Should accountants emulate HMRC and charge for late delivery of accounts?

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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.

Marks

  • 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%

Conclusion

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.

About Jennifer Adams

Jennifer Adams is Consulting Editor of AccountingWEB and is a professional business author specialising in corporate governance and taxation. She runs her own accounting and consultancy business with offices based in Surrey and Dorset.

Replies

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22nd Jan 2019 16:20

The problem I have with this is that most clients fees are wrapped up into an annual fee agreement and tax return is a small part of it.

So charging say an extra £100 for the tax return would seem petty if annual fee is a few grand, it would probably get queried and end up credited with an annoyed client.

Ultimately you either have to decide if you want to work with clients who put you under pressure or push them into better systems (Xero etc) where the data is not delivered to you late and you drive it.

Just charging more for people who put you under pressure is probably not the answer.

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23rd Jan 2019 09:26

FOr my practice, I have found clients get very annoyed with a premium.

Moreover as the fine is only £100, as I would rather say to them "I will do it, but it might be in Feb now", then "we will do it if you pay me another X"

I manage it by sacking persistently late or disorganised people.

Such as the chap we prepared his SA 10 weeks ago, and told me yesterday that he would pay our bill and return the signatures papers on the 31st Jan, and not before. We have sent 6 reminders and he only replied yesterday, so no stress, he is in the bin. I would say it was a 5-10 year process to get your practice from a last minute free for all, into a controlled on, and its mainly talking to client, and selecting the right ones.

NB one little old lady client who is lovely, and paid a fine every year for 4 or 5 years having sent us the data in the last week in Jan, now sends her stuff in early September. Even old dogs can learn new tricks!

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23rd Jan 2019 10:20

Charging extra for late clients is a good way of increasing fee income, but ineffective at stopping people being late. If you charge extra for late submission then it is an accepted part of your fee structure and clients need not feel guilty for handing things in late.

Psychologically, the guilt of putting you, the person who is helping them, under unnecessary pressure, is a more effective tool for encouraging earlier submission than an increase in fees. Of course, you do have to wield that tool and it's not easy to meet with everyone and sit them down and have a bit of a go at them for being slow or lazy, so many will find it easier to raise their fees.

If that's the case then your best option is to raise the fees to the point where you don't mind being flat out every January, because the impact on the timing of your annual workload is likely to be minimal.

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23rd Jan 2019 10:31

I've got most of mine pretty well-trained and it's not quite the maelstrom it used to be.

I can almost predict when the records will arrive, which makes things easier.

The usual riposte is, "sorry it's late again - if I have to pay the £100, I'll have to pay the £100..."

People are increasingly seeing the miriad of petty fines as simply a cost of doing business these days and they are as ineffectual as taxation in social-engineering.

If fines are so effective, maybe they ought to fine the mentally ill for deviant thoughts? Thought not...

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to Nick Graves
23rd Jan 2019 11:08

I get a lot of that.

If you set the expectation for a fine, and they DONT pay it you are in the good books.

As opposed to setting it for doing it on time, and failing or getting stressed trying.

£100 is not a lot of cash if you are on £150k+ Quite frankly it needs to be £500 or more to be able to charge premiums and still make it worthwhile for us to dick about at the last minute and the client to be up on the deal.

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23rd Jan 2019 10:32

Great in theory, but a lot of extra work in practice and most will find clients just factor in the extra payment and not care.

On MTD, most clients don't even understand what it is or what it will entail and aren't interested in finding out, so that will be an uphill battle. Most have no intention of even having their own HMRC access as they don't see any benefit to them and just another layer of bureaucracy...

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23rd Jan 2019 10:53

I thought that I had tried everything - offering discount and charging but still have the same old latecomers.

I will follow this suggestion as soon as I can after 31 Jan!

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23rd Jan 2019 10:55

Tried the uplift route a few years ago on a few selected cases. All of them went elsewhere or did it themselves. What was more frustrating was that one of them is a city trader and fell into the category of I would have been more than happy with his tax bill as my gross income.

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23rd Jan 2019 10:57

Great article but for a small practice like ours, the fee base is too low for a percentage increase to make any real impact. I started making a rod for my own back years ago (I do all of the tax work), as we have far too many clients leaving it late but have never yet failed to meet the deadline - but only by working flat out in December and January. Its my own fault I know!
I have chosen the other option of passing clients on to a former colleague and am starting to run down our practice. I really don't want to get involved with MTDfB.

We have three clients left who will be caught by MTDfV and I have only kept those because they are long-term valued clients and friends and not for the fees. Now I am concentrating mainly on personal tax, though it does mean my husband is more or less out of work!

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23rd Jan 2019 11:03

We advise clients that if records are received after the date in the Letter of Engagement that we cannot control the flow of work through the appropriate staffing levels so easily and so if them sending the information in late results in a senior member of staff doing a junior's work then they will be billed accordingly.
On the flip side of that, if clients who are perpetually late complain about fees, we point out that if we received their records at a reasonable time of the year then we could potentially reduce fees but not if we receive it at the last minute and may need to adopt the above staffing requirements.
It has made some clients change their ways and get things in sooner. Some are prepared to pay and will never change. We never have a crazy rush in January though because we are chasing clients throughout the year and so the majority are already done by October. We've never had a major overtime need in January and never had to refuse requests for odd days of holiday in December and January.

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23rd Jan 2019 11:23

Too much hassle and risk of losing a good client if you charge extra. I'd want to charge more than the £100 fine anyway, so clients who are late are just told that and they'll have to pay the fine. I'm not going to sack a client for being late the odd time - if they're a PITA client, I'll have already sacked them or ramped up their fees for the hassle etc for other reasons, being a few days late for the tax return is pretty low down on my list of grievances.

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23rd Jan 2019 12:09

I am a CA, long retired from practice and nowadays I concentrate on my own property-related business.

It seems to me that some of the well-meaning processes referred to, while entirely valid, miss what I think is the most serious issue – increased exposure to error and PI liability.

As a youngster, I remember my then-boss telling me – it's all very well making heroic efforts to meet near-impossible client deadline – be it audit or purchase investigation. But if something goes wrong (even if the client is at fault) the heroic efforts will be quickly forgotten and the potential liability will come home to roost.
Perhaps there is also therefore a need to appraise the clients who are persistent and needless "last-minute-ers" – and consider looking for a liability waiver, and particularly full cost for the additional work involved in doing the impossible against a deadline?

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23rd Jan 2019 14:15

I tried the fee punishment route 10 years ago and it did nothing for long term relationships.

All solved at a stroke when, per Jennifer's number 4, we set the deadline for 3 months after the tax or accounts year. We used 31 October before and 70% of clients got their info to us in the last week of October, still causing grief December/January.

That's far too much rope, if a client can't get their info together in 3 months then they can go and pester someone else. We immediately got over 70% in within the 3 months, and it's got better over the years.

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23rd Jan 2019 14:28

Everything is possible. Somethings just cost more than others.

Don't turn away January new clients just double their fee. If they say no... what have you lost nothing... if they say yes superprofits. They are the best ones.

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23rd Jan 2019 20:17

The extra fees I have been charging are pretty well 100% successful:

1. 80% of the time people either cough up or leave. When they cough up and repeat offend, the following year instead of £200 plus VAT for January it is £500 plus VAT. At this stage they mostly leave, often having paid the £500 plus just to get the job done.

2. January is a very important month for business development for me. Lots of people use Christmas break to divorce their spouses and make other changes in their life and business, like looking for a new accountant. Many of these, I have found over the years, turn out to be high quality long term clients.

3. In order to build up your order pipeline in January, you just can't be filing tax returns and herding cats 24/7. Fair enough if you are a bit short of clients, but no way if - like me for the past 7 years - you are within 5% of maximum capacity.

So January is an excellent month for me in terms of improving my profit margins. Higher fees for some clients, weeding out some really poor clients who will stress you to bits if you let them.

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to mr. mischief
24th Jan 2019 09:17

I am fascinated to learn tax payers will pay £500 to save a £100 penalty.

My view has been if the extra charge is more than £100, we might as well do it in Feb, I hadn't really considered people would pay that much.

I do very much agree about the quality of new leads in Jan, especially the first week tends to be high, lots of "planner" type clients will be either putting in action a long held plan from Jan, or will have come up with one over Christmas. Those tend to be good quality clients.

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24th Jan 2019 09:45

Late comers are no problem as they spread the tax work nicely over 10 months.

This is the 22nd year of January Self Assessment deadlines by the way so unless you are new to practice surely we have all got it sussed by now.

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24th Jan 2019 10:43

I don't know why so many people are squeamish about charging penalty fees. Every year when I send out the "Tax info required" letters I include a paragraph which makes it clear that my hourly rate increases by 50% in respect of work on info received after 30 Nov, and by 100% (yes, double the fee) after 31 Dec. They get a reminder in October, and then bang! I STICK TO IT, even if it's a mate. They all pay up; most don't query it, and I've not lost one client as a result, because they know the answer is in their hands, and most beat the deadline the following year. When I first started doing this I would treat myself and the missus to a weekend (first weekend in Feb) in a nice hotel somewhere on the extra fees. Now I don't get so much by way of extra fees, but this year all my tax returns are filed with a week to spare. Just be brave and value your free time a bit more!

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24th Jan 2019 12:59

My late payment "scheme" was quoted in Jennifer's article above (which references late delivery of accounts records) but it's worth pointing out that it was lifted from a thread which was dealing with late delivery of tax return records. There is a world of difference between the two (at least as far as I am concerned) and, had that thread been about accounts, then my answer would have been different.

That said, I'm pretty happy with my late payment scheme and think it works for me. It was originally intended to incentivise clients but I would agree with comments above that it doesn't really do the job very well on that front for the perennial latecomers; I do find, however, that the early delivery discount does have a positive effect on some of my smaller and more cost-conscious clients. Nor do the extra charges raise that much in terms of revenue in the overall scheme of things but I've stuck with it because, in my mind, the justification has moved away from incentivisation and towards providing some measure of compensation for the extra hours I have to put in at this time of year.

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25th Jan 2019 13:20

Reference my response above, I would always prefer to do tax returns and accounts in the Summer/Autumn and not have the grief of the winter rush regardless of how many thousands I could then charge for late info, and we used to double the annual fee if the info came in after 1 December.

For us it was just daft to send out tax return and accounting info checklists at the start of April only to end the email with, "Don't forget we need all of the above by 31 October".

What is the person going to do, will they rush to get it all done and dusted there and then or stick it in a draw for 7 months?

So all we did was replace 31 October with 30 June.

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25th Jan 2019 13:37

I was a little annoyed with some clients this year with the late information.

Next year, I going to send an email out saying if information not submitted by say 31st October, they will have to donate £100 to charity. I think most will not mind paying £100 to charity but would feel offended if it was paid to me. Anyway, I rather have the money go to charity.

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