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Cloud bookkeeping and VAT

Cloud bookkeeping and VAT - how has technology changed your service delivery and pricing model?

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Like many small practices, as part of providing a 'total' service for clients we will provide some more basic services outside of the core year-end compliance work.

Traditionally, providing the basic accounting/VAT service for clients on desktop software, be it Sage or VT or something else, the definition of the service and the pricing of it was relatively simple. You would get a big delivery of paperwork and you or your colleague would load the invoices onto the the client's accounting system, sit with their bank statements, posting and reconciling and there would be a clear delivery output at the end of the month/quarter.

As communications improved the wad of paperwork might be sent via email or Dropbox or similar, but the service requirement was essentially the same. We have quite a few laggards where this is still the routine.

With cloud things have changed dramatically - the client generates their sales invoices from the system, the client uploads the bank statement, so it already reconciles (save for cock-ups) and all there is left to do, largely, is tagging and a review of input VAT on debateable transactions.

Friends, this brings me to ask what your ideas are on defining the service you provide in these circumstances and what method you use to price it? What we do seems to be more amorphous and, whatever the fee, increasingly difficult to justify.

 

 

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By Matrix
30th Mar 2019 12:52

The client is paying for our expertise, to spot if an item should be capitalised, VAT claimed or charged, reverse charge VAT, deductibility of expenses, private use, BIK, tax planning, extraction of profits, moving salary to an expense account from a BS account etc. All of this before we prepare the tax return and financial statements.

Don’t underestimate our expertise. I probably have only one client where I don’t have to make any changes to the bookkeeping/VAT return but there are probably 5-6 queries on bookings/VAT per quarter so he books transactions correctly in the first place. While the fees have not gone up in 4 years, they have not gone down since there is a fair bit of work providing ongoing advice.

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Replying to Matrix:
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By andy.partridge
30th Mar 2019 13:11

Let me delve a little more deeply.

Are you saying that a client, for whom we operated a 'traditional service' and swaps to 'cloud' which reduces the resource we need to commit, would continue to pay the same fee as before?

For me, this is the nub of the issue.

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Replying to andy.partridge:
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By Matrix
30th Mar 2019 13:20

No they were always on the cloud so probably a bad example. However my point is that, while I don't have to do the corrections that I have to do with other cloud users, I have to login to advise regularly.

Clients who are on cloud get much more support during the year since I can advise on tax planning, raising invoices, bookings etc. whereas those where I only see their records once a year miss out. Although I have had to prepare draft P&Ls for these to do year end tax planning recently so the cloud users' fees should not go down, the non-cloud users' fees should go up.

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By SXGuy
30th Mar 2019 12:53

That's great in principle, but most clients of mine can just about make an invoice in word. So I'm still manually inputting everything. However, those who can do more, get a reduced rate as I do less.

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Glenn Martin
By Glenn Martin
01st Apr 2019 00:25

A good post Andy.

For me I have not had clients expecting fee reductions when moving on to software despite their involvement in it. They see it as a better way of working than dropping a box of crap out once per year so although get involved more now they don't have their hands out for reductions.

If you are picking up the subscriptions each job will have a £300 software overhead on them now which offsets some of the labour saved.

As you have more access to info you can do a better job and have more contact etc look forward advising on future tax liabilities, pensions etc. Bringing in things like GoCardless help people get paid better so its presenting a tangible benefit so should not increase fee pressure.

I was at training sesh with the Gap people from New Zealand 2 weeks ago. They have already been through the digital tax thing 5/6 years ago and they said that fees did not go down as a result of the automation but have stayed static for 5 years, so I guess you must maintain your margin as the client gets better year on year and you can make savings on the job by spending less time on it.

This new found time you will have, either allows you to service more clients on a compliance level or do more work for existing clients.

Some people don't like the Gold, Silver, Bronze type approach but I think it works, I have managed to get a lot of extras onto jobs that where taken on at compliance level, then have gone on to pick extra services.

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blue sheep
By Nigel Henshaw
01st Apr 2019 07:31

Sticking to your question regarding pricing methods and services offered rather than going into the actual working practices and benefits to us.
There is a difference here between a new client and an existing client moving onto cloud.
With a few years experience I can generally tell what is going to be involved with a new prospect from the type of trade and the type of individual and we have fixed monthly fees that cover everything, yes occasionally that will mean that we spend a few hours more on a new client at the start than we would like to but it always evens out in the end.
Very occasionally I will give a guide price and tell them we will have to review once we actually get into the records but that is rare.
With an existing client some fees had to go up but they were all clients who were historically on too low a fee anyway and we were not willing to carry on with such a low fee. For most of the others moving them over to new technology has made our life easier and so we have been happy to leave fees where they are apart from a small increase due to subscription costs.
The client relies on us to tell them what they should be doing, I have never had a client in this situation who expected a fee to be lower, if anything they expect it to be higher, I guess it all depends on how it is put to them - show them the extra benefits of doing things in realtime for example, or show them how easy it is to raise a sales invoice instead of using word or excel, or how much more quickly we can tell them how much the tax bill is

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ALISK
By atleastisoundknowledgable...
01st Apr 2019 09:28

Existing clients who were on Excel / desktop, I tend to charge the same now that they’re on the cloud.

New YE only clients on the cloud, I tend to charge about the same as a desktop client 5yra ago.

New monthly/quarterly cloud I charge I guess lower than I would have done on desktop, but no set %/£ drop, just a new gut feeling. Bkpg fees are much lower - I bet them to email into Xero/use AE & have bank feeds. (Should) Makes it a doddle.

When I started 5 yrs ago, my pricing was all based on what it had been at my previous firms, using Sage desktop. In the last few years my mindset & target client has changed dramatically. I still have the odd Excel client and Sage desktop client. The Excel jobs tend to be tiny, so are a reduction on xero jobs, the Sage jobs tend to have a fee uplift of 20-30%. Has to be said, this is partly because most of the staff have never seen Sage before!

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By ireallyshouldknowthisbut
01st Apr 2019 14:06

We have never really done "bookkeeping heavy" type clients in the first place, but my general pricing is:

1. Tax (inc VAT) and year end. This includes and element of sorting out entries, but assumes good basic records.

2. Bookkeeping as a separate item

The bookkeeping might well go down with cloud, and to an extent the year end (eg bank rec tends to be much easier vs excel, albeit our excel templates are extended bank statements anyhow) but the most expensive bit is the advice.

I definitely notice the extra time spent on SAGE clients vs cloud, just in the way you have to work with them. Eg you cant post journals on the fly and then amend them, you have to work separately with much more formal working papers, and bring it back in. In cloud you can "do the year end" direct into the system with much less in the way of working papers, especially for small clients, and simply attach your workings to the adjustments, and download the final GL into an excel workbook 'just incase', along with any other workings.

For a small Ltd co, I have found we do much more in the same time than 10 years ago through a number of small incremental improvements, and some legislative changes (eg filleted accounts), and thus I have had no real fee pressure, and many clients has had the same fees for 5 or even 10 years as both we have got quicker, and the client has got slicker and makes fewer errors.

This is in contrasts with personal tax which has got so much harder in the past 5 years, and our fees have gone up by around 30%, and in some cases 100% (higher rate tax payers, up from £100+VAT to £200+VAT minimum)

My general note on the local market is larger firms who put up prices by RPI each year and give indifferent services are collapsing, and we are seeing more and more 1 or 2 person set ups. This means despite not putting our core fees up for some time for ltd co's, over which time inflation has been 20%+ we don't get so much chance to undercut the old school firms, as my competition is now "other me's" as opposed to my offering being different. Ie professional service*, but from a small outfit.

*yes laugh it up on that one

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By indomitable
02nd Apr 2019 12:20

At the moment as has been mentioned by someone else we quote tax & accounting compliance separately from bookkeeping.

We are finding though a lot of downward pressure on pricing as some accountants are prepared to work for very little fees, (not sure about the quality of their work though).

The explosion of cloud software and the unregulated nature of the accounting market will mean, I fear that in the future certainly bookkeeping and accounting compliance may not be worth doing for SME's.

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Mark Lee 2017
By Mark Lee
02nd Apr 2019 15:01

Here's some related thoughts:

I've long advised start up practices to set their fees regardless of whether they are based at home or in a rented office. Those who start with low fees struggle to charge more when their costs increase due to rented office space.
- Clients don't care about your cost base. They simply want what they want. That may be accounts and tax returns or more.

When you start out it probably takes longer to do things the first few times until you get the hang of it and develop processes and systems. Do clients pay more when it takes you longer or more when you get more experienced?
- Clients don't care how long it takes you to do what they want. They just want the output. They don't want to pay more when things take longer. Hey, they don't want to pay more when you have to do things in a rush to beat deadlines either.

The big challenge here is that many accountants have been giving away 'extras' and are focused on how long the work takes to deliver for clients.

This goes back to the way things were when I started in practice. I thought I was selling my time. What I didn't realise was that...
...Clients don't care how long it takes you to do what they want. They just want the output.

Many years ago, the Inland Revenue, as it was, required taxpayers to supply fully detailed lists of all dividends received. Even before the SA system started this requirement for detailed lists was lifted. One experienced accountant I knew was in uproar and demanded we complain. He charged his clients lots of money for preparing those lists and if they were no longer required he felt he would need to reduce his fees.
- His clients didn't care about the lists. The mistake he had made was to justify his fees by how long it took him to do stuff that was no longer going to be required.

The sooner we are able to highlight and effectively promote the value of the services we provide to clients, the sooner we'll stop worrying about how quickly we can do things - compared to pre-cloud times.

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Replying to bookmarklee:
blue sheep
By Nigel Henshaw
02nd Apr 2019 15:43

I actually agree with most of what you say Mark for a change ;) however when there is constant pressure on fees we do have to worry about how long things take, I am charging the same now as I was 15 years ago, that is not because I do not value what I do, it is because a) I know that I am charging the market rate and b) it now takes me slightly less time to do what I did 15 years ago and so I can work for more people.
I agree the client doesn't give a monkeys how long the job takes but I do

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