With an estimated 440,000 businesses still unaware of the government’s digital tax plans, cloud conversion expert Matt Flanagan examines what accountants can do to prepare their firms and their clients.
Recent statistics suggest that 40% of small businesses in the UK don't yet know about the government’s Making Tax Digital plans.
To unpack that 40% figure, 1.1m businesses are in scope for MTD for VAT. That's 440,000 businesses still left in the dark. There are 128 working days (as at 1 October 2018) left until the go-live date in April, leaving an average of 3,438 businesses to prepare per working day.
In a series of accounting think tanks I ran earlier this year, firms tracking how long it takes to convert clients to cloud software confirmed that it takes on average 8-11 hours for a standard conversion, including demos, scoping the conversion, actual conversion, cleaning up data, training and support.
In terms of time needed to convert all 440,000 of those potential clients to cloud, the nation needs 3,520,000 hours, or 27,500 hours of conversion per working day until April 19. This assumes all conversions are standard - which they are not.
If you think the stats are heavy, even with a 50% margin for error they still don't look much better.
MTD compliant or advisory ready?
Worryingly, even though there are 60% of businesses that do know about MTD, I am not convinced they have actually progressed to being MTD compliant. Firms also have to consider whether they want clients that are ‘MTD compliant’ or ‘advisory ready’ – there’s an important distinction!
Having a client that is MTD compliant means they have the basics in place to integrate with the new MTD online function, but the chances of offering that client any further services is limited.
For an advisory-ready client running cloud software with real-time data (bank feeds, data entry automation, etc), there is much more chance of offering additional services. Whatever your view is on advisory, what is undeniable is that having a more up-to-date set of data is going to be key to future accountant-client relationships.
Is bridging software a solution?
Some firms are considering bridging software as a short-term fix, and that does make some sort of sense to plug a gap and will be right for certain clients. However, this brings into play versions of Excel.
I anticipate software vendors of any repute will only support Excel versions that are supported by Microsoft. Therefore businesses with older versions of Excel will not be supported or have issues looked into by those vendors, meaning eventually the client will have to upgrade software to a later version of Excel anyway.
Also, when HMRC inevitably come back for later iterations of MTD and ask for transactional data, bridging software is unlikely to suffice (functionality may be added at a later date to allow access, but I’m not sure how that would work in practice. Firms may have to instruct clients on two conversions as oppose to one.
Mind the information gap
I have heard many times from many different firms that HMRC hasn't given enough information, or that the accounting profession hasn't had enough detail.
My take on this is that an information gap exists, but if you take the time to look you can find enough to formulate a workable MTD plan for your firm and clients.
Accountants seem to have been waiting for precise compliance detail from HMRC. However, the MTD for VAT announcement was made back in 2017, which laid out the fact that the way certain businesses file VAT will significantly change so the need for communicating, discussing and planning this change could have easily begun.
In my experience, only a minority of firms are currently being proactive with their approach to MTD and putting in place any of the processes I’ve outlined above. Most firms are in a reactive state, deeming a 2019 start date for the conversion process as adequate.
All in all, there are a lot of things to consider and a lot of work to do for the accounting profession and affected businesses.
Matt Flanagan is speaking at AccountingWEB’s MTD for Small VAT Clients event in Manchester on 1 November. For more information on the event click here.
About Matt Flanagan
Matt co-founded BlueHub and has lead the team to on-board hundreds of businesses to cloud solutions, from complex inventory systems to project management programs. What started as a service to help with Xero Ecosystem add-on implementation, evolved into an additional service mentoring accountancy practices in moving their client base to cloud accounting systems.
Matt provides professional services to accountants, enabling them to move into business software advisory roles in a rapidly developing and changing industry.