Rob Nixon reveals how Australian and New Zealand accountants have handled the last three decades of tax digitalisation.
In my part of the world, we have 31 and 17 years of experience of a version similar to what is about to happen to the UK profession with Making Tax Digital (MTD).
In 1986 New Zealand got their version of MTD. The NZ government introduced GST (your VAT) and bi-monthly reporting. For 31 years, the NZ accountants (or their clients have done it direct) have filed/lodged GST returns for their clients every two months.
In the year 2000, Australia got its version of MTD. On July 1, 2000 GST (10% on sales) was introduced and so was quarterly reporting. For 17 years, every three months, Australian businesses have lodged a Business Activity Statement (BAS) to the government and remit an estimate of GST collected less GST spent.
How the accountant's role changed
In both cases accountants did the bulk of the work initially until the clients were comfortable doing it themselves. Effectively the accountants become bookkeepers for a while.
And in both cases accountants were overwhelmed with compliance work at the start. Just imagine going from annual reporting to reporting five times per year.
If you think back to 1986 or 2000 technology was pretty ordinary compared to today: accountants received spreadsheets, copious amounts of paper, shoe boxes or data from basic hard drive accounting systems. Some would say not much has changed today.
The effect of technology
As technology has improved in both countries the respective governments have simplified the process of receiving data. In New Zealand (where 50% of small businesses are on cloud accounting) a small business can file their GST directly from the cloud accounting software to the government – bypassing the accountant. In Australia (where 30% of small businesses are on cloud accounting) the government is introducing ‘standard business reporting’ (SBR) which means all businesses will report the same way. The estimation is that there will be a reduction of ‘red tape compliance’ of $500m - $1bn (Aus) for small businesses because of SBR. That’s $500m - $1bn (Aus) of accounting fees gone.
Based on experience, there is a mountain of work coming your way as your clients roll over to MTD. Do not kid yourself about the workload ahead.
As technology improves so is the ability for efficiencies and seamless data transfer. Eventually all personal income tax returns will be abolished and so will the need for micro businesses returns. Governments all over the world are abolishing (or planning to) the need for personal income tax return filing.
When I look back to what the accountants were doing in 2000 (and talking to the older accountants about the 80s) I believe it was about five years before both accountant and client got the hang of their version of digitalisation.
How accountants handled the change
Based on experience, there is a mountain of work coming your way as your clients roll over to MTD. Do not kid yourself about the workload ahead. Right now accountants are spending approximately 80% of their day checking and processing data. The reason there is so much checking and processing going is because the data received is bad, incomplete, inaccurate, and redundant data. The accountant spends most of the day checking, re-keying and processing the data because the systems are poor and the people using them (the client) don’t necessarily know what they are doing.
If you are going to tackle the volume of work ahead with MTD (some say up to four times the volume per client) then you have to change your efficiency and workflow model. If you don’t you will have to hire many more accountants. Not a good strategy for profit.
The key strategies for change
Our accounting firm members are not hiring more accountants to build capacity. They are implementing eight key strategies which drive efficiency. If you can drive efficiency (time down) then you can increase average hourly rate (only if you price up front) and gain capacity. Here are the eight key strategies our members implement to get efficiency.
- Policies and processes – complete documentation of the best way to do everything
- 18 step workflow process – a step by step process to speed up throughput of work
- Efficiency model – a five step process to dramatically reduce the time to manufacture your product
- The firm is on the cloud – complete IT overhaul with no server
- All clients on a cloud accounting system – 30% - 60% efficiency gain right there
- Team performance – a five step model for getting the best out of people
- Use of more administration people – accountants typically spend 2-3 hours per day doing administration tasks associated with the accounting jobs
- Offshoring bookkeeping and accounting jobs – there are fully qualified accountants all over the world willing to work for less than £4 per hour.
The collective of the eight strategies enables our member firms to be 50-80% more efficient then before. If you can be 50% more efficient then you can free up 4 hours of an accountants time per day.
If you can free up (at least) four hours of an accountants’ time per day you can serve your clients better with additional services. Your cost structure remains the same and your revenue more than doubles.
There is a lot to like about Making Tax Digital. There will need to be a technology and system overhaul in the next two years otherwise it’ll be difficult to handle the volume of work.
Rob Nixon is the founder & CEO of PANALITIX – a membership organisation of 650 leading accounting firms around the world.