MTD pushes practitioners towards the exit

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Since the initial announcement about MTD there have been voices in the profession proclaiming the final straw, and that time was probably up on their life in practice.

AccountingWEB has seen regular comments along those lines, often citing great frustration with the change management required for clients, additional workload, cost, perceived self interest by the software suppliers, and of course various inadequacies of HMRC.

But what is the picture actually like? Has there been a flood, a steady flow, or just a trickle finally calling it a day?

MTD has had an impact

Jeremy Clarke from ICAS, who helps members at times of buying or selling their business, is clear that MTD very much played a role. “Once things became clearer a year ago there was a significant change, and we saw a three times increase in the number of firms interested or ready to sell – most of which were sole practitioners.  

Supporting time-consuming and complex implementations of new requirements has been relentless: self assessment, RTI, auto enrolment, GDPR, AML and now MTD. It hasn’t been easy.”

Nicola Draper, director of broker Drape Hinks agrees. “MTD has been the final straw for those already under pressure and who see too much emphasis on systems and not relationships. A real consequence was that in 2017 there was a buyers’ fatigue with so many practices coming on to the market which drove the prices available right down, although it has recovered somewhat.”

Delay and implementation has bought a lull

The delay in mandation and the focus on VAT has certainly helped to stem an even bigger rush to market. “If you’re a small practice with not many VAT clients, especially with bridging software options rather than migrating to the cloud, things are a little more manageable than first suggested. So there are still people wanting to sell, but it’s not quite as busy at this point,” explained Clarke.

Draper develops this further by suggesting a practical timeline has also played a part. “There is much more activity to come as those that decided to sell around September/October wait until after they become compliant and mandation has come into effect. The buying and selling cycle takes six months, and little happens around December and January anyway. So the choice was to embrace what needed to be done and pick up again in March and April, which is what is happening”.

Being MTD ready goes beyond client systems

Through mandation firms have had to adapt, and although there has been an obvious focus on helping clients, the general attention to internal systems is a big factor in M&A conversations.

“We ask sellers to tell us what systems they use, and to be clear and about to what extent they are MTD compliant,” said Draper. ”Process is highly valued (even more so now) and impacts on what buyers are prepared to pay.”

Looking to the future, Clarke sees this as a trend that will continue. “There will be more consolidation in the midmarket, and smaller firms subsumed. But this depends on how well prepared people are too implement the next phases of MTD, not just VAT.”

This presents significant growth potential for others. “The flip side is that those that are geared up for it have a real opportunity to grab market share, even with lower margins by leveraging the tech," continued Clarke. 

“With the benefits of great process and structure of the practice – you can do compliance work very efficiently. And there’s no sign that the volume of work will disappear.”

Draper recognises that for the proportion that is already struggling to make the changes, widening the scope of MTD is also widening the gap between them and potential purchasers. “Buyers who are very digital and process driven get frustrated with sellers who are in this position – it’s almost a different world, different attitudes, and even different language.”

Multiples and pricing in the future

So what about the value of practices moving forward?

For Clarke, the equation is quite simple: the more you can demonstrably be seen as on top of however MTD progresses the greater the opportunity to maximise the sale price.

“A buyer who has to do the heavy lifting just so that they can get the margin from compliance moving forward will have the whip hand. So, being MTD ready (period) is the way to drive value and as a consequence, I do think multiples will increase. If you’re not then your multiples will go down. But even now we’re starting from a relatively low base.”

Interestingly, one of the lures of a more digital tax regime and digitalisation, in general, is the potential for greater insight-driven work, regular client contact, and higher margin services.

However, these ‘basic advisory’ type services may not actually increase what you can get in terms of the sale price.

“We can only sell the recurring fees, and we may still be selling the recurring compliance in the future,” said Draper.

“Some buyers may buy on profit or EBITDA, but this is still unusual for the majority of the market. If you can incorporate your services into a monthly fee then this may be fine, but not advisory based on one-off projects or ad hoc billing.”

Too early to evaluate just yet

We are of course only in May 2019, with the first cohort of mandatory filing filtering through now. So it may be too early to see if there has been any ramping up of those deciding that the digital tax world is really not for them. However, Clarke has a feeling time will quickly tell.

“The real crunch point will be in August. There will be a period where people will see how things have gone and relax a bit, and maybe decide it wasn’t so bad. However, the fear will be that it may also encourage the government to go further quicker.

“It will happen in due course anyway, but if the timing is not realistic then it will cause problems for the profession and business - and then we could some really interesting activity.”

About Richard Sergeant

Richard Sergeant

Specialist insight and business development support for accountants and their vendors. Cloud advocate with a pragmatist eye.

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By SXGuy
16th May 2019 17:05

Personally I see no issues. Perhaps I'm one of the very few who hasn't been affected so much by it, but out of the clients who are required to be mtd ready, all of them were already in a position to make the switch, and those that weren't we moved them to mtd software over a year ago in preperation.

The thing that baffles me is with the standard vat schemes, clients should already be supplying records which would comply with mtd, it would only be the process of filing which changes.

I understand there may be some clients with complex vat treatments which could cause headaches but luckly I have none such clients of that type.

The biggest issue for me has been the awkward methods in which hmrc wants everyone to work with. Yet another agent account (asa) linking existing clients from the old account and to top it all off, no client list displayed in the ASA.

Would all that make me feel like jacking it all in? Of course not.

If mtd is ever implemented for every tax payer under SA, CT etc who aren't vat registered, then I can see a massive move to sell client basis and I'd probably be one of those in that instance.

The mere thought of trying to gather quarterly information from a previously yearly client, for each and every client, four or five times a year would be a logistical nightmare, I'd be forced to employ someone just to do all the chasing.

For me, it would be hell on earth, but for vat? Its just a little annoying but nothing more.

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16th May 2019 17:59

Not just MTD but the tripling of MLR fees and increases in software costs (taxfiler). Even my bank is now asking me to apply for my business account again.....

The daft thing is I could jack all this crap in tomorrow but would leave many of my clients, whom I've known for many years, in the do-do....

I would almost pay someone to take it on!

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16th May 2019 18:44

As someone who has been a buyer (in vain) for nearly 4 years I can tell you that the main stumbling block is the seller believing that their multiples should be 2 or even 3 times gross.
I started looking when MTD came on the horizon.
Richard is right that the smaller firms will be swallowed up by the bigger (local) firms but only if the seller is realistic.

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16th May 2019 19:40

For me in my late 50’s and with clients in their late 50’s too 70’s who have only just started using email my job is no fun at all . They all want to bring in paper records and expect me to put every single entry on a computer and all for the same price . The concept of MTD has changed from 2015 and I’m going to end up with messy books half computer half manual . Despite every client being told about MTD most have shown no interest at all . Why on earth should I be bothered when at one end you have Hmrc laying down the law and end the other end clients resisting change . I am good at what I do but my job being dictated by Hmrc is not acceptable .

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16th May 2019 19:42

I've seen two immediate impacts:

1. MTD was the final straw for one excellent sole trader accountant locally. She gave all her clients my details - along with those of other accountants she rates - so I've had an influx of quality new clients from that.

2. All the major local practices have jacked up their fees by several hundred pounds - either directly, or by proxy in frog-marching clients on to Xero or QBO. Some of those clients have approached me as I am not doing any of that stuff. I've taken on the better quality ones where it is not just about getting lower fees.

So I've scrapped all my budgeted marketing for the comping year, and it will be the most profitable year since I set up in 2009, health permitting.

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By puzzel
to mr. mischief
17th May 2019 15:49

Old Sage worked well enough until they changed the gateway access.

So what software are you using?

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to puzzel
18th May 2019 10:14

Puzzel - go for Pandle. (Partner with them and it is a bit cheaper. I pay something like £3 per client per month including VAT) Pandle is just at good as Sage and the customer support is very, very good. I started with one and now have 7 or 8 clients on Pandle. I also have clients on Sage, Kashflow, Xero and good old spreadsheets so plenty to compare with - Pandle every time

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17th May 2019 01:16

MTD is GREAT!!!

A great opportunity for accountants who embrace the cloud to start and grow their own practices.

They can pick up from where ageing sole practitioners decide to exit rather than change.

And they will pick up from where bigger, older practices 'reluctantly' moving to the cloud, do it really badly...

...and younger, more agile hungrier practices move in and clean up.

Its already happening.

Great time to start a practice.

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to Mark Telford
17th May 2019 10:53

Oh for goodness sake! There's always one evangelical, holier than thou type ready to debase those of a more traditional outlook on life and work. For the older professional, the derogatory comment in line two above is actually offensive in my view.

In fact I rather agree with the opening comment. MTD has been rather overblown. The most difficult part is navigating the awful, awful HMRC registration process which is as clear as mud. But having done this, or me having done it for them, few of my clients had to change anything.

Furthermore, this assumption that it is necessary to be on the cloud to do MTD or to operate efficiently and effectively with clients is balderdash! It can be done perfectly well with desktop software.

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to graydjames
17th May 2019 10:56

MTD overblown - yes, mostly on here.

It really is very straight forward and has minimal impact.

What it is doing is forcing some accountants to up their game and provide a better level of service to clients.

If you don't want to get on the cloud - no problem - just be aware that some of your clients will want to.

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to Mark Telford
21st May 2019 13:36

I'm with you Mark, MTD is great and online software is great for clients and them getting their lives back & being more productive! Since we have went onto Xero since 2013 it's amazing what we can do now, compared to what we did before.

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to Mark Telford
22nd May 2019 14:16

Mark Telford wrote:

If you don't want to get on the cloud - no problem - just be aware that some of your clients will want to.

I only have one client out of approx 40 on cloud, and that's because she was already on it when I took it over. Not one client has requested it (granted I do all the bookkeeping) I'm not averse to it one iota, and if asked will provide it, but why should I force my clients to spend £10-£30 a month on software when I can cheerfully do the same in VT, at no cost to them?

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to graydjames
17th May 2019 13:19

How is this offensive (I presume you meant para 3)?
"They can pick up from where ageing sole practitioners decide to exit rather than change."
It seems established from Nicola Draper's experience that this is what is happening.

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to Mark Telford
17th May 2019 11:15

I have no desire to grow my practice, in fact I have actively got rid of loads of dross over the last 4/5 years and absolutely refuse to take new ones on unless there is a burning reason to do so .
I can understand the megalomaniacs wanting bigger and bigger practices but it is not for me, I would rather offer a proper service to the ones I already have.
As for MTD not one of my clients could give a flying duck about it and when I explain what they need to do to become compliant they leave it all to me.
As for software QB/Xero/Kashflow/Freeagent in my humble opinion are to all intents and purposes [***] for the lay person to use and I use some of them extensively, so it is not sour grapes speaking.
When retirement comes I will just close my practice down but try to ensure my clients do not suffer in the interim.

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By Locutus
to Mark Telford
17th May 2019 15:24

Same experience for me, Mark.

I have picked up a number of clients on the back of the existing accountant/bookkeeper not wanting to or perceived as not wanting to get involved with MTD.

Umpteen years ago, I picked up a number of companies when iXBRL tagging came along.

I suppose it's a pain having to learn a few new things every year, but the reward is that there is plenty of work to go around for all of us who are prepared to learn what to do.

To be honest, I'm really glad that things have moved on from the way that things were done when I started in 1989.

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17th May 2019 10:46

I agree totally with Mark Telford.

At 68 I suppose I can be described as an "ageing sole practitioner", but my attitude to MTD and further digitisation is "Bring it on!". Like Mark, I think that MTD is a great opportunity to get our clients up to date and on the cloud. I have had no problems with my clients and those with small businesses are now all on Xero. To put it bluntly, MTD for VAT was a doddle!

If there are any "ageing sole practitioners" who want to dispose of any clients, please talk to me. Definitely in the marker for a block of fees in the £20K to £30K region.

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to patrickcb
17th May 2019 10:53

Good to hear @patrickcb

Improve clients records and the level and frequency of support and advice you can provide - win win.

Get ready for a flood of DMs!

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By mkowl
17th May 2019 10:51

Plenty of other reasons to give up but MTD ain't one

Constant changes to regulation and being hammered if you don't pick up that change in sub para 32-8-45(I) is more likely to finish me in the end

Daft accounting changes that add nothing to what our clients want but are forced upon us by a committee somewhere being an example

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17th May 2019 10:56

We're embracing it also - another opportunity - even though we have aged VAT registered clients who still keep manual ledgers. Nevertheless, I am reminded of:

We trained hard, but it seemed that every time we were beginning to form up into teams, we would be reorganised.
I was to learn later in life that we tend to meet any new situation by reorganising; and a wonderful method it can be for creating the illusion of progress, while producing confusion, inefficiency and demoralisation.

CAIUS PETRONIUS AD 65

LOL

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to tonyturner
17th May 2019 13:17

Actually written by Charlton Ogburn in 1957.

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By K81
17th May 2019 11:04

personally I hate this.

I am in mid 40's but really don't get on with technology. I wouldn't use a computer at all if I didn't have to.

A lot of our clients are over 50, fair amount over 60, they aren't interested in computers & smart phones (of course some are but they tend to be the exception)

In the last few years I have seen a trend away from online banking also.

I think the government has seriously over estimated the amount of people that use computers in their day to day life, most people I know use them for reading the news & buying things on Amazon.

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to K81
17th May 2019 12:38

And don’t forget it’s only in the last few months Hmrc have started using email . They have gone from one extreme to the other over night . I just hope like the local elections people don’t join up in protest . I’m not against the cloud or computers more the way it’s been handled by Hmrc .

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17th May 2019 11:14

Any evangelical, holier than thou poster droning on about how wonderful Xero is I have just one thing to say to you:

Read their accounts!!!

This is a "bet the house" business strategy. Memories are short, but let me assure you that both Amazon and Apple were 1 fundraising away from Chapter 11, to name but 2 "bet the house" companies who everyone remembers because they won the house.

Like going head to head with the house in a casino, though, for every punter who wins the house there are thousands of companies who just get busted.

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to mr. mischief
17th May 2019 11:19

You're the one droning on about Xero.

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to mr. mischief
17th May 2019 12:34

Mr Mischief.

You do know Xero released their worldwide results to March 19 yesterday. Finally have positive cashflows. Yes they did made a loss but it is a profit after the addback of impairments. UK subscribers now 463,000, 1.8 million worldwide.

There certainly lots of investors gambling on Xero. Their share price yesterday rose 10% yesterday. The best performing share on the Australian market.

Also their TV advert is much better than QuickBooks and Sage

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to david.bransbury
17th May 2019 13:34

I didn't know that but will take a look. I have a few points:

1. The only sorts of positive cashflows that count are after everything. In the past their FD has talked about having positive cash flows, but when you drill down it's drivel because he's conveniently excluding lots of cash outflows from his definition of "cash flow" and including all the nice bits.

2. Yippee! A profit. Oh no! It is after something, it is really a loss. Impairments, well that's nothing to worry about I am sure? But wait a minute, this software is the greatest thing since even before sliced bread came out. So what should it need to impair then? Impairments are things I associated with something rubbish, like Ratners jewellery.

3. These sorts of results are fine in a company that is only a few years old. Xero is not, it's been around for at least 10 years draining losses and not paying any dividends.

4. But they've got an nice TV ad so that's all right then, nothing to see here.

5. It's certainly true that Xero shares are very volatile, tend to move a lot up and down in one day. Is that a good thing? Well it is if you are also a big fan of Debenhams, third line gold stocks and African oil minors, fill your boots!

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to mr. mischief
17th May 2019 16:45

I've just looked at the Xero annual financials y/e 31.3.19. No reason other than an interest in quoted stocks. All figures in $000s.

Operating profit: 9,927, stated before:
Software impairments: 18,604
Finance cost: 14,459
Income tax: 4,007

Resulting in: Loss 27,143

The operating profit is an improvement versus PY, but all the other figures listed above show a deterioration.

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to Red Leader
17th May 2019 18:03

Thanks, good that someone else on here is taking an interest on what is under the bonnet, not the flashy dashboard up top.

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By AW71
to mr. mischief
18th May 2019 09:23

The way Xero and other cloud software is spoken about on here is very much the Emperor's New Clothes fable. Nice to see some common sense.

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By Dandan
to Red Leader
20th May 2019 14:22

Red Leader wrote:

Operating profit: 9,927, stated before:
Software impairments: 18,604
Finance cost: 14,459
Income tax: 4,007

Resulting in: Loss 27,143

As with all publicly listed companies , you need to read between the lines.

I could not resist downloading the 100-page annual report (if only to see how window dressing operates in this day and age )

Interesting how Intangible Assets consist mostly of Software development costs .

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17th May 2019 11:19

Surely MTD is just another example of "moving with the times". We will all get to the stage where something makes us decide it's time to retire or do something else. For one colleague it was RTI, for another it was auto enrolment. I'm sure people said the same thing about self assessment back in the day. In 20 years time I am sure something will come along that makes me think I've had enough, and I don't think there is anything wrong with that. Younger practitioners can take up the slack and I will go on a round the world cruise! I think it is more about which stage of your working life you are at, than the change itself.

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to Lady Brady
17th May 2019 12:41

I have to agree with you but I also stand by the fact this is too much too soon despite warnings to Hmrc .

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By Peter-S
to Lady Brady
17th May 2019 13:01

The thing with moving with the times is getting the choice.
Don't want a mobile phone - don't have one.
Don't want to order groceries on line - go to the supermarket.
Don't want to use Bacs or paypal - write a cheque.
Don't want to use SA on line - file on paper (by 31/10 of course)
Don't want to use a computer in your compulsory vat registered business - bad luck, basically.

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17th May 2019 12:46

MTD has not only made Accountants think about the future and where it will take them, but all small business people are thinking about it as well. My view is that the sole purpose of MTD is to get rid of the small business. I don't think that will happen because once MTD starts attaching itself to individual transactions the real fun will begin. HMRC will not be able to cope with the problems. They can't even cope with ASA's at the moment. How many people have had the message "we're busy please try later"?
A very good article, Richard. Why not extend it to other industries because if the smaller self-employed are packing up then it will even itself out for the Accountants that are packing up?

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17th May 2019 13:08

Interesting...

For myself, the core problem is simple. Look at the number of the UK business population who are Sole Trader SMEs.

The vast majority.

As Lord Lee of Trafford stated on MTD (House of Lords Review 2019, Select Committee):

"This will be a car crash!"

It is all well and good being gung ho regarding client opportunities: however, as always, the proof will be in the pudding.

If practitioners can honestly educate ALL clients to maintain and deliver cogent records on a timely basis (i.e. an MTD Timely Basis) then frankly, I will be utterly amazed.

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to Michael C Feltham
17th May 2019 13:55

Sage50 was around 30 years ago . In my 30 years I had to advice clients to come off it as they made so many errors . If someone at Hmrc could explain how Mtd is going to change that I would be pleased to hear from them. If this is pushed surely records will be worse not better .

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to GHarr497688
17th May 2019 18:38

Quite agree GHarr.

A few years back we acted for a limited company facing serious liquidity problems, trying to turn it around and save it.

The "Accounts" (Sage) were a total joke! The MD wheeled in his son, early 20s, who had just finished a Sage Course at a local college and had a shiny new certificate to "Prove" he knew what he was doing...Not.

Perhaps the error which cracked me up, was this bozo entering credit card statements as a total; instead of analysing what each payment was.

He also hadn't a wee clue about the difference between Capital and Revenue Items. The VAT was a disaster.

Surprise; the 50 year old company collapsed with large debts.

MTD will NOT solve this core problem: it will exacerbate it. TV Ads of Bert the Plumber "doing" his books on his smartphone are so totally misleading, to me it is false description.

Yet if you remember, Theresa Middleton and her boss Ruth Stanier (HMRC) at one time believed the sales nonsense and were suggesting taxpayers could use their 'phone to capture all bills etc and whiz them off to the Cloud!

Some clients who do not possess a scanner, have tried to send me documents of all types by taking pics on their toy phone. Invariably illegible.

Artisans have a habit of stuffing till receipts in their pockets and they are screwed up: worse, is that far too many vendors fail to regularly clean and fit new ribbons to their EPOS terminal printers.

I say again as did Lord Lee of Telford "A car crash about to happen!"

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to Michael C Feltham
18th May 2019 18:15

You are so correct . I’ve had an Estate Agent business put £15000 in Vat and £15000 in Gross and Sage allows it . In Xero you merrily tap ok and you get ridiculous vat figures , Accounts that mean nothing . I’ve had statement from huge companies that have changed to computer systems with statements with wrong opening balances . Most people know nothing about balance sheet and revenue account . It’s scary to think these wrong accounts will be used to get mortgages and lending , selling and buying business’s and it’s a Hmrc who are causing it ! Not to mention incorrect tax etc .

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17th May 2019 13:23

Change brings opportunity. Though by way of disclosure, I have to say that it is an opportunity I won't be seizing.

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By Locutus
to Red Leader
17th May 2019 16:50

Yes, I agree there are plenty of good opportunities from the recent changes.

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By Dandan
17th May 2019 14:17

I don't think that people are resistant to cloud because they are from a certain generation. That seems to be a view of some commentators here and it is the wrong view.

I am IT friendly but I do not like cloud; whether it be cloud storage, cloud software or cloud apps. I hate to be dependent on others (servers, internet connection,etc) and to be at their mercy. I also do not like the risk of personal data kept on third party computers.

Accountants are throwing in the towel because the profession has become a bit of a joke. Onboarding a new client, for example , is a daunting prospect. Then you have all the compliance work not to mention the dreaded QAD visit.

We have 4 accountants in the family including my wife who is a partner in her own firm. I have sworn that there will be no more. An enterprising attitude combined with intelligence should not be wasted in a profession where you are now treated like a child or even a potential criminal (read diciplinary hearing reports - struck off and heavily fined for petty things most of the time.

Also , I have respect for clients and will not betray them by putting their data on cloud without given them other options, just because it suits me.

I have had the privilege of working in the profession in pre-self Assessment days ; when an accountant was a true professional and a champion for their client. Now we just have the robotic accountants who happen to love cloud.

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By puzzel
to Dandan
17th May 2019 16:17

Agree, cloud is Krap.
Have one client on Sage. Been kicked out at times as too many users!
Does not help if it rains and the internet speed drops.
Why can there be not a desktop system that you use daily and then update HMRC every period that is required.
Oh, sorry that is the old software before Sage changed the gateway access

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By tax91
17th May 2019 15:02

SXGuy is right
'The biggest issue for me has been the awkward methods in which hmrc wants everyone to work with. Yet another agent account (asa) linking existing clients from the old account and to top it all off, no client list displayed in the ASA. '
The problem has yet again been in HMRC's communication skills which are, as ever, poor.
As an example, HMRC ran a webinar yesterday on MTD , Your agent services account, not telling participants previous to the course that certain information would be needed as they were walking applicants through the registration process - people were dashing to catch up. To add to the problem, HMRC did not advise what gov log in code to use which then caused a further problem; was it the original gov gateway, was it AMLS was it Trusts…. ?Questions were coming in thick and fast and HMRC did not have time to respond.
Looking back to when SA was first introduced, the initial introduction of SA was fast and frantic but at least a proper timeline was given. With MTD it was ‘here you are and deal with it’. As mentioned by SXGuy having different registration numbers in the process is another problem which HMRC online have not addressed.
Keep complaining and using up HMRC's online time and eventually they will get the message.
Tax91

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to tax91
17th May 2019 15:14

Totally agree , if you have an issue formally write in. Hmrc email answer department just answer with a reply that is neither use nor ornament .

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By Matrix
17th May 2019 20:35

There is a market for our services, not necessarily because of MTD but due to cloud software. Having spent the last two weeks sorting out problems with various clients’ Quickbooks since the DIY approach doesn’t work, I realise there is plenty of work out there. Mostly sorting out the mess.

MTD will be tip of the iceberg - most of our work will be correcting errors.

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18th May 2019 07:51

I think MTD has to be seen as part of a continuing process of the introduction of technology into business activity and particularly accounting.

It is possible to do a better job and more efficiently using technology, but that requires some effort into identifying new approaches and learning how to deal with them.

Accountants can lead that process if they wish. If, however, they do not then there will be a gradual decline in fee revenue available.

That can be seen in people deciding to actually leave the profession rather than manage the decline in revenue that arises from not wanting to follow technological shifts.

However, I think it is a mistake to see MTD and particularly MTD for vat in isolation.

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to johnhemming
18th May 2019 11:24

I would be far more proactive with MTD if it had been kept in its original form . In the end all Hmrc have asked for at this stage is Gross Vat Net for sales and purchases totally back tracking in the 2015 module and only to save face . Now they are slowing relaxing rules even for the VAT element . Hmrc have now put on hold the next stage of MTD . Any reasonable person would see this as evidence something isn’t working as it should so the whole process should be reviewed and current legislation relaxed so that innocent and law abiding tax payers are not ‘forced’ to break the law because what is being asked is virtually impossible and has no real purpose .

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to GHarr497688
18th May 2019 11:33

I have not seen anything suggesting that SAF-T was to be introduced. I used to sit on a shed load of committees covering all sorts of legislation and don't remember seeing anything although I did not specialise in tax stuff.

What I have seen is quite a bit of misunderstandings about MTD, but that is a different thing.

In the end people can still leave MTD for a teeny weeny bit longer if they are on quarterly staggers, but really it is time to get on with it and not end up in a rush.

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18th May 2019 08:40

OK I have reviewed the Xero accounts. At this stage I want to say that as an investor in a company, I am looking for openness from a Board and a willingness to give information on difficult decisions, not bury their heads in the sand. On that basis, in many ways the 2019 Xero accounts are worse than ever.

The big question I wanted answers on is their strategy in the USA. Surely any investor has to care about that more than anything, since failed strategies in the USA have been the downfall of so many companies over the years?

Well, all you get is a one-liner about how some payroll stuff had not worked (ring any bells with anyone?) and the $18m impairment write-off, conventiently buried well down the accounts after the glossy photos and the management-speak drivel.

So let's be clear:

1. $27m loss.

2. Bank balances +$100m. Yippee, we are throwing off cash and can start paying dividends, trebles all round at the bar! Oh no! We tapped the market for $447m, so my maths tells me the rest of the cash flows add up to minus $337m. Oops. (Admittedly some of that bad news is probably one-off, but still it is bad news.)

Anyone on here remember Marconi? These accounts are a lot more like Marconi than Microsoft:

1. Impairments.
2. Still tapping the markets big-time after all these years.
3. Management very opaque with investors and preferring glossy photos.

Let me be very clear. Xero subscribers and investors had better hope that 2019 and 2020 are nice benign years in the markets, not 2008 and 2009 revisted. Or it is Goodnight Vienna.

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to mr. mischief
18th May 2019 08:59

I think you are right to think that cash is king for this. I have never been a fan of capitalising software development for a software house as it is difficult actually to work out what its real value is. You may know what you have spent on it, but it may be valueless.

I have not tried to look at Xero's accounts. I can see the logic from an investment perspective of a substantial investment in a service that can then have marginal additional costs for new revenue of close to zero, (ignoring sales and marketing costs).

However, they face a difficult competitive market. I a sitting in my living room sort of monitoring my son whilst he plays on a nintendo switch. However, I am also (apart from typing in various online fora) writing bits of MTD code and competing with Xero and Sage. I have no cash burn. Looking at the market there is quite a bit of that going on. Iris have a sensible market strategy of buying up the competition. The underlying question is whether Xero have on a day to day basis an operation which can be or is cash flow positive. I don't know.

In any event if you are using a cloud service of any nature you should always find a way of getting a copy of your data on a sensible frequency.

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