Making Tax Digital from Down Under

Outback
istock_Totajla_outback
Rob Nixon
CEO
Panalitix
Columnist
Share this content

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).

The history

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.

  1. Policies and processes – complete documentation of the best way to do everything
  2. 18 step workflow process – a step by step process to speed up throughput of work
  3. Efficiency model – a five step process to dramatically reduce the time to manufacture your product
  4. The firm is on the cloud – complete IT overhaul with no server
  5. All clients on a cloud accounting system – 30% - 60% efficiency gain right there
  6. Team performance – a five step model for getting the best out of people
  7. Use of more administration people – accountants typically spend 2-3 hours per day doing administration tasks associated with the accounting jobs
  8. 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.

Replies

Please login or register to join the discussion.

20th Apr 2017 23:51

@Rob - none of this is new on here. If you read through the threads on AWeb there is a common theme and accountants fall into 2 general camps.

1 - traditional accountants - those who take the "we've always done it that way" approach and who will "wait and see" before they decide how they will react to MTD. A lot of these older generation accountants will probably call it a day and look to get out.

2. - accountants who have embraced the cloud and what it has to offer. For us (yes - I'm one) we don't see MTD as a big deal - most clients are using cloud software. This and a good PM software will make the transition a lot easier to manage.

Increase in admin staff and offshoring of work? I disagree - a good PM system will reduce the admin burden, this and get clients to do more of the basic level work themselves to avoid the need to outsource/offshore (that in itself creates a whole load of other issues). Plus there are plenty of very capable people in this country willing to work remotely for decent rates.

A 50-80% increase in work? I don't see it - I'm anticipating an average increase in fees for clients of between £400 and £800 a year and this will be around a 25% increase in workload. With the use of the right software and a PM system this will be easy to manage and will spread our work more evenly across the whole year.

Of course clients have to 'get with the program' or they'll be shown the door.

I do see this as a huge opportunity to gain more clients (maybe this is where the 50-80% increase in work will come from?).

Thanks (0)
By JAADAMS
21st Apr 2017 10:41

Well bully for you KentAccountant! Your mix of clients is obviously different from the majority of accountants who have commented onsite on MTD so far. You obviously have the larger clients who understand what a computer is. Some of mine wouldn't even know how to turn one on and only a couple use a computerised bookkeeping system. Only a few are VAT registered. Its going to be hell for me and many other accountants. And I dont like being called 'traditional' and 'older generation'. I will have a lot of work to do getting clients to understand what is going on.

Thanks (18)
avatar
to JAADAMS
21st Apr 2017 12:06

Couldn't agree more!

We have gradually and painfully weaned the more intelligent onto Excel, in order thereafter, we can generate a TB and where necessary a Transactional TB. Hard going. As most cannot even get this right! Constantly confusing Capital and Revenue items, despite endless explanation and advice.

Since Thatcher, governments have set-up various initiatives to encourage the unemployed, early retired, redundant, to become self-employed: and thereafter caned them with a mounting level of compliance and extra costs.

Presently, 30% > of school leavers are functionally illiterate and innumerate. Sure they can play with Faecesbook and TWIT-ter, but computerised bookkeeping systems? Not a damned chance!

Furthermore, the clever kids leave school and become well paid professionals and managers: the rest become feckless benefit scroungers and self-employed dodgers, all too often.

MTD fb is not going to end well: indeed, IMHO it is going to finish up as yet another government IT disaster, to make Peter Lily's benefit card, the abortive universal NHS IT system and etc, mere teddy bear's picnics in comparison .

However, this time around, the fools in Treasury and HMRC neatly forget, such disaster will seriously impact Government's ability to receive tax revenues and thus keep the budget deficit and public debt down.

All well and good to trot out prescriptive swingeing penalties for late payment, inaccuracy et al; where's the HMRC staff to handle and manage this?

Adding extra layers of cost via penalties looks great on paper: can lower echelon SMEs actually afford such costs? Do they enjoy the deep capital reserves necessary?

Answers: no.

Thanks (6)
to JAADAMS
21st Apr 2017 13:17

Larger clients? if you mean mostly limited companies and very few sole traders then yes.

We're also very selective when it comes to taking on new clients.

Smug of Kent ;o)

Thanks (0)
avatar
to Kent accountant
21st Apr 2017 14:13

Well, I would be careful, Smug of Kent; remember,

"Pride Cometh before A Fall!"

It is abundantly clear to me, the covert objective of HMRC is to dispense with accountants in the tax processing, management and collection process.

Suggesting Nudges and Hints in software can substitute for- hopefully - developed knowledge and expertise on tax and tax law.

Judging by HMRC's current performance, they cannot even impose THEIR regulations and get them correct!

I suggest you might care to review this and ascertain where the majority market lies for the SMP practitioner addressing the SME market.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

Thanks (0)
to Michael C Feltham
21st Apr 2017 14:31

Dispensing with us beancounters!?

There will always be a significant element of businesses and individuals who want/need an accountant to deal with their tax affairs - they value the relationship.

Thanks (0)
avatar
to Kent accountant
22nd Apr 2017 14:52

Kent accountant wrote:

Dispensing with us beancounters!?

There will always be a significant element of businesses and individuals who want/need an accountant to deal with their tax affairs - they value the relationship.

Well, thus far, HMRC have been busily cutting out advisers from the process: just in case you haven't noticed.

Ergo, what might be left, are a sort of para-legal Independent Financial adviser specialising in tax law who advise and consult on modalities useful for reducing tax by adopting what shelters are left. For the little guy and, naturally, woman.

Thus far, the Personal Tax Account precludes any third party intervention.

Beancounters not needed: it will all magically be achieved by uber-smart cloud-based software.

Roll On The Floor Larfing my little legs off and clutching my stomach!

(P.S. I have been hearing this nonsense since 1966 and my involvement with IBM System 360 Digital Mainframes and Systems Analysts who clearly believed in fairies... I am still waiting).

Thanks (0)
avatar
By DMBAcc
to JAADAMS
22nd Apr 2017 15:39

JAADAMS wrote:

Well bully for you KentAccountant! Your mix of clients is obviously different from the majority of accountants who have commented onsite on MTD so far. You obviously have the larger clients who understand what a computer is. Some of mine wouldn't even know how to turn one on and only a couple use a computerised bookkeeping system. Only a few are VAT registered. Its going to be hell for me and many other accountants. And I dont like being called 'traditional' and 'older generation'. I will have a lot of work to do getting clients to understand what is going on.


Dear JA Adams. Exactly my point for the last two years. If this brave new world is so fantastic then make it optional not mandatory. Sadly I will have to give up my 60 clients. I have no staff and I have no way of helping 60 clients in a 22 day window every quarter. Where they will go I know not. If they can find someone I expect many to give up their business because they will neither have the time nor the profits to pay for the exorbitant fees coming their way. Still no one is answering my basic question related to seasonal businesses nor the extreme poverty here in Cornwall where residents have to be self employed because there is little employed work. We have 6 tory MPs. Guess where their loyalties lie.
Thanks (4)
avatar
21st Apr 2017 10:42

"Rob Nixon has been advising accountants all over the world for the past 23 years. He has met over 170,000 accountants from 30 countries. He has coached 800 to success. He is the author of 2...".

I do wonder when where and how he promoted the time to actually process client's accounts, file the resultants and additionally comprehend systems...

"Do not kid yourself about the workload ahead. Right now accountants are spending approximately 80% of their day checking and processing data.".

Then clearly they are not actually practising as Accountants!

Where's the time for Tax Planning? Where's the time for client meetings? Where's the time for strategic advice?

Sorry; but to me this article smacks of vainglorious self aggrandisement and pompous arrogance: rather than enjoying any cogent and apposite value to UK accountants faced by the largest single paradigm shift in tax management and record keeping.

Final comment: both Australia and NZ have had many years to manage this transition: NZ particularly in 1986 would NOT have had a wide user-base of dedicated PC systems and web access. Look at the timeline, here.

Even by the time Australia rolled out its version (2,000) the dot bomb fiasco was in process and the web-centric software and systems dynamic was young.

Little benefit or comfort to UK practitioners in this, I'm afraid and it is rather like trying to compare chalk and cheese...

Thanks (9)
22nd Apr 2017 18:51

What I take from this article is that HMRC were clearly inspired by the Australian and NZ experiences when planning MTD.

Rob explains that the antipodeans managed the transition in a period before they had cloud computing or sophisticated software solutions. Taking that at face value suggests that UK accountants and clients will also make the transition - possibly faster than the 5 years to which Rob refers.

Thanks (0)
avatar
to bookmarklee
23rd Apr 2017 16:37

@ bookmarklee

Nice idea; however, we nor our clients do not enjoy a five year grace period; just in case you have missed it, we now have less than One Year!

Now, just in case you also missed Rebecca Cave's invaluable analysis of the new finance act...

"Estimated figures:

New TMA 1970 schedule 1A, para 13(6) which concerns digital record keeping and reporting says that information provided in the updates and in the end of period return must meet standards of accuracy and completeness specified by HMRC, and failure to meet those standards will be treated as a failure to comply with regulations. In other words; providing estimated figures will not be acceptable.

Penalties:

A penalty of up to £3,000 may be imposed for not keeping electronic records and preserving those electronic records for a specified period (New TMA 1070 Sch1A para 12(4))".

Thus 5 X £3,000=£15,000: potentially.

Thus far we know absolutely zip concerning agents' access to clients' Online Tax Accounts. We also know zip about precisely what the quarterly statements will need to ensure compliance.

Furthermore, we know zip about which "Digital records" in themselves would be considered compliant by HMRC.

In essence, therefore, our task is to:

1. Educate clients to prep their records weekly: deliver same to us, weekly: Some [***] hope!

2. Ensure clients have all apart from running their business, making a profit and feeding their wives and kids, applied themselves to become qualified bookkeepers and then become expert at whichever accounts suite is suitable.

3. Meantime, all we have to do is firstly assuage our client's incredulity when we advise them of their substantial fee rises and retain them; and,

4. Recruit, house and pay for experienced computerised bookkeepers who really do know what they are doing.

A mere bagatelle, then.......

Thanks (0)
avatar
to bookmarklee
26th Apr 2017 14:59

Lets hope they take inspiration from Australia then:

A brief look at the Aussie tax office website indicates only businesses registered for Good Service tax ( Annual t/o of AUS $75k) are required to send quarterly updates.

Additionally the accounting records can be kept electronically or on paper.

Thanks (1)
avatar
22nd Apr 2017 19:26

In my personal experience, the likelihood of material errors is directly proportional to the level of cloud accounting being used by a client.

Accounts that are miles away from bank statements, butchered VAT returns, payroll muck-ups, the list is blooming endless.

So in terms of efficiency and accuracy, rule number 1 has got to be:

"Avoid clients who are already on the cloud, clicking and posting everything willie nilly from their mobile phones."

Thanks (5)
avatar
24th Apr 2017 12:31

Reading that just depresses me. Smug Kent accountant also does not help.

All my clients are on software and many on cloud. That is not the issue. The issue is who is driving it and how good is the data captured.

I still fail to see why there should be 4 submissions in a year. If its about payment then use POA based on LY. If its about record keeping then HMRC should first get their own house in order.

They are becoming a dictatorship and as greedy as bankers with their ridiculously high penalty regime.

And I am not interested what NZ or AUS did in the dark ages when PC's still use floppies or the advanced stiffies.

Thanks (1)
24th Apr 2017 16:16

I'm traditional, so I'm just going to wait and see. Not so much head in the sand as just can't be arsed worrying about it.

Thanks (2)
to Red Leader
24th Apr 2017 18:47

CBA isn't such a bad approach when its still not clear when or what will be needed.

I have a contractor client who was working on the MTD project for HMRC. He along with around 70% of all contractors working on the project left when they were told come 6 April they would be deemed to fall inside of IR35.

When it does come along I'll (still) be happy that I've been steadily moving clients onto cloud software.

@Mr Mischief - its all about client training and management. Get them doing it right early on and its very easy to keep on top of everything when (up to date) information is available 24/7.

Thanks (0)
avatar
25th Apr 2017 13:07

I agree Kent accountant.

All my cloud clients came to me already on the cloud, scanning clicking and posting just like those glossy adverts tell them to.

In my view all of the cloud products my clients have use have fundamental weaknesses which prevent me from recommending them, given that the product I use to produce accounts - VT - does not exhibit those weaknesses and is at the same time 3 or 4 times faster for processing year-end journals.

Thanks (0)