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Fee hikes and practice challenges heat up for MTD ITSA

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From resourcing, technology, pricing and communication, practitioners have a lot to consider in order to get their practices ready for Making Tax Digital for Income Tax (MTD ITSA). 

27th Aug 2021
Editor AccountingWEB
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AccountingWEB’s MTD Bootcamp series, the proposed changes to the basis periods and calls from accountancy bodies to delay MTD ITSA have refocused practitioners’ attention to the digital record keeping requirements and the practice management changes they will have to implement ahead of April 2023. 

After going from “despair to weary acceptance” AccountingWEB regular and practice owner Michael Beaver is using the summer months to assess the looming MTD ITSA challenges and figure out what resourcing, technology, pricing and staffing he would need to shepherd his 700-800 clients.

On AccountingWEB Live’s Any Answers Live this week, the Bath-based practice owner talked through the steps he’s taking to prepare his firm and clients for MTD ITSA.

But, he warned, a lot of these steps depend on how much work you’re already doing for clients. “If you’re already doing all of their bookkeeping, it’s just an extra step. But if you’re used to seeing your clients with receipts in a carrier bag once a year, there is a lot of extra work there.”  

Challenge one: Identify client population

The first step he’s taken was to identify the population of his client base impacted by MTD ITSA.  

Digging into the data, he worked out that out of the 700 SA returns filed last year only around 300 would fall within the new MTD regime. Subtract the 20-30 clients already filing MTD VAT quarterly returns, the number ends up being a lot lower than he first anticipated.  

Dividing the circa 270 clients by the six practice staff, it works out at two to three submissions a day per person in the four-week window. “It sounds doable but these practice staff are already working 35-40 hours a week on regular accounting duties. Finding time is going to be a challenge,” said Beaver. 

Practices are likely to give resourcing some serious thought in the coming months. “If you’re looking at your resourcing and you don’t have enough staff to do all your work, something’s got to give; you either get more staff or lose some clients,” said Beaver.  

Beaver’s choice is to increase staff numbers, rather than the ‘harsh’ approach some AccountingWEB readers are taking where clients that refuse to play ball will have to go elsewhere. 

But, he admits, “if there is a shortage of resources the only option I have is to cut down on the number of clients I have. One of the concerns is that there is a whole sub class of traders in the community that will struggle to get advice.” 

Challenge two: Review fees

The increase in workload is going to naturally lead to a price increase. This MTD pricing conundrum has spilt over into Any Answers as of late, with one reader fearing that they’re going to have to dramatically hike their prices to allow for the additional submissions and queries. At the moment they're expecting to quadruple their prices. 

A poll during the show didn’t reach a common fee consensus. The fee increase range fluctuated amongst viewers from around 10 - 25% to 100%. While not everyone has settled just yet on the exact amount, fee increases are almost certain. 

For Beaver, the fee increase depends on the client. “We charge fees for the work we do to the extent that clients do it themselves on their own tech and we don’t charge fees for that work.” 

He’s going to operate on the same basis for MTD ITSA. “If they have a cloud solution and they’re going to do the submissions themselves, we’ll continue to charge our annual fee for the annual work we’ll do anyway. If they want us to do those filings for them, we’ll probably charge around the £50 mark per submission on top of the scheduled annual fee.”

For some, there wouldn’t be much of a hike, but for the ‘shoebox clients,’ it could mean a 100% increase on what they ordinarily pay. For some, this could push their clients out the door.

“Clients are already skittish about fees, particularly after the last year and a half with Covid Lockdown measures and the potential for it all to happen again. I just don't know how we are going to deal with this as clients do not see the amount of work that goes into it and will still trot out the - "What! that fee for the little bit we have!" AccountingWEB member Jimess recently commented on the site.  

Challenge three: Accepting that you may lose clients

Talk of fee increases always runs the risk of losing clients. Beaver has accepted that the consequence of additional MTD ITSA fees will be losing clients not willing to pay. 

But the increase in fees from other clients should balance up the books and from there he can start to address their resource requirements. 

Setting clients off to submit on their own has additional repercussions, according to some viewers. “If you allow a client to do it themselves they will do everything themselves so you no longer have a client,” said NH. 

But Beaver is confident that clients will not leave in their droves. “Just because you can do your own plumbing, doesn’t mean you should. Don’t forget the fifth end of year summary return which captures everything else. Even if clients will be able to do their own, they’ll still want your annual health check assistance with the work anyway,” he said  

Challenge four: Software challenge

Going hand in hand with the increased fees is the software challenge. As one poll participant said, “I am not sure that the clients will be able to afford additional fees. A lot of my clients do not want to pay for cloud software or any software.”

And there’s the rub for some practices. 

Beaver said that he’s going to “keep his ear to the ground” as he expects software vendors to provide some “budget conscious” products for those trying to meet the need and he will add that to his stable of software. 

His current plan though is to provide an Excel template for the small clients not ready for cloud software that “meets the criteria of digital transactions” and link that to a return which he will submit via bridging software. 

As a TaxCalc user for accounts production, tax compliance and bridging software for VAT, he’s ready to use their ITSA solution and will then push those that are ready on to some version of cloud software. For everyone else, he’s open to continuing to support clients in using whatever cloud software they choose.

Challenge five: Client communication

Communicating all of this to clients is arguably the most important step but also one which requires nuance and timing it just right. 

When you’re talking about increasing prices or shepherding clients to new technology they may not actually want, Beaver is cognisant that he has to find a balance between communicating early enough to give the practice the best chance to succeed against the risk of going too early and upsetting the apple cart. 

If you announce too early clients might move on because “they don’t want price increases or they will try to find somewhere where they can go where they don’t have to use technology and can still use their shoebox full of receipts,” said Beaver. 

Caveated by the fact that it might be delayed, Beaver is set to communicate their strategy to clients a year in advance and to explain why it’s coming in and what’s excluded. This then gives clients a chance to think about the cost and to give them the option to do it themselves or go somewhere else, and for Michael, a chance to watch for any clients likely to bury their heads in the sand.

In addition to hearing more from Michael, Rebecca Cave also joined the show to answer viewer’s technical MTD ITSA questions. You can catch up with this Any Answers Live episode on-demand on AccountingWEB Live

Replies (25)

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By Paul Crowley
28th Aug 2021 14:42

MTD is really just the equivalent of a stealth tax on the poor.
That is why the Lower Income Tax Reform Group joined the main Tax and Accounting bodies in the publlic letter to Jess Norman
MTD is an HMRC vanity project that damages the low income tax payer but has no effect at all on the politicians' friends and family in big business.
Hence politicians do not give any care or consideration

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By Hugo Fair
28th Aug 2021 15:12

I wish Michael Beaver well with his well-considered plans, but there appears to be the danger of some double-counting in his planning:

* "The consequence of additional MTD ITSA fees will be losing clients not willing to pay - but the increase in fees from other clients should balance up the books."
* "It sounds doable but these practice staff are already working 35-40 hours a week on regular accounting duties. Finding time is going to be a challenge."

Evicting low-value/resource-intensive clients is not an exact science and tends to lead to the remaining clients consuming a greater proportion of resources than before (cf Parkinson's Law) ... and that is before you try to find the extra time now needed for them due to MTD!
So revenue may be 'balanced' (although not guaranteed), but resources likely to be out of kilter.

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Replying to Hugo Fair:
By Michael Beaver
31st Aug 2021 12:44

Thanks, Hugo.

You are right in that it's not an exact science, and we'll really only know where everything lands once we get the process started.

I don't doubt we'll lose some clients, and I'm equally sure many will stay on as they'll need our help. But how far along the spectrum between "everyone leaves" and "no one leaves" we fall we can't know in advance. Also, as you quite rightly infer, we don't know which clients will stay - the easy to manage ones, or the more finance/admin-challenged ones that will take up more time?

That's why we're going to start a year in advance of the deadline - gently, of course! - to see what the picture may look like.

The worst case scenario would be that we end up in a middle ground of there being not too many people that leave, but not enough stay that the additional fees could pay for an additional staff member leaving our resources constrained. Then we'd have to make some choices about the client list.

The important thing is that we are, all of us, just starting to think all of this through and no doubt our approach will adapt as we get closer. Even if implementation is delayed by the government, we're still going to have to go through this at some point in the future.

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By GHarr497688
28th Aug 2021 20:45

So we are going into MTD ITSA with the view that clients might move round accountancy providers and fees will increase. On the other side it seems that some Accountant may retire or refuse to partake so: less Accountant , clients moving about , four tax filings rather than one and if the Accountants don't get involved then Self-Employed can pop the figures into a computer and press a button , calculate a tax liability and then work out how payments on account affect this calculation , overlap relief changes, personal allowances , capital gains tax , foreign income , holiday or residential letting , national insurance class 2 and 4 , higher rate tax allowances , child allowance , capital allowance , saving rate bands , dividends (need I go on) when HMRC cant even get SEISS grants working properly is going to make life easier and tax bills more accurate. Let wait and see shall we cause one thing I can tell you is that I won't be a party to it - I put with with MTD for Vat and now have plans to be out of MTD ITSA is driven on . And if HMRC think I am going to grovel and prostitute myself for Exemption then they can take a running jump. Very best of luck to the mugs who try to comply.

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Replying to GHarr497688:
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By bluebaron
29th Aug 2021 08:51

I couldn't have put it any better myself!

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Jennifer Adams
By Jennifer Adams
30th Aug 2021 17:32

I'm just not going to be able to get my subcontractors to comply. They dont issue invoices in the first place and have to wait for contractors to send them their reports which of course they lose if they are not on computers... and many arent.

Some in this thread seem to be saying that they will not act for those who dont want (or cant?) comply. If I take this stance what am I going to tell the client who has been with me for years, pays ontime - never any problem but I know wont be able to cope? 'Goodbye.. it was nice whilst it lasted'?

Bank streaming for all seems to be being put forward as the be all and end all however... setting up a separate business bank account (if you can that is... some banks are refusing and I dont mean for those who have bad credit ratings) costs (unless you use Co Op via FSB = free)

Last week I had a very tearful client on the phone who didnt understand/ couldnt work out how to log onto Accountancymanager despite being given instruction and there being a video (I've been trying to get all on e-signing for some time now). So I gave up and will be sending a paper return for signature which I will then submit by Taxfiler.

I've tried to get some clients who I think will be able to cope onto cloud software but I seem to spend hours teaching and amending what rubbish they have entered.. when they remember to do so.

But as others have said - there is no point in moaning. We knew the time would come and we just have to find a way that is best for our business, staff and particular type of client.

The first decision to make is 'who should stay and who should go?' Clients I meant - not staff.

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Replying to Jennifer Adams:
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By GHarr497688
30th Aug 2021 19:17

If HMRC want rubbish then so be it - if they investigate blame it on the system they have introduced against advice from Accountants and go for nil penalties. When HMRC look at the computer records produced they won't know where to start !!I idiots .

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Replying to Jennifer Adams:
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By 0098087
31st Aug 2021 10:39

Had a lot of issues with clients trying to log onto accountancy manager. Had one who set up a 1 month trial by mistake. The companies all seem to think clients will be easy to convert to MTD. Not a chance in hell. I just don't know what we are going to do, I really don't. Most of the software is awful anyway

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Replying to Jennifer Adams:
By Michael Beaver
31st Aug 2021 12:48

Likewise, our subcontractor clients are the ones I worry about the most. Partly because their job means they are always out and about and not near technology unless it's a phone. And usually they're as good at admin as I am at ballet. The added issue is that many of them are interconnected and are also subcontractors to larger clients whose custom is important to us.

We haven't quite figured out what our approach to them is going to be yet.

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By Dogracer
31st Aug 2021 10:06

MTD is an opportunity not a challenge.

Yes fees will increase.

Yes this will involve more time being spent.

We are here to advise people and for that advice we charge a fee based on the time spent and the complexity of the work.

The desire is for most practices is to seek out new clients to increase turnover many spend significant amounts on marketing

We are all being given the chance to increase fees without the need to market just educate existing clients

It is much easier to sell a new service to an existing client

Yes some individuals will be unable to comply and possibly unwilling or unable to pay higher fees but the necessity to file does not go away

We are just the messengers we are not making the rules we just have to work within them and advise our clients to the best of our abilities

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Replying to Dogracer:
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By Moo
01st Sep 2021 10:42

Hmmm, I can see the irony in this post but I'm struggling to find any humour.
Surely it is not meant to be straight faced and serious?

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Replying to Moo:
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By Dogracer
06th Sep 2021 15:38

Yes I am serous

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Replying to Dogracer:
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By Moo
09th Sep 2021 09:11

Sophocles and Plutarch both wrote wise words about the consequences of being the messenger who brings bad news and I doubt whether their messengers were also trying to up their fees.

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By mtgill
31st Aug 2021 10:12

When this all descends into shambles and chaos , WHICH IT WILL WITHOUT DOUBT, don't forget that HMRC will say it is the "customer's" fault and charge them penalties accordingly !!!

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By Barkster
31st Aug 2021 10:39

I might be slow on the uptake, but it has just dawned on me that in 2023/24 we will still have to do all the regular accounts and tax returns for 2022/23 as well as setting up and managing everybody on MTD for ITSA.

Doom ! (said with a Scottish accent)

I'm liking the idea of lorry driving more and more - they will soon be earning more per hour than we could ever charge !

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Replying to Barkster:
By Michael Beaver
31st Aug 2021 12:50

Yes, indeed! And the worst part will be January 2024, when the previous year's tax returns are due, and the Q3 quarterly MTD reports will all be due as well!

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By lordburnside
31st Aug 2021 10:58

I just don't know how I can get the work done. If everyone is on monthly accounting (seems the only way) and I have to get their previous years accounts done too I am going to have to work 80 hours a week for the first year at least or get some extra staff and train them.

My clients don't want to keep books and I will be doing their bookkeeping for them somehow. So I am afraid they will have to have one bank account and everything will need to go through it. I would expect £200 more per client per year but no more than double fees. I will be using spreadsheets for quite a few - its easier than the software available.

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By lordburnside
31st Aug 2021 16:50

And furthermore. It would be sensible if they allowed us 3 months to send in each quarter at least for the first year - we could spread the workload a little better.

Its going to be January and worse 4 times a year until we get everyone bedded in.

I am not really against clients keeping better records its the impossible time limit they have given us.

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By JD
31st Aug 2021 16:50

A good batch of clients will however be fooled by those delightful adverts, take a few pics, analysis everything very carefully and automatically to sundries, including their own drawings, tax payments and cat food, file the lot quarterly under MTD, from their phone, and then come in at the year end asking how much cheaper it will be this year...because they have done it all.

To add insult to injury, the software will tell them they have no tax to pay and when you tell them the real figure, you will be faced with a series of comments defining how competent you are.

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By AndrewV12
01st Sep 2021 10:41

CHALLENGE Six
Anticipate and Prepare for future MTD demands

CHALLENGE Seven
prepare for staff leaving the business

and on it goes

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Replying to AndrewV12:
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By 0098087
01st Sep 2021 11:10

I don't have staff..it's just me. Can I leave? What's the six numbers tonight? What are the score draws this week?

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Replying to 0098087:
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By Geoff56
01st Sep 2021 11:58

I feel the same. I would love to be able to hand in my notice to someone and ask for my P45, but I have my clients, my fantastically loyal employee and my small office to take care of.

I keep coming back to the same basic question: just what will all this achieve, apart from stress, worry, angst, frustration, overload etc., etc.?

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By bluebaron
01st Sep 2021 12:54

I no longer do VAT Returns (just one, for which, after much difficulty, I got MTD exemption), and I don't miss it at all. I totally refuse to get involved in MTDfIT, and look forward to more free time, but I really resent the fact that HMRC have effectively forced this on me, and I will be sorry to lose some clients. I am warning clients now about what is coming in 2023, and will recommend suitable alternative accountants to each client.

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By bluebaron
01st Sep 2021 12:58

I feel very angry about the whole MTD project, especially the expansion into Income Tax, HMRC's stubborn attitude and refusal to listen to our concerns about the threshold, implementation period, and filing of quarterly figures.

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By lordburnside
01st Sep 2021 12:59

Does anyone know the name of the Minister in charge of this? I can send him an email to put him right on a few things.

Is is Stephen Barclay? Someone needs to tell them politely but directly what a
problem this is for accountants.

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