Making Tax Digital (MTD) continues to follow a rocky road towards implementation. To get to where we are now has been a struggle, with plans mooted by the UK government and then abandoned. There’s significant confusion among businesses and even accountants.
Previously, most businesses were to be included within the move to MTD by April 2019. This has now changed. In the draft Finance Bill (2017), the government announced the implementation of MTD is to be scaled back in the short term, as follows:
- Only VAT-registered businesses with a turnover above the VAT threshold will need to keep digital records – but only for VAT purposes and only from April 2019
- Other businesses will not be asked to keep digital records or update HMRC quarterly for other taxes – primarily income tax and corporation tax – until April 2020 at the earliest, pending further government announcements
- Voluntary submissions for income tax will be accepted prior to April 2020 – although once again firm details are yet to be made available.
This is the total extent of MTD as it affects business at the moment. Any earlier plans have been set aside or postponed.
However, although plans have been watered down, there are still massive implications for accountants and bookkeepers, as well as significant business opportunities. Here are some suggestions towards creating an MTD implementation plan or polishing your existing efforts.
The staged rollout of MTD offers the temptation for both accountants and businesses to avoid thinking about it. However, MTD for VAT will be in force within just a couple of years, with the rest of the business tax system pencilled-in to follow a year later.
To avoid loss of business or penalties, your practice needs to immediately review processes, resources and software – as do your clients. This might involve training and certification.
Be the experts
Because of MTD, your relationship with some of your clients is going to fundamentally change. Inform your clients about MTD and the profound effect it will have on their business practices. Work with them to create a plan.
For example, 89% of all VAT returns are currently filed directly via the HMRC VAT online services account rather than using software.
However, filing direct via the HMRC gateway will not be an option from April 2019 for those that fall into scope for MTD for VAT and software must be used instead. HMRC will not provide them with any. How many of your clients are aware of this?
Use Making Tax Digital as an opportunity
In a recent survey with 500 accountants and bookkeepers carried out by Sage, 40% of accountants saw MTD as a good opportunity to help small businesses thrive and survive, while 38% said it would help acquire new clients.
MTD offers a chance to get in touch with clients that you might ordinarily only speak to once a year, so take the opportunity to advise. However, you might also consider running MTD-themed conferences, workshops, webinars and email/social media campaigns in order to attract new clients, or add value for existing ones.
Considering future clients as well as existing ones is important. 70% of new business start-ups are tech-savvy millennials, so their expectations of interacting with their accountant will be different to more traditional businesses.
Making Tax Digital
Making Tax Digital is HMRC’s move to digitise tax and the goal is to help you get it right – whether you’re a business, accountant or bookkeeper. Learn about what it means for you.
Key steps you need to take
To prepare your clients for MTD, there are several suggested steps that will help you work out the scope of the implementation:
Understand which clients will be impacted and when
This will help you assess your workload and develop a software solution to manage it. You will need to consider how many clients you have and, of those, how many will be initially impacted by Making Tax Digital for VAT. Think about your clients’ future needs as well. With potential business growth of some clients, it could mean an even greater number will be aﬀected by 2019.
Start by asking the right questions:
- How many clients are VAT registered – or likely to be? (Remember that MTD is a one-way street – clients can’t opt out later, even if they fall below the VAT threshold.)
- What is their current and projected turnover?
- How many may retire or exit? What are their succession plans?
- How are your clients submitting their VAT returns?
- When are your clients’ VAT quarters?
- When is your clients’ financial year end?
- Are they using software to manage their accounting needs or their business?
- Are they keeping records manually or via spreadsheet?
- How easy is it to interact and correspond with the clients?
Outline the services you provide and your costs
Many accountants have found that changes such as auto-enrolment have led to opportunities to provide more support to clients but the challenge has been incorporating this into their fees.
Assess how best to work with your clients. You will know from experience which clients are more capable than others. Educate them on the impact of inaccurate submissions and calculations and provide them with extra support and tuition to help pre-empt avoidable mistakes.
Making Tax Digital is an opportunity for practice and service growth. It is worth considering how you will package MTD support to existing and new clients and how you will diﬀerentiate yourself from your competitors.
Again, asking the right questions is a firm foundation for moving forward:
- Monthly, quarterly or annually – which is best for your client?
- What services will change?
- What payment methods are correct?
- What business advice is required?
- Who are clients outsourced to – with special regard to bookkeeping?
- Can quarterly and yearly dates be automated, as well as bank feeds?
- Who will manage them?
- Who will deliver?
Review your internal processes and resources
Consider how you currently engage with your clients and whether this will need to evolve. Once you’ve reviewed your services and costs, it’s also good to know what your team spends most of their time on.
Bank feeds are a great way to automate more manual processes and getting clients to use software will also reduce your costs to serve.
However, throughout everything bear in mind the following:
- If you are planning on expanding your client base and oﬀering new services, the less time spent processing the better.
- Be conﬁdent everyone in your practice is familiar with the bookkeeping software a client is using and know how to get the best out of the software.
- Consider how you will tackle tracking exceptions and errors. It will be important to know that adjustments need to be identiﬁed when managing quarterly returns.
- Make sure your clients have accessed their digital tax account well in advance.
- Agree what the sign oﬀ processes and touch points will be, identify the volumes you are working with and what tools you have at your disposal to support these.
Ensure clients understand the importance of moving to MTD sooner rather than later – moving now and the price stays the same but moving later is likely to incur higher fees.
Prioritise clients based on “skill” and “will” – and determine the best MTD package for them based on this, such as mobile tools and cloud accounting, for example.
Set a target for MTD conversion, such as having 80% of eligible clients switched to MTD by a set date – for example, 31st March – while acknowledging that 20% of businesses won’t move.
Use MTD as an opportunity to acknowledge unprofitable clients and aim to change the situation.
Prepare your clients
Now’s the time to start preparing your clients. Talk to them, let them know they are in safe hands and you are there to support them. You could create a communication and engagement plan for the key segments of your clients.
Current clients: Work out which of your clients use software and which don’t.
Future clients: Use social media, business press and business events to show that you’re ready and prepared for Making Tax Digital.
Clients who’ll transition easily: Let them know they are on the right software now and working well. Your reassurance will be good to hear. Many accountants are going to be involved in the public beta of MTD.
It might be worthwhile considering this for your practice and involving some of your clients. This way you get to reﬁne your plans and working practices to ensure a smooth transition.
Manual receipt clients: Get them to use software as soon as you can. The earlier you do, the better it will be for both of you. Not all manual receipt clients will be opposed to adoption.
More than 71% of individuals have smartphones and are using technology to make purchases every day. So build case studies to show how other clients have beneﬁted and what the adoption experience was like, all thanks to you.
Clients who are using spreadsheets already show a willingness to input records. Capturing income and expenditure on a smartphone using a dedicated app or chatbot is an excellent, easy-to-use alternative.
And they don’t need a computer to record either – it can all be done from their mobile phone in real time, so it’s easier for both of you. Get your clients to download the app on to their smartphone and see how simple it is.
The best time to move clients to software is often at the beginning of a financial year. Do this during the 2017/18 tax year to make it easier for go live with Making Tax Digital.
Guide to Making Tax Digital for accountants and bookkeepers
Discover what Making Tax Digital means for your practice including the key dates you need to know and the five steps you should take to prepare now.