterly updates of self-employment and property income, supplemented by an annual submission of other income. This system targets VAT-registered businesses and individuals earning over £30,000 annually from self-employment or property income.

Currently, VAT-registered businesses must use approved software for digital filings. After delays, MTD for Income Tax Self-Assessment (MTD for ITSA) is scheduled for 2026, with a pilot programme that began on 22 April this year.

Labour's Stance on MTD

With Labour now in power, there is speculation about the future of MTD, originally announced under the Conservative government. Labour has expressed a commitment to modernising HMRC through digitalisation. In their plan to address a £36bn tax gap, Labour emphasises the importance of MTD and similar initiatives in reducing errors and enhancing tax collection.

Labour's plan states:

"In practical terms, these programmes [MTD and Single Customer Account (SCA)] involve changes to HMRC's ways of operating, such as: digitisation of existing paper-based systems; increasing real-time reporting and payment; and improving and integrating different systems. Digitisation is important in reducing the tax gap, especially from carelessness and errors."

This indicates a likely continuation of the MTD initiative under the new government.

Call for Clarity and Continuity

Despite Labour's suggested support for MTD, official confirmation is awaited. Michael Cox, Chief Finance Officer at IRIS Software Group, commented on the importance of consistency:

"Despite any rollout holdups for MTD, the last thing I think we would want to see is a reset. The reality is that if the Treasury loses billions, collection needs to be better – and both HMRC and the rest of the industry can use this as an opportunity to modernise where it helps the most."

Cox also stressed the need for clear communication from the new government:

"Accountants and the wider business community will be anticipating the new government provides certainty and continuity on the digitisation schemes for HMRC. Many will hope this includes a recommitment to Making Tax Digital, which is playing an essential role in modernising HMRC to avoid inaccuracies that arise from traditional collection methods -- and help thousands of businesses across the UK to digitise their practices."

If any changes in direction are proposed, it is crucial they are well-planned and effectively communicated to ensure businesses have time to adapt.

Additional Considerations for Accountants

Labour has also discussed other measures that could impact the accounting industry, such as audit reforms, enhancements to R&D tax credits, and the retention of a permanent full expensing system for small business investment. Cox commented on these potential changes:

"The promise of new audit reforms presents an opportunity to boost transparency and improve quality through increased scrutiny and regulatory changes. Labour's commitment to enhancing R&D tax credits aims to foster innovation by reducing taxable profits for companies investing in research. Additionally, the retention of a permanent full expensing system for small business investments ensures the immediate deduction of eligible capital expenditures, easing financial burdens and improving cash flow for small businesses."

IRIS's Role in Supporting Accountants

IRIS remains committed to supporting accountants through these changes. The company has been actively involved in consultations on MTD and is continuously updating its software to ensure compliance with new regulations. Additionally, IRIS is investing in automation and AI to help accountants and bookkeepers harness their data and provide better insights to their clients.

To address recruitment challenges in offering audit services, IRIS has introduced an outsourcing option, enabling UK firms to access experienced staff who are well-versed in the latest regulations. This solution aims to fill gaps in teams and provide a cost-effective way to maintain high-quality audit services.

As the new government settles in, accountants and businesses will be closely watching for further details on policy changes and their potential impacts.