Della Hudson sets out her action plan for readying clients for Making Tax Digital, which started with a categorisation exercise.
When I first heard about MTD I was absolutely appalled. I gave feedback via online questionnaires and through a local HMRC consultation meeting on how the move to digital reporting was too much, too soon, for the smallest businesses.
Whilst I very much believe that businesses should be heading towards digital in all aspects, the low turnover threshold of £10,000pa meant a huge administrative burden and/or cost for part-time businesses, and even for buy-to-let landlords. The timescales were also unworkable for anyone not already on the digital track.
While working to get the proposed legislation amended to something more sensible, we also needed as much time as possible to help our clients prepare. Whatever the final MTD structure would be, it was reasonable to expect that good bookkeeping on standard accountancy software packages would be able to fulfil the necessary MTD requirements.
Action plan
The first task was to make sure that our clients were aware of the proposals so we:
- wrote about it in our monthly e-news;
- ran an FAQ webinar for clients and others on what we knew so far;
- spoke on the subject at one of our regular Money Matters events; and
- wrote an article for our local magazine.
The publicity from HMRC about MTD directed to businesses is still far too limited.
Categorisation
We were fortunate to have a practice which dealt primarily with business clients, although many of our directors had small side interests or a buy-to-let which would be caught by the de-minimis threshold of £10,000 per year. The changes to the flat rate VAT scheme in April 2017 also affected many of our consultant clients who were doing their own bookkeeping.
We separated our clients into these categories:
- Business clients already using Xero or other software which we expected to be compliant with MTD filing in time.
- Those needing quarterly adjustments to their bookkeeping before submission to HMRC
- Straightforward businesses where the adjustments could be left until the year end
- Business clients using spreadsheets and the flat rate VAT scheme for a straightforward business
- Those who could stay on flat rate scheme
- Those who could do their own bookkeeping on software
- Those whom we judged would need us (or another professional) to do their bookkeeping on software
- Private clients affected and those with turnover below the VAT threshold.
The actions we took were in two phases:
Phase 1
For clients in group 1a we ensured that they were already paying for one of our monthly or quarterly management accounts packages, which would enable us to submit figures to HMRC directly from software for a minimal amount of additional work, and fee.
For clients in groups 1b and 2b who do not require quarterly adjustments we ensured that we were comfortable enough with the quality of their bookkeeping for them to submit their quarterly MTD reports themselves. We identified a couple of clients who needed a little extra training, some of which was billable and some not.
We worked out a fixed rate bookkeeping fee for small clients and wrote to them about MTD. We took this opportunity to also tell them about the changes to the flat rate VAT scheme, identifying the savings on switching to standard VAT accounting and the benefits of letting us look after their bookkeeping. This was offered to all our clients who fell into groups 2a and 2c. It was taken up by all our clients in the latter category, many of whom seemed to be grateful that we would be looking after them through the VAT and MTD changes. There was a lower uptake amongst those in 2a where a change was not yet required.
Work to move these clients to the new service packages was completed in plenty of time.
Phase 2
Phase 2 was to cover the remaining clients in category 2a and 3. These clients would only see a cost from any move to digital. If they needed our help with management accounts and bookkeeping we would already have discussed that package! For these clients, there was little that we could offer as a benefit, other than reassurance that we would look after them. Once the higher starting thresholds for MTD were announced, this took care of all our category 3 clients so we only needed to remind the clients in group 2a nearer the MTD implementation date.
Fall-out
Through the process, we lost one semi-retired client who has a turnover of £13,000 and his wife writes up his accounts book at the end of each year. But, because we acted quickly, we were able to tie in the introduction of MTD with the changes to the flat rate VAT scheme, so that clients were still able to receive some ‘savings’ to offset the cost of bookkeeping and MTD. We also stressed the benefits of better management information where we thought this was of value to clients or peace of mind to others.