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IRIS, FreeAgent, BTC Software talk MTD ITSA

15th Jul 2022
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Award winning CRM & practice management software

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There’s no avoiding it, MTD ITSA is coming. The key messages from our panellists? Start now, tell your clients and get the tech in place. Did we say start now?

This summer, we’re debating the most pressing topics for accountancy and bookkeeping businesses over 8 sessions. This week, we were joined by leading software vendors: IRIS, FreeAgent, BTC Software, and AM user Vicki Boddice to dissect MTD ITSA. 

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Register for more AM Summer Sessions here

Our panellists

Has the draft legislation (July 2022) affected the impact of MTD ITSA?

Steve Cox (IRIS): The three-line accounts piece that HMRC announced is nothing phenomenally different to what software vendors like IRIS and BTC Software already knew. But it is confirmation that they’re not going to add extra information. 

I’d say the draft legislation has done two things. One, it’s taken that burden of worry away that they may ask for more, and two, it’s cemented the fact that it is definitely going to happen!

I think they were just trying to make a headline to make people think something major had changed!” - Rob Ellis

Tony Stevenson (FreeAgent): I agree, we’ve been working on this basis for a while. If they announced they wanted full accounts that would’ve been a shock! 

If you look at the underlying habitual change we’re asking your clients to make, the three-line thing doesn’t change that at all. It doesn’t matter how many lines there are, you still have to file quarterly.

But the idea of ‘Can I just bung anything in?’ I don’t think that’s going to fly. HMRC will be keen on picking up that. 

Rob: I’d love to disagree, but I can’t – the legislation hasn’t lessened the impact, but it hasn’t made it any harder either. For us, it hasn’t changed anything, two-line accounts have been in BTC’s API since 2016. 

Vicki: I think there was a thought, before the draft legislation, that you could put whatever into the quarterlies and sort it out at year end. Now things are becoming clearer, the emphasis is on the taxpayer to take more responsibility for making sure those records are there. 

That’s what’s going to be difficult for practitioners – getting that message across. You can’t come in with a bag of receipts at the end of the year anymore because you’ll already be too late.

How can accountants and bookkeepers prepare their clients?

Rob: Tell your clients! Awareness is very low, so communicate with your clients. They can start keeping digital records now – even an Excel spreadsheet is fine for simple clients with around £10,000 turnover. Get them used to keeping records in a digital format, then move them onto a platform later. You need to build those habits – and build them now.

Firms that are proactively tackling this will actually be starting in April 2023. So they’ve got a full year to get used to [it].” - Tony Stevenson

Tony: A common mistake we see is tackling the most challenging client first. That’s the complete wrong way to go about it. It’s a new skill and the devil is in the implementation. 

Sit down and segment your clients based on: How easy will this be for them? How complicated is their business? And do they have an aptitude for technology?’ Start with the easy ones and you’ll learn the kinds of challenges you’ll face.

Firms that are proactively tackling this will actually be starting in April 2023. So they’ve got a full year to get used to software and processes and experience any teething problems. So build your skills, start a pilot – now – and keep a list of frequently asked questions.

Steve: I see firms taking a two-fold approach. One, start communicating with clients. At the most proactive firms, every single conversation they have with clients will include MTD ITSA. Send newsletters, use social media, keep saying ‘it’s coming, we’re prepared’. 

Then second, make sure all staff members know what your plan is. Often that starts with talking to your software supplier so you understand what it can and can’t do and when it will be MTD ITSA-ready. Take a look at the HMRC website, it shows which software is ready and who is preparing for it. 

Then review your own processes, have you got enough people to cope with peaks of work throughout the year? It goes without saying, the glue that holds all this together is your practice management software. That gives you full visibility of everything that’s going on. Make sure you’ve got that right as part of your process review. 

How can you cope with the extra workload?

Tony: There’s no escaping the fact that this is a big change for accountants, bookkeepers and for businesses. By no means is it an easy transition, but technology is there to help. 

Get your clients on the technology, get them on the mobile app, get them raising their invoices, get bank feeds connected up… and technology will do a lot of the heavy lifting. Some practices are well set up digitally and will be able to slide straight onto this, other firms haven’t adopted those practices yet and this is pushing them down that road to take advantage of automation.  

Steve: I’ve found the same thing, it’s a bit of a mixed bag. Some firms are saying, “We have this sorted, we have the digital records and data extraction tools like Dext.” So they’re doing paper to digital already. At the other end of the spectrum, you have those that are really concerned. clients are doing things paper based, it’s all at the year end. There’s a split at the moment in the accounting industry. 

1 in 5 sole traders haven’t heard of MTD. That’s a scary statistic so the burden is on the accountant right now to have those conversations 

Technology will help, but the workload will increase. And I hate to be the bearer of bad news but it will start well before 2024 because of the conversations you need to have with your clients. If you have to change their mindset from annual to quarterly and doing things digitally, that’s two conversations. And you can’t just have them once, you have to reiterate and reiterate.

We did a survey recently of around 170 accountants and 80% said they don’t have regular conversations with clients. Those 80% will struggle to talk to all their clients. There was research from Coconut recently too that said 1 in 5 sole traders haven’t heard of MTD. That’s a scary statistic because we know HMRC aren’t broadcasting MTD for ITSA yet and probably won’t for another year. The burden is on the accountant right now to have those conversations and keep having them, so your workload will go up straight away during this learning curve. 

When the workload hits quarterly, the technology is there to automate a lot of it for you, but the learning curve and mindset shift - that’s the biggest hurdle. 

Vicki: I’m currently a sole practitioner, but soon it won’t just be me anymore, because I’m preparing for this. About half of my clientbase will be affected by MTD ITSA so we’re looking at a huge increase in workload. 

Getting your tech stack ready is key and encouraging people to get used to digital. Cloud software doesn’t have to be scary. Try it, see what works. Make sure you have that backbone for when the extra workload comes in. Make sure things are as streamlined and as automated as humanly possible. And make sure your clients know how to use it. 

It’s also about finding out where your limit is and that’s where practice management comes in. Even if you’re a sole practitioner, you need a practice management system – the better your system, the more clients you’ll be able to take on. It will do the grunt work for you, leaving you to onboard clients and do the work. Practice management software is absolutely key, if you don’t have it you’re going to drown. 

Does more work mean increasing fees?

Vicki: For me, partly! Right now, we do one annual return, for one fee at the end of the year. What I’m guiding my clients towards is getting set up on a monthly basis, which is going to be far more helpful for them. It means all the information is coming through regularly and there isn’t that panic at the end of the quarter. With good use of software it should all flow nicely together. 

Fees will increase as there’s extra work involved, but the way to lessen that impact is moving clients onto a monthly idea, of both keeping their records up to date and monthly bills. I think continuous monthly billing will become far more common across the industry. 

Steve: Fees are going to have to go up if there’s extra work, no one wants to do it for free. I’ve been out to many firms up and down the country from sole practitioners to Top 200 firms. A lot of them are seeing this as a chance to review their prices and look at packages in preparation for MTD for ITSA. 

A growing trend is three levels of packages. 1. Unmanaged: You (as the client) can go and do everything quarterly by yourself and I’ll review it at year end. You pay the same fee you pay today. 2. Part managed: We’ll review it quarterly and make those submissions. You’ll pay a bit extra for that. 3. Fully managed: We’ll do everything – weekly reconciliations, interim management accounts, VAT filings and all your MTD stuff.

Watch a recording of Session One

Register for Session Two