Dexter the Digital Tax Advisor has been unveiled by Xero, the accounting software platform – to help accountants and small businesses prepare for one of the biggest changes to UK business tax in decades - Making Tax Digital.

From April 2019, every VAT-registered business above the £85k threshold will be required by law to go digital and file their tax through Making Tax Digital (MTD) compatible cloud software. Before then, over a million small businesses need to get ready. But with less than five months to go before the legislation is introduced, research has found that fewer than half of the UK’s accountants (43 per cent) feel prepared for the change.

Commissioned by Xero, the cartoon series has been created by the Oscar-nominated artistic duo Alison Snowden and David Fine, with a short teaser revealed to a crowd of around 3,000 accountants and bookkeepers at Xerocon London this week.

The animated series of short films starring Dexter the Digital Tax Advisor will be released in the lead-up to the MTD for VAT kick-off date. The character has been launched to concentrate minds ahead of the shake-up, showing accountants and businesses how easy it is to make the switch to digital. Given that tax has historically been viewed of us a highly tedious task, Dexter’s mission is to highlight the benefits in efficiency and offer peace of mind in the months ahead and beyond.

Of the 200 accountants and bookkeepers surveyed, almost half 45 per cent were unaware of the penalties for non-compliance, which will be points-based and carry a charge after four late submissions.

Despite fewer than half of accountants being prepared for the change, almost one third (30 per cent) of those surveyed said they expect digital tax to increase their firm’s productivity, with 51 per cent admitting that online software is already improving collaboration with clients, as well as increasing speed (46 per cent) and reducing the amount of errors to fix (28 per cent).

When it comes to small business owners, one quarter (25 per cent) admitted they are completely unaware of the upcoming legislation. The research comes as HMRC has issued 20,000 letters to small business owners informing them of the upcoming change, requiring businesses to make a significant change to the way they submit their VAT returns from April 2019.  

The research also found that almost a fifth (18 per cent) of accountants think their clients are concerned by the amount of extra time they will need to spend doing tax returns once MTD for VAT begins. However, the data reveals that accountants expect VAT returns to reduce by 6.42 hours a week by using cloud accounting and submitting VAT returns digitally. This in turn frees up more administration time for firms to spend on higher-level advisory services, which Xero’s separate Benchmarking Report has found can increase firm revenue by 12 per cent on average, as opposed to the UK average of 3 per cent.

Dexter the Digital Tax Advisor launches as Xero announces it is officially ready for Making Tax Digital as well as thousands of Xero accounting partners. As a HMRC approved supplier for Making Tax Digital for VAT, Xero’s new VAT functionality is now in public beta and is completely compatible for Making Tax Digital for businesses over the VAT threshold.

Damon Anderson, Director of Partner and Product at Xero says: “Making Tax Digital is going to usher in a new era of accountancy, encouraging the technology adoption and working practices to bring the profession into the 21st century. Our data has shown that there are huge numbers of small businesses who still feel unprepared for the legislation, so we’ve created Dexter the Digital Tax Advisor to be the voice of Making Tax Digital for VAT and help accountants and small businesses on their digital journey and make tax less taxing.

MTD is just the start of technological innovation for the world of accountancy. It’s going to drive widespread adoption of digital technology, introducing new innovations, such as AI and automation. And at the core of this, we’ll see accountants experiencing a technological and cultural shift, in which paper and outdated desktop software will be replaced with the latest digital technology equipped to evolve with new legislation.”

For further information on Making Tax Digital for VAT visit Xero's Making Tax Digital hub.