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HMRC tips on how to get your practice and clients ready for Making Tax Digital

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Making Tax Digital (MTD) is coming – and you need to be getting your accountancy practice and clients ready for MTD now. That’s what Theresa Middleton, director for the Making Tax Digital for Business Programme for HMRC, said when she spoke about MTD to a packed presentation hall at Accountex 2018.

The first mandated MTD implementation – for businesses that pay VAT – is due to go live in April 2019. But moving forward, she offered five key suggestions for all accountancy firms.

1. Talk to your clients

There are two vectors for preparing the groundwork for being ready, said Theresa. You can either speak to clients directly about MTD, or make your own assessment of their ability to be ready.

But it’s about more than just whether clients are already keeping their accounts digitally. It is, she said, about “really understanding your client base – what the current status is in terms of what people are doing for [digital accounting] processes, and also making an assessment of the attitude and aptitude of people to make the change”.

As we’ve explained before at Sage, some clients will require more work than others, and you should plan your resources now rather than face surprises in 2019.

At the time of writing it is a little over 200 working days until MTD for VAT is mandated for all eligible business. It’s likely many accountancy practices have yet to realise the urgency and scale of the task they face.

2. Prepare your own practice

It isn’t just clients that might need to adjust their attitude. Talking of the accountants she’s spoken to about MTD, Theresa mentioned that some have told her they’re “glad you’re forcing this” when it comes to digital accounting and record keeping, in that it will help convert that small fraction of their clients who have resisted until now.

However, there are still some accountancy practices, she continued, whose operating model is to “add up a big pile of papers and submit a tax return on behalf of the client”.

To these practices, the switch to MTD is as big a disruptive change as it is for the most recalcitrant business. Theresa admits there might be “some sense of worry” and added that it’s “well understood by HMRC that it’s a big transitional challenge for some groups”.

However, she also advises these practices to see it as a “a massive opportunity to add much more value to the businesses they represent”.

One of the driving factors behind MTD is to make tax submission easier and simpler for all involved, and this can free an accountant’s time for other value-added client activities. Even the act of making contact with a client to discuss MTD requirements creates a new avenue for fee-generating activities.

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3. Consider the software

MTD mandates that software must be used for digital record keeping and filing, and HMRC will not be supplying this to either the client or accountant. So, perhaps unsurprisingly, Theresa advises accountants to speak to their software vendor(s) and ask what preparations are being made for the required MTD functionality.

However, the discussion needs to be about more than this.

“That product you use for some clients won’t necessarily suit all of them,” said Theresa and MTD provides an opportunity to “really think about what software you’re going to want your clients to use so that nobody’s having to make what might feel like big changes at the last minute”.

She added that if your clients or even your practice isn’t using any software right now, it might be good to wait until MTD reaches the public stage of the trial (see below), where the software choices are likely to be more plentiful than they are for the earlier testing phase.

4. Start as early as possible

HMRC is currently running two test programmes. The first is a business income tax pilot programme, launched in March 2018, that sole traders can apply to join (or their accountants).

The sole trader must be unincorporated and have income from just one business. The business or accountant then sends quarterly returns to HMRC, which in return informs them of their emerging liability.

Theresa said this scheme has seen some take up but that HMRC is very keen for more sole traders to sign up.

The second pilot programme is for businesses above the VAT threshold, pending the 2019 introduction of the scheme for all eligible businesses. This is open to all VAT-eligible businesses, provided the software they use is part of the testing programme.

Theresa admitted this pilot was “the really critical delivery” and that by the time of the launch in 2019 it would be critical that HMRC has “designed, delivered, tested, fixed and retested the service”.

However, she said that while joining the test programmes was a good step, now is also a good time to “think about switching over to keeping your records digitally even if you’re not intending to send your data to HMRC”. She added: “We believe that it will make the administration of your business more straightforward.”

She explained that without digital record keeping, businesses run the risk of encountering a “cliff edge” that they’ll fall off when MTD eventually becomes mandated for all kinds of tax. Any preparation that can be done now will be time well spent in the future.

5. Don’t start with a spreadsheet

There are some businesses or even accountants who continue to build their business or practice around a series of elaborate spreadsheets. These have been known to be less than adequate for years, hence the proliferation of accounting software, but the requirement to file digitally as part of MTD is really going to throw spreadsheet usage into sharp relief.

“My wish is that no agent or small business starts off with a spreadsheet when a digital solution is available,” said Theresa. “If you’re an accountant taking on new clients, please don’t set them up with a spreadsheet!”

However, she hinted that some software vendors may be providing a bridging product to send the data to HMRC via a spreadsheet.

Citing confidentiality, she didn’t explain how this would work, but even the most technically inept will guess that this will be a far from seamless experience – and far from the ease of use that HMRC want to introduce via MTD.

Bonus tip: Don’t worry too much

HMRC will provide a “soft landing” for MTD’s first year of introduction, said Theresa, after each type of tax is mandated for digital record keeping and filing. Understandably, she didn’t provide specifics but hinted that genuine mistakes that are blamed on adopting the new systems are unlikely to be penalised.

“We understand very much that nobody who is trying to get their tax right welcomes HMRC coming in and an examining what they’ve done and telling them that it’s wrong,” she said. “It’s a horrible feeling for people, and particularly for people who are trying to get things right. What we’re trying to do is remove opportunities for people to get it wrong.”

What steps are you taking to get your accountancy practice and clients ready for MTD? Let us know in the comments below.

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