There’s just one month to go til Making Tax Digital kicks in for Income Tax; we take a look at how the transition will go. There’s also a lot happening in corporate reporting at the moment – Sally Baker brings us up to speed.
Hosts
- Philippa Lamb
- Mark Rowland
Guests
- Rebecca Benneyworth
- Sally Baker
Producer
- Natalie Chisholm
Transcript
Philippa Lamb: Hello. Welcome to Accountancy Insights. Just one month to go till Making Tax Digital kicks in for income tax. We have expert Rebecca Benneyworth ICAEW's own MTD live event with her take on how the transition may go. In the studio: Head of corporate reporting strategy, Sally Baker, is back with us. There is a lot happening in corporate reporting at the moment – she'll bring us up to speed. Now as always on the podcast, everything we're covering today counts towards your annual CPD, so do be sure to log your listen on the ICAEW website this time, and indeed, every time, it is quick to do, and you all know by now you can subscribe to the podcast on any app, if you'd rather listen that way than on the website. So let's start with making tax digital, and Mark Rowland talking to Rebecca Bennyworth at MTD live.
Mark Rowland: So we've heard a little bit about how well prepared practitioners are for MTD for income tax at this event. How well prepared Do you feel they are?
Rebecca Benneyworth: I think there's quite a bit of work for them to do. The polls are indicating that still nearly half the audience still have to choose what software they're going to use, and that's quite a challenge. We are only just over a month away from this actually starting, although we're quite a few months away from the first submissions. But I think people, you know, maybe we had quite a heavy January, and for lots of practitioners, then that's followed by the seventh of February, that submission day. I know for me in my practice, that was pretty tough, and we barely had time to draw breath. But now we really have got focus on getting clients ready. So the polls indicate that still a lot of practitioners have to sign their clients up to MTD, so they need to really think about getting on with that. There are 860,000 taxpayers coming in in April, and only about 40,000 are signed up now, so that's 820,000 and if you run into problems... maybe HRCs records aren't quite right, the client postcode is wrong or something... you're going to be in a massive queue for help if you don't get on with it now. Obviously I would expect unrepresented taxpayers probably won't even start signing themselves up until after the sixth of April. So I think any practices out there that have got the opportunity to crack on with this now in the next month, and get their clients signed up before the great rush, if you like – the migration of wildebeest starts – and you get crushed in the stampede.
MR: I spoke to a couple of other practitioners earlier, the ones that were actually quite well prepared, and what they had done, it sounded like an awful lot of work. How much leeway is there from HMRC in getting on board with this from the start, is there much, or do people really need to be on it by 6th of April?
RB: I think there is time. I think there is a little bit of slack. HMRC have got a soft landing on penalties. So if people are filing late, they won't be penalised. HMRC are regarding this year as really a sort of getting to know it type period. So I think there is some slack in the system, but you're right. There's a lot to do. So it's not just signing clients up, it's quoting them for the new fee structure. It's new letters of engagement. And then certainly, what I've had to do is look at each client individually, at what software they're already using. I've got one client who's fallen out with this software in the last few weeks and wants to move to something else, and all of that's got to be tailored to the individual clients needs, and that is a lot of work. I mean, obviously, if you've only got two or three coming in, you'll be fine. I've got just short of 20 coming in, and that's quite a bit of design work. Three of them don't use software. I've got a meeting lunchtime tomorrow on zoom with a client to say, "Now, come on". I did ask her a year ago if she'd go on software, and she said, "No, I don't want to pay for it until I absolutely have to". So here we are a few days out, and we're going to get her on some software, but then she's got to familiarise herself with it, and we will probably be doing quite a bit of work in the background. And it's, you know, it's recruiting staff as well, because if you're going to need more staff to service this line, you're not going to get them now, you know, here we are in late February, you are not going to get staff recruited in time to be actually doing the work. So it's quite a challenge.
MR: Do you feel like clients understand why this is happening?
RB: No, no, and some of them think it's just me being difficult. But I mean, thankfully, HMRC is doing a lot of messaging, and there is a lot out there, and the software companies are also doing a lot of advertising. But yeah, they can't see the benefit now, what I say to them is, "Actually I've got four clients in testing, and some of those clients are really feeling the benefit and saying to me that they appreciate their tax estimates and things like that". So I think they'll come around eventually. But I don't think clients are prepared. I've tried to prepare them as best I can, but I don't think they've any idea what's involved. And even I, who've been, I mean, I've been involved with MTD for over 10 years now, because I went in at ground level. And even I feel I've got clients where it's probably going to go badly wrong in the early summer, because they just won't be delivering what I need them to deliver, to be able to support them, records and stuff like that. I just, you know, we all know January is difficult because clients don't divvy up, and it's just going to be... well, we've got to try and design it so it isn't for January as a year, and that's where the work and the client education has got to come in.
MR: Obviously, you've been involved a long time. In your experience where do you think the biggest stumbling blocks are going to be? Obviously, you're saying it's going to be difficult in the summer. Where are the kind of areas where people are going to fall down?
RB: It feels to me, and this is my experience of dealing with clients, it feels to me like the redesign of your workflow, within your practice, as to how you're actually going to service this is the biggest job. And if people are now only just starting to think about that, then they're going to have really quite a tough few months, because the first filing date on the seventh of August, it's going to really bring it home to them where the gaps are in their design of who's doing what when. And I think that's going to be the really tough bit for them. I think once they've got past the seventh of August and they've had time to reflect, I think by Christmas, people be just about there, really. But of course, in the background, they've also got last year's tax returns to do as well. So, you know, I mean, it's pluses and minus. The plus is that you will actually be billing probably one and a half years work in one year. So all accountants expect a very big tax bill the following January, but you've got to get that work done. And it's, you know, it's thinking about who's going to do it. Lots of firms are already at capacity. Couldn't possibly tolerate any more work, and they're going to have to.
MR: I don't know how much this will help, but obviously, HMRC talks about their kind of their tools and their assistance. Do you think that will help ease the burden a little bit?
RB: Yeah, I mean, I must say, the guidance from HMRC is absolutely excellent. It's really outstanding. It's a little bit... you have to sort of go down a few alleys until you can find the bit you want. But once you find the bit you want... when I'm lecturing, I tend to put the URL for 'this is a really good page' up on the screen, so that people can easily go to it. So the guidance is really, really good. But HMRC, as the tax authority, doesn't have any understanding or knowledge about running a firm of accountants and about pushing work through and as I've said, I think that's really the hard bit, is how you're going to progress things from coming in the door to getting out the door. And HMRC can't really help with that.
MR: If there was one bit of advice you could give to practitioners across the board, wherever they're at, on how to make this work as best as they can stay as they're at – what would it be?
RB: I'm gonna do two. The first one I'm gonna do is say, if you haven't got your clients signed up, get on with it now. Absolutely, get on with it now, because otherwise you're going to be in with – I called it the migration of the wildebeest. You know, anybody who's seen a bit of film on telly of that, you don't really want to be in the middle of that. I think the second thing is, really, just think about the design of how you deliver your services, and getting as much to be slick, digital, and you're in control. If you let clients say, "Oh, I'll send you a spreadsheet when it's done", inevitably, you're going to be up against deadlines and clients not delivering. So it's thinking about how to put your firm in control of what's going on, which is easier said than done, but I think, thinking creatively around that, will make a big difference.
PL: Thanks to Mark and Rebecca for that. For more on MTD, including an interview with HMRC's Craig Ogilvie, check out the next episode of our sister podcast, The Tax Track. On to corporate reporting now, and strategy chief, Sally Baker, is here with us. Hello, Sally.
Sally Baker: Hello.
PL: Welcome back.
SB: Thank you.
PL: There is a lot, as I said, going on in corporate reporting. Do you want to talk us through the main changes?
SB: There is definitely a lot going on. So on the financial reporting side, we have some changes to UK GAAP and a major new IFRS accounting standard. On the non financial reporting side, we have some developments in sustainability reporting and then straddling both financial and non financial reporting, we have the modernisation of corporate reporting programme.
PL: So let's break it up. Let's look at the financial reporting side first, the changes to UK GAAP, they are already in effect, aren't they? How extensive are they?
SB: Yes. So they came into effect for accounting periods beginning on or after the first of January 2026 they are very extensive. They're in almost every section within FRS 102, our principal UK accounting standard and FRS 105, the accounting standard for micro entities has been changed to some degree. We've got major changes within Section 23 revenue, in FRS 102 with a simplified version of those changes impacting section 18 of FRS 105. We also have some major changes to lease accounting within FRS 102 that's Section 20, but those changes do not apply to FRS 105 reporters.
PL: And we've got some potentially significant changes to disclosures for those small entities that are choosing to apply the reduced disclosure requirements of Section 1A?
SB: The main one here is in relation to related party disclosures, whereby small entities are now required to disclose all related party transactions, regardless of whether they're under normal market conditions or not. But it is worth noting within that that there's no explicit requirement for a small entity to disclose directors' remuneration. We've had that clarified.
PL: Now, of course, listeners can find out more on those changes and plenty of helpful resources on the website. We'll put the web link in the show notes. What about International Financial Reporting Standards?What's happening there, Sally?
SB: So under the international standards, we have a major new accounting standard, that's IFRS 18, that's effective from the start of 2027 and it establishes principles for the presentation and disclosure of information in the financial statements. A lot of the contents in IFRS 18 is carried over from IFRS 1. But there are some significant new elements, mainly looking at the structure of the income statement, the grouping of information, so whether information is presented in the primary statements or in the notes, also how you go about labelling information, and there's also some requirements around management defined performance measures.
PL: Even though it's not effective until next year, 2027, there is an impact for 2026?
SB: Yeah, that's correct. So companies are required to apply IFRS 18 retrospectively, which means that any comparative figures that they are presenting need to be presented in accordance with IFRS 18. So when you're doing your 2027 accounts, your 26 comparatives need to be under IFRS 18. They also need to disclose reconciliations with what was presented now under IFRS 18 with what was previously presented under IFRS 1.
PL: Now see ICAEW has a summary of the standard there's an in depth fact sheet. There's a webinar as well, isn't there?
SB: That's correct, yep. We have a webinar coming up on the 16th of April, and that will look at the implementation challenges that companies are starting to encounter.
PL: So that's financial reporting. Let's move on to non financial reporting, and in particular, sustainability reporting. What's happening there?
SB: So the UK Government are due to publish the finalised UK sustainability reporting standards imminently. Those UK standards are based on the international sustainability standards, but with some relatively minor amendments to make them suitable for the UK context. Once they're published, they'll be available for voluntary use. And the Financial Conduct Authority is in the middle of consulting on whether to replace their current listing rules with a requirement to report under UK SRS.
PL: And we will be covering the developments in sustainability reporting in much more depth in our next episode.
SB: That's correct.
PL: Finally, the modernisation 'bit' of corporate reporting. We're going to cover this in more detail in a future episode, but for now, the overall aim of the plan?
SB: The overall aim is a holistic review of the annual report and accounts, making it fit for purpose for the next 10 / 20, or so years. So over the last 10 to 15 years, we've been adding more and more reporting requirements into the annual report, and the whole document now has rather lost its way. We've lost sight of who's it for and what's its purpose. So this programme is aiming to fix that by streamlining requirements, but also future proofing the framework so that the annual report remains a useful communication tool for the years ahead.
PL: It started a couple of years back, didn't it? With a non financial reporting financial reporting review, but it's now expanded in scope.
SB: Yeah, exactly. There was a big consultation back in 2023. That generated some immediate changes. So we had an uplift in company size thresholds, for example, the government was then due to follow on that first review. With a more in depth review on just the non financial reporting. However, having engaged with stakeholders last summer, it became clear that a more holistic approach was needed, so they've expanded the scope to look at both financial and non financial reporting, and hence a review of the entire annual report, and the whole programme has then been rebadged as the modernisation of corporate reporting programme.
PL: Do we have a timeline for this? Because it sounds like we're not actually going to see many changes this year, but people obviously need to be aware of it.
SB: We're expecting a major consultation as the first step in the programme. I think that will be out mid March, hopefully, probably running until early summer. The outcomes of that consultation will then drive the future changes. So we're likely to see some deregulatory measures, perhaps quite quickly following that consultation. But other issues may take much longer, maybe a programme for a good couple of years or so with further consultations.
PL: Thinking about preparers, what do they actually need to be doing now to get ready for all this?
SB: I think it depends really, in terms of what of all of those things that we've spoken about impacts on you, and that will differ based on whether you're a UK gap reporter, reporting under IFRS accounting standards, whether you're a smaller company or a larger company, listed entities are going to have more focus on the sustainability reporting standards and the IFRS accounting standard, whereas the smaller companies are going to be more impacted by the changes to UK GAAP. On the modernisation of the corporate reporting programme, I think everyone needs to be aware of the potential for change ahead. And we've just produced an article introducing the programme.
PL: So we'll link to that in the show notes, so people can find it.
SB: And then look out for opportunities to contribute to that consultation process once it gets underway, and make sure that you take advantage of the resources available through the corporate reporting faculty to stay up to speed with everything that's happening.
PL: And there's a lot to stay up to speed with, right?
SB: Definitely.
PL: Thanks very much, Sally.
SB: Thank you.
PL: Head to the show notes for links. If you want to dig deeper on either of the subjects we covered today. As we mentioned, the next behind the numbers will look at the new UK sustainability reporting standards and the Financial Conduct authority's consultation on its implementation. If you enjoyed this episode, please do review the series on your app. You know as well as we do that more reviews encourage the algorithm to spread the podcast more widely, and the more accountants it gets to, the happier we are. Thanks for being with us. If you would like to give us any feedback, or indeed, offer us any ideas for future episodes, we now have a podcast email, and it is podcasts@icaew.com that's podcasts with an ’S’ on the end.