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MTD and the shoe box client

MTD and the shoebox client

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I am really concerned for many of my clients ... the typical example is the hairdresser (say) earning £20000 takings...they keep a manual record to date.... MTD will commence in 2 years and I envisage it going one of two ways...

a) we as accountants will be absolutely swamped with many practioners retiring and the job will become ridiculously harder...

b) Clients will begin to file quarterly and we will state that we can't cope so they begin to file garbage and then conclude we are no longer needed and then the enquiries will commence at some point down the line...

Either way I cannot see a great outcome... I kind of think that with HMRC now removing the agent priority line already we as accountants are  gradually being phased out by HMRC.

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boxfile
By spilly
25th Mar 2021 22:32

Ah, but they should all be using those software apps on their phones. You know, the ones where you scan in everything and it categorises stuff automatically in the wrong place as it doesn’t understand the business that is using it. Then it’ll be a quick tap to send it all to HMRC not to look at, even if the figures are really odd.
I maybe being a bit harsh here as some clients do manage to use it well, but others never check anything once they’ve done the scanning.
Heaven help the clients that still use manual books - we have one still using a full ledger system!

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Replying to spilly:
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By DaveyJonesLocker
25th Mar 2021 23:41

No you're not too harsh. Only difference now is we get an electronic version of screwed up receipts. Still a tangled web

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Replying to spilly:
By K81
26th Mar 2021 08:48

yes indeed, I have two clients that use a massive ledger they bring in each year & we photocopy the pages & work from that but - MTD !

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By Paul Crowley
25th Mar 2021 22:39

I predict fees need to be doubled for all rent and small sole traders.
The time used will mean I have to slim down the small client portfolio. No idea where they will go.
Or just file rubbish 4 times and do once a year as normal
But even the 4 rubbish means more time

Rent agents will take up some slack as they already report anyway

But there is a train crash coming
Feels a bit like the end of the terminator film

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
26th Mar 2021 08:47

I predict many of the s/e will incorporate as a quick fix; not least because the FRS105 accounts fees will likely be cheaper than those for MTD s/e.

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
26th Mar 2021 09:25

I have already suggested to partner that companies better for decent sized self employed

But for a simple subcontractor or the small trade by the retired just topping up pension the company is a lot extra to understand

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
26th Mar 2021 11:24

On the plus side they get to keep their shoe-boxes for an extra few years :)

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Replying to I'msorryIhaven'taclue:
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By eppingaccountant
29th Mar 2021 10:39

I don't follow your point here. MTD will apply to corporate clients as well.

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Replying to eppingaccountant:
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By Paul Crowley
30th Mar 2021 15:54

Not as quickly

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By eppingaccountant
30th Mar 2021 21:18

6 April 2023 for sole traders, rental income AND Limited companies so far as I am aware.

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Replying to eppingaccountant:
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By lionofludesch
30th Mar 2021 21:33

eppingaccountant wrote:

6 April 2023 for sole traders, rental income AND Limited companies so far as I am aware.

Check your sources.

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By SXGuy
26th Mar 2021 06:43

Quite possible these hair dressers will suddenly see a drop in income below 10k

But on a serious note. We're all with you. No idea how it will work for those types of clients, but one thing for sure, I won't be charging the same fee to do the work 5 times a year no matter how small that shoe box is.

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ghm
By TaxTeddy
26th Mar 2021 08:12

I think there are two issues here -

- how will this type of client cope with MTD and
- how will we as practitioners cope with this type of client.

The second issue is of course down to us as individuals and we either are able to embrace 'shoebox' clients under MTD, or not - so that's a question we will be asking ourselves over the next couple of years.

But will the shoebox clients adapt to MTD? Probably not and so things will become messy and there is a cost involved in that to put it right. So what I won't be doing is shouldering the problems of all of my clients.

While I have great sympathy with clients who can't or won't cope with MTD, I can't solve their problems for them. All I can do is make a suggestion of the way they should work (retaining a bookkeeper or even keeping spreadsheets) and they will either embrace this or not. That's their choice.

It's human nature to be resistant to change and inevitably there will be clients who will be moaning about the new system but unfortunately we are all stuck with it and so I can't spend a disproportionate amount of time bailing out the clients who refuse to engage. I realise that sounds harsh but I have limited time and resources available and too much time spent with hand holding hopeless clients impacts on the clients who are doing their best to work with me under MTD.

I realise there are many practitioners who won't agree with me but I make no excuses for making my own business, and by extension my family, my first priority.

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By johnhemming
26th Mar 2021 08:33

Initially the quarterly submissions will be a bit erratic, but HMRC are looking many years down the track for more real time tax payments.

They also have a facility for an end of tax year accountancy type adjustment. Hence what I would expect is the quarterly figures get put in and then the end of year adjustment deals with the errors.

I am not sure,but I think the formal requirement for a digital audit trail does not exist as yet for the adjustment. That is somewhat illogical, however, and will probably change at some stage.

Generally the digital audit trail is required for all of the quarterly submissions, but none of the annual ones.

I have built it into my code because I like to be future proof.

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Replying to johnhemming:
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By Paul Crowley
26th Mar 2021 09:49

'Initially the quarterly submissions will be a bit erratic, but HMRC are looking many years down the track for more real time tax payments.'

Pointless pipedream. Will not happen in my lifetime.
That needs quarterly capital allowances on trades and realistic interest certificates for rent(different to payments made)
No way could HMRC figure out quarterly actual real tax from three MTDs (2 rent and one trade using 30 April year end) and have a meaningful result.

No software can calculate tax quarterly as tax is organised by tax year, and accounts years are not necessarily the same
Tax is calculated by all annual income and allowances not variable Quarterly figures. once a year income on a dividend would mean every calculation was compromised
It is just not viable to be accurate

If they want money earlier the payment on account system already exists.
Big companies already have speeded up early payments
Far more sensible to try on companies and CT rather than income tax

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Replying to Paul Crowley:
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By Paul Crowley
26th Mar 2021 12:53
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Replying to Paul Crowley:
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By johnhemming
26th Mar 2021 17:50

Paul Crowley wrote:

https://www.accountingweb.co.uk/tax/hmrc-policy/accelerating-tax-payment...

coincidence?


Its not a coincidence. I had read about this. I have also had discussions with HMRC from which I can understand the potential direction of travel.
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Replying to johnhemming:
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By Paul Crowley
29th Mar 2021 10:53

HMRC are on the wrong train
They really should ask the porter
Does this train go to practical awareness ville

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By bernard michael
26th Mar 2021 09:32

This will lead to a massive increase in the black economy

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Replying to bernard michael:
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By Open all hours
26th Mar 2021 12:16

Whilst at the same time closing the tax gap. (Assuming they are still using that lame argument). Still, new research, hinted at on Tax Day, has been carried out which shows the benefits... Its so exciting they're making us wait till they've finished making it up before telling us exactly what it is.

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By bernard michael
26th Mar 2021 09:53

If HMRC want regular money the easy way would be a fixed tax on turnover based on industry averages with appropriate % rate levels. No relief for costs

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Replying to bernard michael:
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By memyself-eye
26th Mar 2021 10:19

How do you have an industry average in say the pub trade?
Or any trade come to think of it.

5 days to go.......

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Replying to memyself-eye:
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By bernard michael
26th Mar 2021 10:30

HMRC computer systems have them and apply them in tax investigations

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Replying to bernard michael:
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By Hugo Fair
26th Mar 2021 10:41

Yes - but only as an indicator that it might be worth a closer look, NOT as a final decision tool.
If you applied the same logic in the medical world, then any AI suggesting possible diagnoses could move seamlessly (i.e. without human intervention) to automated surgery!

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Replying to Hugo Fair:
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By bernard michael
26th Mar 2021 10:58

Hugo Fair wrote:

Yes - but only as an indicator that it might be worth a closer look, NOT as a final decision tool.
If you applied the same logic in the medical world, then any AI suggesting possible diagnoses could move seamlessly (i.e. without human intervention) to automated surgery!


I'm not suggesting it's sensible just the sort of thing HMRC would do
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By Duggimon
26th Mar 2021 10:34

Wait and see, you're all overreacting.

There was the same hoohaa about MTD for VAT and it's fine, it barely created any more work for us in the end, with the exception of a few clients we moved early to cloud based bookkeeping based on what HMRC said MTD was going to be like, then when we found out what it was actually like we realised it was completely unnecessary.

MTD for self employed might be satisfied by filing 1/4 of last years figures and an adjusting entry at the end, you don't know that it won't, so stop panicking.

HMRC won't listen to what anyone tells them anyway so there is literally nothing you can do about it, you have no idea what the system will be like, no idea which clients will end up inside it, and no chance of influencing things at all, so why bother?

I am aware a voluntary version exists, but the system will have to change a lot before they can make it mandatory for everyone, I won't do anything other than mention it to clients and tell them we're waiting to find out the requirements. We got bitten once by jumping early and I have less than zero faith in HMRC being able to do any better this time.

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Replying to Duggimon:
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By bernard michael
26th Mar 2021 11:03

The problem is going to be moving non Digital clients onto Digital methods involving suggesting systems,training hand holding and probably end up doing the extra work anyway. BUT there aren't enough of us to cover the extra time thereby hangs the difficulty, which is why I think a flat % rate scheme will ensue

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Replying to bernard michael:
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By Homeworker
29th Mar 2021 11:00

bernard michael wrote:

The problem is going to be moving non Digital clients onto Digital methods involving suggesting systems,training hand holding and probably end up doing the extra work anyway. BUT there aren't enough of us to cover the extra time thereby hangs the difficulty, which is why I think a flat % rate scheme will ensue


I don't go with the flat % rate but it IS possible with some clients at least to get them on to suitable software. We managed several years ago to get a salon-owing hairdresser who had never owned a business before and had nil computer experience to keep simple bookkeeping records on computer. It helps that the income is all cash basis and nearly all expenses are too, so very few adjustments needed. BUT it took us hours to train her and we still have to deal with regular queries and check everything each quarter (she is within MTD) before we file the returns. She is happy to pay but we are a small family business and I do not charge her what a bigger practice would need to charge.
I am far more concerned about the landlords, especially the older ones, very few of whom keep proper records but just tell us once a year what they have received and paid and expect us to pull it all together. Yes, letting agents are starting to produce annual statements (for a large fee) but they are not reliable and often do not include insurance or other expenses paid personally and certainly not mortgage interest, though as that will no longer be an expense as such I suppose that is irrelevant.
There is no way that we, as a small practice, can cope with quarterly returns for everyone, especially in the year of changeover, when we will also have the previous year's accounts and returns to deal with, so I am passing most of our clients on to someone else and just keeping the pensioners!
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Replying to bernard michael:
By Duggimon
29th Mar 2021 12:26

bernard michael wrote:

The problem is going to be moving non Digital clients onto Digital methods involving suggesting systems,training hand holding and probably end up doing the extra work anyway.

This is exactly what I'm talking about though, you don't know yet how digital these digital systems will have to be, wait until the rules are specified.

I'm not busting a gut to get dozens of pen and paper clients on to Xero or Sage only to find out I can get their books in every three months like a VAT return, dump it all on a spreadsheet and file it once the thing goes live. Or possibly something even simpler.

There is no point in jumping the gun and putting in huge changes for people now for a change that isn't proposed to start until 2023 - that's if it isn't pushed back, which is very likely - and for which you are only guessing what changes are required.

I have no faith in HMRC delivering in 2023 exactly what they say it will be now, and they haven't exactly been detailed on it so far, so don't guess what might be coming, wait until it comes and sort things out then.

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Replying to Duggimon:
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By Paul Crowley
26th Mar 2021 11:07

I agree on the VAT MTD
Difference was that quarterly reporting already existed was purposeful and accurate.
Only real change was delivery, in the end
MTD ITSA is pointless, not purposeful and not even close to a stab in the dark and will be just unused data

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Replying to Paul Crowley:
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By Hugo Fair
26th Mar 2021 11:52

Exactly.
The proposed MTD ITSA is about as feasible as if HMRC were suddenly to announce that RTI must be reported each week (possibly with payment of tax/nics/etc at the same time) even though most people are paid monthly ... but don't worry because you can adjust the interim figures every month!
It's the combination of the frequency and the increased (not decreased) likelihood of 'inaccurate' figures being reported that are the Achilles' heel of this plan.

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Replying to Hugo Fair:
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By Paul Crowley
26th Mar 2021 13:03

Good simile
It would be equal stupidity
Pointless non productive work for every tax payer and HMRC doing a flat zero (no change there) with the possible and very likely only issue of HMRC doing their usual breach of GDPR and data protection on a more regular basis and with so much more sensitive data
HMRC cannot even get PAYE right and they have had years to try and learn the rules

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A Putey FACA
By Arthur Putey
26th Mar 2021 12:18

My solution to shoebox clients is to as a minimum demand they set up a bank feed to cloud accounting, then when they send in all their carp I only need to locate the receipts where there is a query. Most of them I can tell from the supplier what it is. Cash coding on Xero is good for this.

And I also tell them that photos of crumpled receipts on a formica table taken at a jaunty angle in poor light are not acceptable. Emailing proper scans as pdfs is.

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By adam.arca
26th Mar 2021 13:16

mikeyban wrote:

MTD will commence in 2 years and I envisage it going one of two ways...

a) we as accountants will be absolutely swamped with many practioners retiring and the job will become ridiculously harder...

b) Clients will begin to file quarterly and we will state that we can't cope so they begin to file garbage and then conclude we are no longer needed and then the enquiries will commence at some point down the line...

Decision already made here, I'm going with option b) and would urge everybody else to do so too.

I'm lucky in that we do very little bookkeeping on the whole in my practice and I would very much like to keep it that way as far as humanly possible. But even for practices which emphasise the bookkeeping side of things more and feel they have to stick with it, you've got to look at the worst case scenario which MTD *might* produce and consider that you're unlikely to be able to cope even with adaptation to the way you work and throwing work back at the client.

So, yes, MTD could well create extra, unwanted work in the longer run but I'll try to minimise. It will also create extra, one-off work in the transition whilst clients are set up to run on [Emperor's New Clothes]-friendly terms and that's going to be unavoidable for every accountant in practice who isn't and doesn't want to be 100% rubbish cloud software.

But what I'm hoping (at least until we know more, probably the day before it goes live) is that the fifth submissions which we are going to make will effectively be fed by a process broadly in line with what we already do at year end (summaries, reanalysis, journals etc) and won't involve us going into thousands of individual transactions to edit them.

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Replying to adam.arca:
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By bernard michael
26th Mar 2021 13:30

adam.arca wrote:

mikeyban wrote:

MTD will commence in 2 years and I envisage it going one of two ways...

a) we as accountants will be absolutely swamped with many practioners retiring and the job will become ridiculously harder...

b) Clients will begin to file quarterly and we will state that we can't cope so they begin to file garbage and then conclude we are no longer needed and then the enquiries will commence at some point down the line...

Decision already made here, I'm going with option b) and would urge everybody else to do so too.

I'm lucky in that we do very little bookkeeping on the whole in my practice and I would very much like to keep it that way as far as humanly possible. But even for practices which emphasise the bookkeeping side of things more and feel they have to stick with it, you've got to look at the worst case scenario which MTD *might* produce and consider that you're unlikely to be able to cope even with adaptation to the way you work and throwing work back at the client.

So, yes, MTD could well create extra, unwanted work in the longer run but I'll try to minimise. It will also create extra, one-off work in the transition whilst clients are set up to run on [Emperor's New Clothes]-friendly terms and that's going to be unavoidable for every accountant in practice who isn't and doesn't want to be 100% rubbish cloud software.

But what I'm hoping (at least until we know more, probably the day before it goes live) is that the fifth submissions which we are going to make will effectively be fed by a process broadly in line with what we already do at year end (summaries, reanalysis, journals etc) and won't involve us going into thousands of individual transactions to edit them.


What is going to happen to the clients who cannot/will not go digital if we cannot cope with the extra workload
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Replying to bernard michael:
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By adam.arca
26th Mar 2021 14:04

bernard michael wrote:
What is going to happen to the clients who cannot/will not go digital if we cannot cope with the extra workload

Well, I always to help my clients, particularly the nicer / older ones, but ultimately clients who won't help themselves are going to be cast adrift.

I'll be willing to meet clients I know are going to struggle (and who don't meet the exemption above) halfway but that's as far as I'm going: they're going to have to suffer some of the pain as well.

And new clients will have no chance of getting that deal. They're going to have to face upto the Brave New World and I'll be making sure they know exactly who's to blame for it. Unfortunately for me, if other accountants go the other way and decide to carry on with the [***]-wiping service, that will likely weaken my negotiating position.

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By legerman
26th Mar 2021 13:22

For shoebox clients all they need to do is invest in 4 more shoeboxes!

Rather than keying in all the data at one go, we do it once a quarter, then the year end stuff as normal, with the added bonus that all the majority of the info will all ready be recorded. So little difference to the amount of work involved, and should make it easier once we get used to it. Just think, no more January mad rushes.

The crucial key will be getting the clients to have their records ready to give us at the end of the quarter, rather than last minute. That will be a bigger hurdle to climb but that's down to the client, not us.

For VAT reg clients it should be even easier, just align to the same periods and use the same data.

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Replying to legerman:
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By DaveyJonesLocker
29th Mar 2021 11:43

That idea doesn't work though. At the minute you get between April and January to complete all your clients' accounts. With MTD you'd have to complete quarterly accounts for every single client all at once.

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By mikeyban
26th Mar 2021 14:44

The problem is that I have been in practice for nearly 30 years and some of my shoe box clients have been with me from when I commenced trading... most of these client’s are excellent trades people but some are not academic and computers scare the living daylights out of them....

In reality we all have these people.... how are we in reality going to sort these out?

My day is so full now that I am sneaking the odd hour early in the day... pinching a bit off the lunch hour and nicking the odd hour in the evening....

Filing 4 times a year for people I have looked after for many years and are in incapable with the best will in the world to undertake these functions is going to be impossible.

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By michaelbeaver
26th Mar 2021 17:01

We're already starting to look at this even though implementation (if it even goes ahead in its current form) is still two years away.

Once we cleared last year's SA returns, we ran some data to determine the population of clients who will fall into this new regime.

The good news is that it wasn't as many as we thought (average office bet was c. 450 clients). The bad news is that it's still quite a lot (c. 290 clients).

We did discuss encouraging clients to incorporate, but running a company as a director is more complicated than being a sole trader so pushing that complexity onto clients who may not be equipped to deal with it may not be fair of us to do. The DLAs alone will be a nightmare. Incorporating would only be temporary relief anyway.

The other issue is that 95% of them have 31 March or 5 April year ends, so will all be in the same month of the three month cycle.

We have thought about moving the year ends for some clients back by a month, or two to spread them out better, but this feels like a silly thing to do just to make it more convenient for the accountant's office with no commercial justification for their own business.

Don't have any good ideas on this yet. Resourcing up may not be an answer if the new staff are busy only for one month out of three.

We plan to start communicating with clients 1 year out from implementation, and they will be told:

1. No more shoe boxes. Unless the client is digitally excluded (we have one client who is 102 years old who does not have a computer or mobile phone)

2. They must summarise their information for us and it must be delivered by the 10th of the month following the quarter end.

3. Prices are going up. A lot.

4. If they want to use cloud accountancy, we'll help them get set up but they must actually use it.

5. If they want to rely on us using their bank accounts, it must be a separate bank account for their business, completely separate from their personal use bank account. Many clients put everything through their own account as they don't want to pay the £5 per month or whatever.

We are hoping that this will thin out some clients, we'll kick others out, but the increased revenue will keep us at an acceptable level of profit.

We'll also be scanning the software market for good software that we think our clients may be able to use easily and won't object to the pricing of. A lot of the clients that will fall under MTD are tradespeople who are great at fixing your roof, but not so hot on IT.

The other problem

It's going to be an interesting couple of years.

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Replying to michaelbeaver:
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By mikeyban
26th Mar 2021 17:26

Michael

Thank you... I found your comments very sensible and an interesting approach

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Replying to michaelbeaver:
By michaelbeaver
26th Mar 2021 17:43

I also left a hanging "The other problem...". I don't remember what I was going to write. End of tax year and all that.

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Replying to michaelbeaver:
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By lh3f9764bg1g
29th Mar 2021 10:40

Would it be a good idea to move all of the 5th April year ends to 31st March this year or next? Can anybody see any negatives to doing that?

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Replying to lh3f9764bg1g:
By michaelbeaver
29th Mar 2021 12:59

As the tax year runs to 5 April, there would be no difference between 31 March and 5 April year ends for reporting deadlines, is my understanding.

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Replying to michaelbeaver:
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By Moo
30th Mar 2021 11:22

This approach sounds sensible and workable to me.
I wouldn't dismiss the option of resourcing up on staff as there may well be accountants (some on this forum) who are nearing retirement and do not want to carry on and face MTD in their own practice but would welcome the opportunity to work 1 month in 3 on a temp or part time basis for someone else to make a bit of money to supplement the pension. Now many of us are equipped to work from home that should be possible without increasing your office costs.

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By C.Y.Nical
29th Mar 2021 11:29

I am on the cusp of becoming elderly (70 this year), married. We will be within MTD because we have 4 directly-owned residential properties which, despite keeping rents low, just creep over the £10k per person gross income threshold. I also have director's fees (minimal), and between us we have 3 small private pensions and the state pensions, plus some dividends, so I have to do Self-Assessments each year.
I am reconciled to keeping records up to date on a spreadsheet and effectively submitting 5 tax returns but I am not willing to spend money on new software or time on learning it. And our scanner has broken and is not going to be replaced.
What sort of fee do people think I will have to budget for sending our information to an accountant as a spreadsheet plus pdfs of invoices taken on my phone so that our information can be somehow got into HMRC's system on our behalf?
I am asking because we are considering an alternative which would be to sell one of the properties to keep us under the £10k limit, and just spending the capital as if it were income. This might have IHT advantages too. We don't want to tell any of our tenants they need to find a new home (and of course at the moment we can't do it anyway) but we are thinking about this. If we do want to get out of MTD that way we need to be quick because s22 is likely to disappear and all our tenants are good so we would lose our only ground for getting vacant possession.

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Replying to C.Y.Nical:
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By johnhemming
29th Mar 2021 16:55

If you look at HMRC's list of software suppliers there are three companies that offer free software for smaller turnovers.

https://www.gov.uk/guidance/find-software-thats-compatible-with-making-t...

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Replying to johnhemming:
Morph
By kevinringer
29th Mar 2021 17:12

It isn't the cost of the software that is the problem, it is the cost of the time to (a) client learn the software (b) client input the transactions (c) accountant learn the software (d) accountant fix the mess the client made of the transactions. In other words, it is the cost of digitising the transactions. I've digitised businesses of different sizes with owners of different abilities and I've found the smaller the businesses, the greater the proportional cost of digitisation. And the smaller the businesses, the smaller the benefit to the business of digitisation.

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Replying to kevinringer:
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By johnhemming
29th Mar 2021 18:26

This, however, comes round to the discussion about the merits of having a digital audit trail.

Different people have different views on this.

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Replying to C.Y.Nical:
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By lionofludesch
30th Mar 2021 19:02

C.Y.Nical wrote:

I am on the cusp of becoming elderly (70 this year), married.

70 is approaching middle age.

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