Should accountants emulate HMRC and charge for late delivery of accounts?by
Jennifer Adams considers whether hitting clients in the pocket is an effective method of persuasion for delivery of accounts in time to meet deadlines.
At this time of the year, you are guaranteed to find the same old questions and articles highlighting the pain of the January deadline.
There is always a question posted on this forum asking how other accountants get clients to send in their accounts earlier, or at least in time so that January is less of a nightmare than in previous years eg 'January self assessment as a percentage of total'.
This year, the conversation started on 7 January below Richard Hattersley’s article: "Goodbye January: New Year marks start of busy season”. The words 'never again' are quoted with monotonous regularity and good intentions abound (eg: “Next year I will be looking to get back to November as a cutoff, or October if possible”). Somehow or other, miracles are fulfilled and the 31 Jan deadline is met but the worse may yet be to come.
Whatever your thoughts on phase two of Making Tax Digital actually coming into being, it must be assumed that it will and work towards the supposed implementation date of April 2020. With five tax submissions being required, similar 'January miracles' will be a physical impossibility.
A new procedure must be put in place to ensure that deadlines are met. From comments on AccountingWEB, members are increasingly turning to the levying of penalties. Such a procedure appears to work, but will only do so as long as the threat is carried out.
If you intend to go down this route, processes for action need to be introduced this coming tax year so clients get used to a stricter deadline. Here’s a broad idea of how I approached it:
How do you implement the process?
1. Make it a policy that you do not take on anyone new in Dec/Jan, as they tend to be perpetual last-minuters.
2. Go through your client list, listing the dates the accounts/returns were delivered for each of the last three years. I’ve made it three years rather than one, as there may be specific one-off reasons why a client was late.
3. Highlight those who are perpetual laters and decide whether you want that client to remain. If not, do as Mr Mischief intends: “A brutal clear out this year”. If you’re looking for ideas on how to 'sack' a client, here’s an article I wrote last year on the subject.
4. Set deadlines relevant to your own and your firm's way of working and holiday patterns. For example, end of October for self assessment clients and six months after the year end for companies.
5. Insist that VAT-registered clients either subscribe to auto input or send bank statements on a monthly basis.
6. Decide on the amount of penalty for defaulters (see penalty section below for further details)
7. Set up a strategy as to how to advise clients. Filter out those whom you know won't appreciate such a notice, for example, the more elderly client who always files in the last week and always will do – why upset them with a generic email when a personal chat, phone call or letter would be more likely to work.
You will be left with those who:
- Are usually on time but still need to be advised of the new policy
- Are perpetual defaulters – can you possibly use harsher words?
- Sometimes might default but not by a lot
8. Once you’ve decided who to contact, either tell them in person or send by email explaining that this behaviour cannot continue, especially with MTD on the horizon, and that a new procedure is to be implemented.
The notice can be generic, but individual letters will probably have more effect. Such letters need to be along the lines of: “You sent your stuff in one month/7 days etc before the 31 Jan deadline, which put me and my staff under pressure to complete your return on time. This year we did make it, but we cannot continue to work like this etc”.
Make a note of the date they were told so they don’t come back with a “you never told me...” response. Crucially, communication needs to be in March before the new fiscal year starts.
9. Ensure they know that not only will you be levying a penalty, but also you might not be able to ensure the submission will make the deadline.
10. Explain in the notice that you will be issuing reminders in phases from April. You might issue tax return information letters which act as your 'April reminder'. Professional management systems can set reminders and some can issue automated emails (eg AccountancyManager). Here’s a rough schedule you might like to follow:
- 1st one after 6 April - a light one as a reminder of deadlines and notification you will impose penalties.
- 2nd one a month before last years' submission date (eg "you sent in Aug last year this is just a reminder”).
- 3rd one in September to all current non-submissions.
- 4th one in Oct saying 'you're in 'penalty time'.
- 5th one in Nov saying 'you will be penalised £xxx'
11. Place a copy of your notice (or a generic version of it) on your website.
12. Consider giving discounts for early submission (see next section for practical examples).
13. Review letter of engagement and amend accordingly.
14. Fulfil your threats.
How much to 'penalise'?
Below are a few examples of other accountants' percentage discounts and penalties. More can be found in the comments section of this article.
Mr Mischief: "For starters, anyone coming after 30 November gets a minimum 20% (£100 minimum) extra to pay, and after 31 December this rises to 40% and £200".
Red Leader: "Add 10% for [tax return] info sent to me in December; +15% ditto in January.
- Hand everything in before 31 July – 10% discount
- Hand everything in between 1 Aug and 31 Oct - no discount/uplift
- Hand everything in Nov – 10% uplift
- Hand everything in Dec – 25% uplift
- Hand everything in Jan – 33% uplift
Adam.arca: “I'm a bit lazy with pricing and only tend to increase it every three or four years, usually by 5%. In year one, that then allows me to sell getting the books in early as avoiding the price rise. I'll offer the discount again in year two but won't bother with it in years three and four, and then the cycle starts again.”
- Discount to July 5%
- Nov +5%
- Dec + 10%
- Jan +20%
This year may be the final year to teach our clients the way of the future. Reminders will be nigh on impossible under the MTD system and accountants need to gear themselves up to be ruthless which will be easier if such procedures are already in place.