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Accountants embrace bookkeeping to manage MTD


One of the less well documented aspects of the “MTD effect” is how it is encouraging accountants to bring bookkeeping in-house. John Stokdyk outlines how this trend is taking shape.


1st Aug 2022
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Since the day George Osborne announced the supposed “death of the tax return” in November 2015, Making Tax Digital (MTD) has had a profound impact on practice processes and the commercial arrangements behind them. 

Nearly seven years later, AccountingWEB continues to explore the underlying challenges and nuances, notably in our latest MTD Bootcamp webinar series in August. 

For the past four years, AccountingWEB tracked an increase in the number of accounting firms incorporating bookkeeping into their service offerings. In early readings from our latest software insight survey, more than half of the practice respondents were either offering bookkeeping as a service or planned to within the next two years. And 43% of practices who did, cited MTD as a reason for doing so.

Among entrants in AccountingWEB’s annual Accounting Excellence Awards, in-house bookkeeping was mentioned by 15% of participating firms in 2019. The level fell away during the pandemic, but surged back to double that figure in 2022. The signs from practitioners are very clear: in-house bookkeeping is one of the most dependable ways to ensure that clients are compliant with the digital record-keeping requirements of MTD.

MTD alters business models and services

Anyone who went through the first phase of MTD for VAT in 2019 will have learned the importance of early planning. MTD for income tax self assessment (MTD ITSA), now mandated to start from April 2024, presents an even bigger challenge for the profession. But many practitioners remain concerned whether they are equipped to scale up for the 2024 MTD ITSA migration, when they will face workload peaks around bunched quarterly deadlines in August, November, January and May.  

Assess client capabilities

All the same questions and concerns apply from the first wave of MTD, but extend across a much wider client base. As a first step, firms will need to assess their clients’ current record-keeping capabilities and their capacity to adapt to the new requirements. 

Who’s going to do the books under the new regime? Either clients will have to do a lot more bookkeeping work themselves, which is likely to be unwelcome. Or they will need someone to do more of it for them – which will incur a cost.

The answers to those questions will reshape how accounting firms operate and how they deliver and charge for their services. Clients will fall into different categories. For some, outsourcing the bookkeeping could open the door to more interactive relationships with their advisers based around regular management accounts, advanced analysis and growth advice. 

Other clients will stay focused on compliance, while the smallest businesses are always likely to keep an eye on the price. Some cost-conscious clients will be able to do the books themselves to keep their fees down – but who will look after those who can’t cope? For practitioners, the question has always been whether they can provide a bookkeeping service for these clients and still make a profit.

Take over the workload for them

This is where AccountingWEB mainstay Rebecca Benneyworth started her digital journey, with a “bloke with an exercise book, a pencil and a duplicate book for his invoices”. She reasoned that if she could get it right for that client, she could extend the approach to the rest of her clients.

The records were dreadful – “hours spent trying to separate out a tangle of bank, credit card and cash payments so I could do a bank reconciliation” – but the fee she charged for it was large enough to pay for the software to bring the bookkeeping in-house. 

“In fact, the move produced a better recovery on the time spent, as there was no mess to sort out and no waiting for records,” she wrote last year. She credits this experience for spurring her on to migrate all her clients onto digital systems and revitalising her practice over the past five years.

    Bookkeeping partnerships

    Technology can’t do everything, particularly when it comes to client care and education. The level of handholding and training required for clients and accountants is going to be daunting during 2022–24. This is where Zoe Whitman from 6 Figure Bookkeeping sees an opportunity for closer accountant-bookkeeper relationships around MTD. 

    As workloads increase, there are going to be plenty of opportunities for bookkeepers to help accountants get clients onboard and trained up for quarterly reporting. “There are going to be accountants who need good bookkeepers and are wanting more support and more resourcing… When you become a software expert, that makes you valuable,” said Whitman. 

    “The client wants to know their finances are looked after. They don’t really care who does it and how that work is divided.”

    Revenue boost

    Bookkeepers are definitely going to be part of the MTD equation, whether they are internal or external. But one argument for bringing the service in-house is that it can be a very handy revenue boost. The Accounting Excellence Award entrants who followed this path have reported 20%+ growth rates in recent years. Mid-size firms in the £300,000-£650,000 turnover bracket showed up particularly strongly in the in-house bookkeeping camp this year, enjoying an average fee growth rate of 35%. 

    Cloud accounting and expenses capture is proving to be an effective answer to whether bookkeeping can be delivered profitably within an accounting practice. Among the firms sharing their experiences in the latest insight survey, 64% highlighted timeliness, accuracy and reduced hassle (64%) as benefits of in-house bookkeeping and 34% reported cost savings.

    When you bring the books in-house, you get much cleaner data back out, which makes it much easier to produce reports, accounts and compliance filings. As Rebecca Benneyworth explained, “I’m happy bringing the bookkeeping in-house because I don’t have to spend time (much of which is not chargeable) sorting out the mess after the client has mucked it up… it is quicker and easier, and therefore more profitable.”

    Practical tips: 4 steps to automated bookkeeping

    As AccountingWEB’s data shows, conversations about in-house bookkeeping have been taking place for many years. A Sage automation article in 2019 set out the steps required to build a real-time data stream that makes it possible to deliver such services efficiently and profitably. The four steps involved: 

    1. Connecting the client’s bank feeds to accounting ledgers so completed transactions can be automatically entered and recognised. 
    2. Ensuring that sales and purchase orders are raised within the accounts system or are fed into the relevant ledgers from compatible systems, for example point of sale, CRM or ecommerce software.
    3. Capturing transactions at source, by using data capture tools such as AutoEntry to make sure things like employee expenses, recurring utility payments or other commitments aren’t missed. Electronic payments can also remove the paper from your digital transaction chain.
    4. Rapid reconciliation to keep the flow of revenue and cost information clean as it comes into the bookkeeping system. Modern software can learn how people categorise transactions to make this process almost hands-free.

    Join John Stokdyk at 11am on Tuesday 9 August to learn more about how to implement and deliver in-house bookkeeping services in our MTD Bootcamp webinar with AutoEntry.


    Replies (11)

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    By TB93
    02nd Aug 2022 10:39

    Bringing the bookkeeping in house is all fine and dandy, but I think what's more important is improving efficiencies in bookkeeping.

    This may be a controversial opinion to some, but running purchase ledgers for some small businesses just isn't worth the time it takes when at the year-end there's likely a couple of supplier statements outstanding that a year-end journal could take care of rather than constant work throughout the year. A re-think is needed, rather than the mentality of 'we've always done this'.

    Shouldn't we also be prompting the clients to take care of their own bookkeeping where possible, giving an idea of added value of seeing their business performance throughout the year?

    It's not only the processes, but also the software, we're all used to online software like Xero and QB.. or even Sage.. but sometimes the ability to make corrections to a client's bookkeeping entries can be tedious, personally I've used LimeBooks and it's a breath of fresh air, select the transactions you want to change, whether bank reconciled or VAT reconciled and mass update, job done. Also, ease of use for clients to use gets a big tick for me.

    Thanks (0)
    Replying to TB93:
    By lh3f9764bg1g
    02nd Aug 2022 11:25

    Can Limebooks accept automatic bank feeds? I'd be worried about using it if it only accepted downloaded CSV files . . . . . but if it could deal with automatic bank feeds it might be interesting.

    Thanks (0)
    Replying to lh3f9764bg1g:
    By TB93
    02nd Aug 2022 11:53

    There aren't bank feeds at the moment, however I believe there are plans for importing pdf statements soon, then at some point by the end of the year or start of next year bank feeds should be in progress/place.

    Would the worry be the time taken to obtain the csv statement from the clients? In practice, the first time may be difficult for some, however there's a brief download guide to send clients to point them in the right direction. About 95% of our clients are ok with sending us the csv, but for those who aren't, to be honest I doubt they'd be able to set up bank feeds for us.

    Thanks (0)
    Replying to TB93:
    By lh3f9764bg1g
    03rd Aug 2022 13:04

    Yes, I'd definitely be worried about the hassle of getting files from clients. If/when this software begins allowing bankfeeds it'll become more interesting to me. It looks quite bare-bones (which I like!)

    Thanks (0)
    By johnjenkins
    02nd Aug 2022 10:53

    John, I think that you have misread the current scenario. Of course there are Accountancy practices that are geared up, have the latest technology etc. I go back to my original gripe that there are many practices and business out there that aren't that geared up and use high tech stuff. This is where MTD will fall on its backside. In house or out house bookkeepers will not make an iota of difference. QU is just not viable, especially when you do the costings. I am talking about those earning under £85k, which accounts for a lot of business, which you don't seem to have addressed.

    Thanks (9)
    By raybackler
    02nd Aug 2022 11:33

    All of my clients use cloud accounting software and they raise their own sales invoices. We take care of bank feeds, querying each month the transactions where more information is needed, so we can complete the bank reconciliation. We liaise with them over expenses, encouraging all transactions to be processed via the bank, if possible. On top of this we run monthly payrolls within the cloud software. Their limited company businesses are, therefore, already digital and extracting the quarterly data will be relatively easy. So I agree with johnjenkins, the issue is not about whether bookkeeping is done in house or not.

    My issue is that about a quarter of my clients have a single buy-to-let property. The bookkeeping involved is minimal. The clients send me an annual summary for their self assessment tax returns. They are now going to be required to digitise what was already a simple, error free, exercise. This will be a shock to them and a complete waste of time and expense. I have explained to several clients that this is just around the corner, but can't grab their attention yet, because it detracts from their main business activities and is not important to them, for now. I despair at the stupidity of MTD for SA, when the existing SA system is fine. There are no benefits, only costs for my clients.

    Thanks (13)
    By Mr J Andrews
    02nd Aug 2022 12:54

    ''.....One of the less well documented aspects of the 'MTD effect'.....'' I would argue is HMRC's communication to its 'customers'.
    Clearly the article highlights a particular practice whereby in-house has proven beneficial as ''there was consequently no mess to sort out..'' But there will be many more practices who will have educated their clients in the first place to prevent any so called mess. And again proves that the only benefactor in Osborne's whim is the Revenue . { This remains to be seen in view of their general administrative decline }.
    The article also poses the question ......''But who will look after those who are unable to cope.?''
    I suspect Truss or Sunak will make it a priority to maintain the status quo for those under the VAT threshhold in view of the current economic climate , the sufferings of small businesses - and equally with one eye on the next General Election.

    Thanks (2)
    By Ian McTernan CTA
    02nd Aug 2022 14:52

    Firms are switching to inhouse book keeping for a very simple reason- it takes less time to do than trying to sort out the mess clients will make with auto entries and setting up VAT rates then applying the same VAT rate to train fares and hotel stays (as just one example).

    As a recent example, it took me 4 hours to fix a client's entries (including removing most of the auto entry rules they had clicked through) that would have taken me less than 30 minutes to do in the first place.

    This is partly the software companies' fault, as they claim in their adverts that their software will recognise everything and classify it correctly- leaving us to sort out the mess.

    Trying to explain to clients that in 2024 they will be required to report their income from their one BTL quarterly using some software which will cost them £200 when they are already smashed by the mortgage interest deduction farce and on top of that if I'm to do it add another chunk to the's all going to turn into quite a mess.

    Thanks (2)
    Replying to Ian McTernan CTA:
    By Hugo Fair
    02nd Aug 2022 15:01

    Agree 100% with your 'reason' (your first para).

    But, as per your final para, it isn't going to make it any more likely that clients shout 'yippee!' ... nor indeed that they will even try to play ball.

    Mess is an understatement. Agents face the double whammy of some clients leaving (on the basis that the govt & software suppliers say we're superfluous) + the remainder being prepared to comply (but not to pay extra for doing so)!

    Thanks (3)
    By Barry E
    02nd Aug 2022 18:10

    Having dealt with HMRC for over 30years I can say, in all honesty, that they have never been so inept & inefficient. The complete travesty of MTD for VAT was hidden by HMRC, even to the Chief Officer to whom I requested my MP to contact to obtain an explanation as to why the new system (MTD) didn't work.Having eventually received a phone call from one of the Chief Officer's lackeys who spouted the official line but did not have a clue what he was talking about, I said goodbye. Thankfully I had actually managed to reach an HMRC Officer who knew what they were talking about, whilst I was on Holiday. MTD didn't work with Google because it automatically overrode MTD..... It worked fine with Bing ... On the basis that MTD ITSA is so far more reaching than MTD VAT I expect nothing more than a complete disaster, which will again be covered up by HMRC. Apparently HMRC have consulted SME's about MTD ITSA, and they are all so enthusiastic..... They obviously have not consulted the many and various Labour Only CIS Sub Contractors who, as we all know are keen to spend their out of work hours keeping digital records....... I can't help but wonder the real motivation for MTD ITSA. I think most of us practitioners can see it.

    Thanks (4)
    By rob winder
    03rd Aug 2022 10:43

    From day one we have done the bookkeeping for the majority of our clients. This suits me fine as I know it will be done correctly. Since moving to cloud accounting we have let most clients, where appropriate, raise their own sales invoices, but that's it. I would say it takes us less time to do the bookkeeping for a client than it does to sort out the mess where they insist on doing it themselves.

    The problem is that automation is now creating a new bottleneck in the operation. Whereas previously the bookkeeping side of things was tediously slow its the accounts production and taxation end of things that is slowing down the operation.

    Thanks (1)