IR35, MTD and a greater role for technology - predictions for 2019

There have been many involved debates in 2018 but the two that stick out the most for me are those centred around MTD and IR35.

What’s clear as we look ahead to 2019 is that despite the profession’s best efforts to stamp them out, these issues are not going away.

Adopting technology is becoming so intrinsic to our working and personal lives that it can’t be avoided any longer. Entrepreneurial millennials will demand that tasks such as submitting a VAT return or filing expenses are as easy as posting to Instagram.

With this in mind, I believe we’ll not only see HMRC push for even more change, but we’ll see the shift to adopt more cloud accounting services that wrap around the core accounting model. Technology will drive the business model in the future and 2019 will lay the foundations for change.

So what will 2019 hold? Here are my top five predictions:

Prediction 1: Making Tax Digital VAT will be a watershed moment for those that will succeed in the profession

As I see it, this will be a watershed moment as we find out which practices are able to adapt to technical change themselves, but most of all, who can sell this vision to their clients. This really is an indicator that the future is built on trusting relationships, technical capability and technological know-how.

The practices that exit 2019 having successfully migrated their clients to MTD for VAT will be in a brilliant place to build meaningful relationships and will surely have the mettle to survive the modern economy.

Prediction 2: Off-payroll IR35 will not kill the flexible workforce

IR35 is another thorny issue that will not subside. My overwhelming concern is that we do not underestimate the power of economics here.

Companies live and die by their ability to gain and maintain a competitive advantage. It’s a world of marginal gains, and they’ll do anything to get ahead. The independent market gives companies access to some of the world’s greatest minds to solve complex problems, without politics, bureaucracy or tribunal risk.

Our nation’s incredible flexible workforce is responsible for delivering innovation and advances that provide competitive advantage in spades. This will push companies to work hard to make off-payroll work.

Yes, there will be losers – there are plenty of people out there who are kidding themselves if they think they’re outside IR35 – but the majority of the market will find themselves safely outside IR35, and for them April 2020 is business as usual. Next year needs to be about getting in shape to move ahead.

Prediction 3: IR35 reforms will create new opportunities for professional services firms

That said, companies hiring flexible workers will want to have their cake and eat it. They’ll want to have their pick of the best contractors and consultants, and they’ll want to minimise their exposure to the risk of HMRC knocking on the door for back payment of taxes, followed by a knock at the door from consultants for back payment of benefits.

Therefore, in 2019, I believe we’ll see a new professional service market rise up, one which manages IR35 assurance. These firms will act as internal consultants and review working practices, make judgement calls on status, and importantly, carry the risk on behalf of the company.

This market will be large, and given high barriers to entry, lucrative.

Prediction 4: The ISV marketplace gains increasing importance

As the world we operate in changes so our clients will expect more. Cloud accounting is evidence of this and has opened up so many more opportunities to be agile and innovative. But it’s the services that the cloud facilitates that will be of great interest in the year ahead and so I predict 2019 will be the time for Independent Software Vendors (ISVs) to shine.

ISVs include the hundreds of smaller software companies who build neat solutions to niche problems from payment providers such as GoCardless or Stripe, through to cash flow modelling apps or automated expense capture. Money is starting to flow into this secondary market, with the usual venture capital and private equity suspects getting in there early. It’s a market to watch closely as it will influence how we do business in the future.

Prediction 5: Cloud accounting platforms will have no choice but to acquire

There are some interesting dynamics to this shift to ISVs – namely that ISVs will need to compete for a share of business owners’ spend and loyalty. I’ve no doubt that they will be a route to market for cloud accounting platforms, and I think 2019 will be the start of a wave of acquisitions.

If you think about it, the ISVs can shoulder all of the risk in developing new innovation. This is perfect for cloud platforms, which can come along, gobble them up and integrate them into their offering.

Not many people realise that Microsoft’s success is built on this strategy. Xero has recently flashed its hand with the acquisition of Instafile. Expect to see more acquisitions in 2019 and into 2020.

Overall, the message is clear: 2019 is set to be another year of change. But I firmly believe it’s positive change, and change we can no longer avoid if we want the profession to survive and maintain its world-class status.