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Why monthly billing is better for you and your sole traders

20th Jul 2022
Brought to you by
Coconut
Coconut’s simple bookkeeping and tax app is specifically designed for sole traders, helping them...
Save content
Have you found this content useful? Use the button above to save it to your profile.

Monthly billing has become the norm for everything from Netflix to coffee subscriptions. As MTD ITSA accelerates Self Assessment to a quarterly schedule, it’s time for billing for accounting services to catch up. Here we explore how monthly billing can benefit your clients, your practice and your processes.

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Traditional accounting services have always been intimately linked to the financial year. For compliance services that fit a set schedule, such as an annual Self Assessment tax return, it makes sense to structure work, contact and billing around the needs of that cycle. However, the arrival of MTD ITSA has done away with the standard reporting cadence. 

To keep up, accountants will need to not only change how they provide their services, but also how they charge.

The accelerated accounting cycle

Come MTD ITSA, Self Assessment-filing sole traders will now have to report their revenue and expenses on a quarterly basis. This speeds up not only the usual rhythm of the financial year, but also the way services will need to be provided, and the amount of contact clients will need.

Historically, accountants have tended to bill clients on an annual basis for Self Assessment return services, normally in the runup to the January deadline as more turn their attention to the issue of their tax return. 

However, the move to quarterly reporting will mean the challenges and effort associated with tax filing will become a more regular occurrence for every business. Instead of engaging once a year over a big pile of receipts and hashing out expenses and deductions, accountants and their clients will need more efficient, frequent and pragmatic check-ins to submit a simple record of tax affairs every three months. 

While this could be done at the end of every quarter, gathering up clients’ documents and powering through the submission process, this is hardly the most practical route. By building a regular, repeatable process for data gathering and review on a monthly basis, accountants can instead end each quarter with a quick review of the last three months and hit ‘submit’. 

But who’s going to pay for that extra work?

Your clients, luckily. In our recent survey of UK sole traders, a huge 40% of respondents said that they would be willing to pay for monthly accounting services to support them with MTD ITSA changes – creating a potential £360 million growth opportunity for the industry.

In fact, monthly billing offers a range of benefits for you and your clients.

The case for monthly billing 

Monthly billing is fast becoming a regular part of all of our lives, from Netflix to monthly Pret coffee passes. In the business realm too, software subscriptions and equipment rental already run on a monthly basis. The shift for accounting billing is, in some ways, an overdue change with the times, for multiple reasons.

Monthly billing is better for cashflow, for everyone

One of the public reasons behind the move to MTD ITSA’s quarterly reporting cycle is reducing the January ‘sticker shock’ – suddenly needing to find a large sum of capital to settle tax owed and owing. By tracking and reporting income and expenditure on a quarterly basis, sole traders will be better able to save for tax throughout the financial period and the new year cash crunch. This is made easier by accounting software for sole traders such as Coconut which automatically tracks and estimates clients’ tax bills throughout the year.

This also applies to paying accountants fees – managing a consistent monthly payment is a more practical method to track cash flow and also better aligned with the way sole traders bill and earn revenue.

For accountants, this is a win-win for cash flow. Instead of budgeting around a one-off annual revenue spike, based on existing clients and whichever panicked sole traders get in touch needing Self Assessment help, firms can work with steady, regular monthly income to track and improve over the year.

Monthly billing builds better relationships

For accountants, time is money and clients know this. This can leave clients hesitant to raise an issue for fear of incurring extra costs, instead waiting for their annual engagement period to solve all their issues. But the further removed a conversation is from the original point of issue, the more likely the client forgets, loses the relevant documentation or gets distracted by some other query.

By working on a monthly basis with appropriate guidelines for how much time a client can take up, accountants can build closer, more valuable relationships and solve issues as they arise. Not only is this easier than trying to fix a problem months after the fact, but you’ll be a more regular presence in your clients’ lives, adding value, improving long term retention and creating the chance to grow your services over time.

Monthly billing makes for better returns

One of the reasons that business owners commonly delay doing their tax return is that they are putting off the bill – both their own and their accountant’s. Monthly billing takes away one more reason for their procrastination, aligning their costs with the actions required to keep them compliant and make their accountant’s life easier.

This makes for more complete, more accurate and less painful tax returns – less data entry and chasing from accountants and simpler life for clients.

Find out what sole traders really think about MTD ITSA

MTD ITSA is going to be a big shakeup for firms, clients and the way things have always been done. Whether you’re in favour of the changes or not, they’re coming and you need to be prepared. 

At Coconut, we’ve made understanding sole traders our guiding principle as we try to build the best solution for them and their accountants. That’s why we commissioned Opinium to survey 500 sole traders across the UK to understand more about their views on Making Tax Digital, how prepared they are for the changes, and what action they expect to take to become compliant with the rules.

To find out more about the findings from this report as well as in-depth advice on how accountants can capitalise on this major opportunity, download the report now.

Download for Free