Will MTD ITSA divide accountants and bookkeepers?by
Is MTD ITSA more an opportunity for bookkeepers or accountants, asks Richard Sergeant.
One of the side effects of Making Tax Digital that makes accountants nervous is the possibility of being left out of the loop between the taxpayer and HMRC, especially when the regime reaches out to constituencies who previously were beyond their reach.
The current situation with MTD has similarities to the beginnings of auto enrolment in 201. At the time, independent financial advisers saw it as a fantastic opportunity when their traditional model was under threat from the Retail Distribution Review (RDR). The end of those juicy commission terms seemed to be exactly as millions of small businesses would need to set up pensions.
The reality however was that it was more of a payroll opportunity.
The hard part was not getting the pension set up (although not without challenges), but administering it. A direct link between employee decision making, fast changing data, calculating contributions, and regulatory compliance meant that it was always going to be a game for payroll - and thank you for doing it!
The quarterly reporting shock
Few accountants seem to be looking forward to MTD ITSA and you can see why. The huge diversity in client attitudes and abilities when it comes to administration will make it almost impossible to deliver a one size fits all solution.
Segmenting clients into what kind of support and tech they will need should quantify the challenge. But the self-employed and landlords who are used to working to an annual system are going to be in for a shock when quarterly reporting arrives.
If these businesses need extra help checking or even maintaining their books, practices geared around the tax return busy season may find themselves overwhelmed. Experienced and efficient bookkeeping teams could be in a better position to scale and accommodate these additional client needs.
MTD ITSA isn’t a tax opportunity, but a bookkeeping one.
The flip side of this situation is the more clients can do themselves, the better. “Most [self employed and landlord clients] would be small and simple, so able to do the quarterly returns themselves and just get help with the year end,” argued Della Hudson. That might mean that tax agents could jog along and pick up the equivalent of what they currently do at the end of the tax year.
Some clients will want to minimise the cost of compliance, so MTD ITSA might spur them to become more involved with their bookkeeping. But the sheer scale of the MTD ITSA intake makes it difficult to predict how many will take this approach.
Chris Downing at Sage suggested the fear of getting things wrong might outweigh the resentment of cost: “We need to consider that the fear of tax will drive those without an agent to one. We saw this with MTD for VAT. So there are potentially a million plus individuals, who currently file their own trade and rental tax submissions, who may feel more confident in their quarterly updates if the trained eye of a professional was at hand in preparing/checking the returns”.
If you’re working at the sharp end of the numbers and are used to the fickleness of clients and their data, then surely this is your time to shine?
Bookkeepers play an essential role in the small businesses community precisely because, as Ami Copeland Director of the ICB put it, “They've got that close relationship and don't immediately shy away from those smaller Excel clients”.
Given the technical, yet hands-on nature of bookkeeping, the potential opportunity is obvious.
For an accounting firm that may do a small amount of bookkeeping, confirming their service offering sooner rather than later will ensure the tools and processes are in place. Partnering with bookkeeping firms could be an important element of that service.
And let’s not forget that accountants and bookkeepers can work effectively together. “When I was back in practice, my best clients (fee generating and quality of records) were those where I had partnered with a bookkeeper”, Downing recalled.
However, the crucial sticking point is still resources, and specifically the shortage of people to do the work. We know this to be true generally within accounting practices, but it’s a similar challenge for bookkeepers too, “It's a massive opportunity for bookkeepers, but every bookkeeper I speak to is at capacity. We desperately need more great talent to come on line”, explained Copeland.
The irony that digitalisation might depend on the availability of trained humans won’t be lost on anyone here.
To answer the question, and without wishing to be a cop out, both accountants and bookkeepers are going to be needed if MTD ITSA is going to be a success. Time will tell if it was more of an opportunity for one rather than the other. But given the sheer number of taxpayers impacted, there’s quite literally going to be more than enough work for everyone.