Moving your practice into the MTD world
Monday, September 11, 2017
On the 13 July 2017, HM Treasury published its second Finance Bill of 2017, which included changes to the proposed Making Tax Digital for Business scheme.
The new position is:
- Businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records, but only for VAT purposes.
- This regime will now apply from April 2019
- Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least April 2020
- MTDfB will be available on a voluntary basis for smaller businesses and landlords
Making Tax Digital for Business has not gone away but the pressure has been turned down. However, it is essential to use the extra time productively.
Making Tax Digital for Individuals is already with us, Employers, employees and their professional advisers need to be aware of its implications.
With specific regard to MTBfB, for small accountancy practices this is the time to A) review and B) redesign.
At the CPAA Branch Representatives’ meeting on 25th August 2017 a discussion on what this means to small accountancy practices was led by Steve Vincent from the South West Branch.
Steve reviewed his own practice by putting the clients into the following categories:
- Small business clients and tax cases. (less than £10K turnover)
- Business clients with a turnover above the VAT threshold.
- Incorporated clients.
- Business clients with turnover between £10,000 and the VAT threshold.
- Other clients: CICs, Charities, Churches, and other community organisations.
Steve then considered each type of client and what the impact of MTD might be:
- No problem and no change management is required.
- These clients are generally a little more sophisticated in their approach and have accounting systems in place. They are used to interacting with their accountant on a quarterly basis.
- Generally the same as 2 above. Most of these clients are VAT registered so already have systems place.
- This is the problem area and the one that creates the most concerns. The concerns are as follows:-
- Clients frequently have limited financial resources.
- They are often relatively unsophisticated and potentially resistant to digital systems.
- In many cases they don’t give priority to record keeping, nor do they give consideration to record keeping solutions. Training them to use new systems is problematic.
- They are very sensitive to costs, £10 a month is a lot of money to them.
- They are used to and expect lots of time to get records ready. The records are often late and incomplete.
- These clients currently only interact with the accountant once a year.
- These clients aren’t likely to be included for a variety of reasons.
Clearly the challenge is in category 4. We all have category 4 clients who need information and training.
Whilst the category 4 clients are likely to prove to be the most problematic clients when changing to the new regime, careful consideration should be given to the time/fee ratio to ensure it remains favourable. Practices shouldn’t be afraid to reconsider a client relationship where this ratio becomes intolerable.
This lead the discussion on to:
The most important point to come from the Branch Reps discussion was ‘keep it simple’.
Accountancy practices already have a structure in place. It is the existing structure that needs flexing to fit MTD requirements.
The new timetabling for the introduction of MTD has given accountancy practices a lead-in time of 1 to 2 years. The redesign of the practice is therefore a 1 to 2 year project.
As described above clients have various levels of sophistication in record keeping:
- Clients who have their own in-house accountancy software and are submitting VAT returns themselves will no doubt submit their own quarterly MTD returns and only need the minimum of support with MTD.
- Clients who use the accountant for VAT return submissions will slot into the practice’s existing deadlines for quarterly submissions. The quarterly MTD submission will become an extension of the VAT return preparation. Note that VAT submission deadlines are to revert back to last day of the month following the VAT quarter end. No more 7 day safety net.
- Clients who are not VAT registered and rely on the accountant for all their reporting requirements will still probably rely on the accountant. Therefore the accountant must ensure that the facility for quarterly MTD reporting is established within the practice.
MTD is an opportunity to build and expand.
In the same vein there is no one-fit-all solution. There never has been, so nothing is new. It is time to look at the systems in the practice and assess how they will adapt to MTD and quarterly reporting.
It might be a simple software update, a move to cloud solutions or investment in new software systems. At this point it is essential that staff and associates are up to date with MTD proposals and what the practice will expect from them. Information and training within the practice is just as important as client updates.
This is the time to be proactive with clients. Very little information is being given to business by Treasury or HMRC. It is up to the accountant to bring clients up to date and find the best fit for each business.
It is a chance to contact clients, from general promotional correspondence, to full review of the professional relationship between the practice and individual businesses.
As each year end comes around the accountant should spend a bit more time looking at the way the practice acts for each client and the input the client has to the accounting system. Redefine deadlines for submitting information and the allocation of work between the client and the practice staff/associates. Establish points of contact and preferred methods of contact.
In my own experience I can quite easily process and review client records remotely, but some of my clients like to see me. If I am not actually at the premises they are unsure about what work has been done. The conclusion is to always let the client know about any work done on their accounts, especially if done remotely.
Finally as accountants we must value ourselves. The time of charging the clients using an hourly rate is fast becoming a thing of the past. Whereas at one time a tax return might have taken 3 to 4 hours to complete the same return now may only take 1 to 2 hours with the assistance of modern software. Although the time has reduced, the knowledge and expertise has not and should be charged for accordingly.
In summary, to prepare for MTD and quarterly reporting:
- review and understand your clients
- review and understand your practice
- be positive and grab the opportunities