Prepare for MTD impact and costs now
Making Tax Digital (MTD) is the most pressing issue to hit the profession in a generation. Given the ambitious timescale, accountants need to figure out how it’s likely to affect clients in terms of costs and technology, and what they can do now to prepare.
AccountingWEB looked at the potential impact on accounting practices along with some practical guidance and advice for accountants concerned about adapting to MTD.
Take action now
Many accountants have been frustrated with the lack of certainty, timescales and scope of the MTD initiative, but while there have been widespread calls for a delay, the move to a digital tax system is happening and accountants need to deal with it.
According to Paul Bulpitt, co-founder of The Wow Company and head of accounting at Xero, accounting and bookkeeping firms need to take stock and start making plans.
Along with participating in the consultation process, Bulpitt said there were three main things accountants can do to prepare: “First of all profile your client base, figure out which of your clients are using online accounting software and identify clients that are either using spreadsheets or the ones that come and dump a box of receipts once a year. Have a targeted strategy and segment your client list.
“Then you need to figure out your service offering, so if you now have to engage with small clients four times a year what does that service look like? Re-define your service offering. The biggest risk is if you don’t re-define your offering and you get inundated with client work that you don’t get paid for,” Bulpitt said.
His final point was on the importance of digital skills: “There are a lot of people without digital skills. Firms will need to up skill staff and teach them to be able to train clients. It’s about up skilling internally, but then being able to pass on that education to clients,” Bulpitt said.
Leading accountant on the burden of MTD
Practice Excellence Awards winner Graham Lamont, of accounting firm Lamont Pridmore, recently worked out the possible cost of MTD to small businesses.
HMRC had previously suggested that MTD would reduce the administrative burden on businesses by £400m. However, following an assessment of the proposals Lamont estimated that 2.6 million small businesses are likely to face costs of more £1,250 a year as part of the MTD plans, meaning the SME sector will face a bill of £3.25bn a year following full MTD implementation.
According to Lamont Pridmore, the £1,250 a year figure will be as a result of spending on accountancy costs and software fees.
Graham Lamont said that the shift to MTD will also require businesses to have a working knowledge of not only tax legislation but also some fundamental principles of accounting, including the difference between income receipts and capital receipts; receipts that are taxable and those that are not; capital receipts that are taxable and those that are not; expenditure that is tax deductible and expenditure that is not; tax allowances and reliefs including private use restrictions; revenue expenditure versus capital expenditure together with their tax treatment; and understand prepayments and accruals when preparing accounts or returns.
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He added that much more detailed recordkeeping will be needed to prepare accurate quarterly tax returns.
Given all of this, Paul Bulpitt added that while MTD is tough on small businesses, accountants could see MTD as an opportunity: “It’s a chance to work more closely with clients and help them through all of this,” he said.
AccountingWEB members have also been looking at MTD cost and valuation issues on Any Answers, including a thread called ‘Valuing a practice in this new world of MTD’
The original poster’s view was that MTD would be a sufficient justification for bidding at the lower end of market for a practice in a post-MTD world.
However AccountingWEB member Duggimon replied that a practice can be more or less equipped to deal with MTD when it does come along: “If they already have a significant proportion of clients on digital bookkeeping systems and working well on them then I would consider that a benefit that would add value, you can't just say ‘well the profession has a challenge ahead so all practices are now worth less’, some will benefit from MTD.”
In many other posts AccountingWEB members have talked about the anticipated extra workloads, but so far conversation has been quiet in terms of itemised costs to clients.
How does Lamont Pridmore’s workload estimate match with yours? What would you estimate the average and culminate cost will be on your client base? What approach or strategy are you taking to MTD?
The MTD consultation period ends on 7 November 2016.