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Practical Planning points for Making Tax Digital

14th Dec 2016
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I think we're all feeling decidedly uneasy aren't we, at least those of us that run our own practices and have mortgages to pay, families to support. Anyone looking at us from the outside will say it will be fine I'm sure but it's not so easy when you "feel" like you're facing the most fundamental change in your career. I'm very much aware that, worse case scenario, if this goes wrong on me I will have to tell my wife and family we have to sell the house to downsize - over my dead body will that happen but that's how uneasy this can make you feel right now. Add in the feeling of responsibility to our five staff and it's not much fun at the moment.

Perhaps we should stop and think back to 1997 - 1998 when Self Assessment came in. I was just 7 years into my career then but I remember that year having to prepare two sets of accounts for everybody and everyone had higher bills and, ok debtors may have hiked for a while, but it was all ok in the end. However, our December's and January's were ruined ever since. If this goes well then maybe just maybe it might improve?!?

I alerted clients back in April. I told them the details and I used phrases such as "you're not going to like what I am about to tell you and rest assured that we don't think it's a good idea either" and "HMRC want you to use digital software". I asked our clients to let me know if they were happy to use software themselves (I think I wrote to around 120 with this first mailshot - self employed businesses) and only one person said they would be happy to use software.

Key planning points in my mind right now:

1. Let clients know just how many submissions there will be (5 for a self employed business and another 5 if they are a landlord too probably). Common sense tells them that's more work! Ensure the annual final submission is clearly explained as being the most technical part and, in some ways, the equivalent of the current return.

2. Let them know that if we have to do everything that means fees will have to rise.

3. Let them know that, of the work we do, that the lowest cost per hour is the bookkeeping and they can help us to try to keep costs close to the current level if they are prepared to do some of the data entry themselves. Warn them that if they get it wrong though it could end up costing more because we'll have to fix it..... To my mind the time to review a clients own work will end up costing the same as for our junior staff to process and then a shorter review by senior staff so, yes, client does it = same bill as currently. 

4. Most clients business history runs through the bank account. Many self employed clients use a personal account for business - tell them to stop that now! They need a business account for their business. The other night I was finalising a hairdressers accounts, simple job with a fee of £250 or thereabouts and we had 1300 entries on bank withdrawals - imagine processing and analysing that via digital software..... so lets keep the data to solely what we need please.

5. We've already started migrating some clients to the cloud and in our case Quickbooks. I've always liked Quickbooks as it's very user friendly and first in was our own practice! I'm looking for us to put as many of our VAT clients (where we do the data entry) as possible into it during 2017 and we've already started in 2016 with the largest going in first.

6. Aim to use bank feeds wherever possible - for the small self employed that's the nuts and bolts and surely as long as the bank feed runs through we can just put in the quarterly updates and tidy up at year end in case there are any cash income/expenses the clients identifies as they go along. HMRC are expecting taxpayers to put quarterly updates in themselves so their standards won't be that high will they, at least I hope that John the Plumber is not a secret accounting wizard on the quiet! Oh and don't forget its the clients responsibility to cover the software cost (Quickbooks is circa £5 a month per client for the basic "proper" package....)

7. Remember the phrasing from HMRC "at least once a quarter". With a bank feed running I'd consider filing once every two months - a constant stream of daily work for the staff on every single self employed client if they want. But why wait until quarter end?! Holiday times would be a disaster - I'd rather press the button once a month if I can and that's the three month clock reset again. Literally you could have a staff member process the bank, quick glance at the data - if it looks consistent then let it go. We will review properly at year end (unless client wants to pay for a full review each quarter!?)

8. Be prepared to wave goodbye to clients who will not pay more than they are. We are all under so much stress in our jobs and I'd rather lose 20% of clients for a 25% fee hike if necessary. The consensus I've heard is to expect more clients knocking on the door when this hits - they want to run their businesses, they don't want to recruit staff and we are the cheaper option.

9. Attack the 2017 returns EARLY - tell clients you want papers in as soon as possible after 6 April. Then, later in 2017 aim to have the first half of the 2017-18 papers in and follow that up with quarter 3 in February 2018. If April 2018 is the deemed date in the end we don't want to be faced with a "normal" year plus MTD. Something tells me we will have the urge to get ahead now but I think we have to attack early. 2017 could be the only real chance to do so - even if it's only the basic processing/scheduling pre-accounts prep.

Just start to imagine a plan here about the years leading up to MTD as much as MTD itself.

And remember - if we pull this off then we effectively get a years self employed fees coming in 6-9 months earlier along the way as a one off sweetener (so long as you're not charging fixed fees and, if you are, then update them!)

Replies (3)

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By BudgetB
20th Jan 2017 17:39

That's a very sensible sounding plan. Re no 7, I hadn't thought of it like that, I guess I'd been thinking of it like VAT returns with a fixed quarter and deadline, but if it's going to be totally flexible (and there's some easy way of tracking how many of your 90 days till next submit you have left) then that could be very useful.

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By pauljohnston
22nd Jan 2017 09:10

I think it now that we should stop thinking of rental clients and self-employed clients in different categories. LOoking at point 4 I have recommended that all self-employed and rental clients have seperate bank account for each. Yes there is a bit of sorting out in the begining most thank me for simplifying their affairs.

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Nigel Harris
By Nigel Harris
22nd Jan 2017 12:40

Very sensible approach, I particularly agree with the need to crack on with 2017 returns early.

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