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Making Tax Digital: Impact on the Legal Sector

May 2018

Understandably, with so much focus on the imminent introduction of GDPR, it is possible that some firms will be unaware of the impact that Making Tax Digital (MTD) will have upon solicitors' firms and others in the legal sector.

The MTD initiative was first announced by the Government in 2015. It is intended to make it easier for businesses to stay on top of their day-to-day accounts. HMRC wants to be one of the most digitally advanced tax administrations in the world - improving efficiency, effectiveness and ease of compliance. Whilst there have been delays along the way, from April 2019, all businesses with a turnover in excess of £85,000, will be required to maintain digital records using compatible software and to send their VAT information to HMRC digitally.

In subsequent years, MTD will be extended to cover both income and corporation tax as well as VAT.

The Issues

MTD will mean that manual accounting systems will no longer be an option for firms with an annual turnover in excess of £85,000. The number of firms that still maintain manual accounting is, as you would expect, limited but it will mean that those firms will need to have introduced compatible software by April 2019 in time for the introduction of MTD.

Perhaps more significantly, will be the number of smaller firms that are using legacy accounting systems which are no longer supported by the software developer. MTD requires the use of functional compatible software which means a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). Very few of the current legal accounting software systems are presently MTD compliant. That said, over the next twelve months the software providers will be ensuring that their systems are MTD compatible. Clearly, legacy systems that are no longer supported will not be made MTD compatible and, again, firms will be forced to find a new system.

A number of firms maintain their records using spreadsheets. Under MTD, the use of spreadsheets will be possible, however, businesses that wish to use spreadsheets for record keeping and submitting information to HMRC will need to acquire a bridging product from a commercial software supplier. This software product is necessary to provide the link between the spreadsheets a firm uses and HMRC systems. This bridging software will only be available at a cost and, given that spreadsheets are inherently prone to error and difficult to make compliant with the SRA Accounts Rules 2011, it may be better for firms currently using a spreadsheet-based system to take the opportunity to implement a software solution.

Even if your firm utilises an up-to-date legal accounting system, it would still be wise to seek confirmation from your software provider that their system will be made MTD compliant.


If your firm is currently using manual accounting records or an old legacy software system, MTD will mean that you need to implement a new accounting package. Such a project requires careful consideration and planning and the time to start that process is now.

Not sure where to start? We can help you with the selection and implementation of the most appropriate legal accounting systems and/or practice management system. For more information, please contact Richard Lane by calling us on 0330 223 5346 or e-mail us at

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