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Prepare for MTD impact and costs now

17th Oct 2016
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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.

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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.

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.

Replies (58)

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By Gimlet2008
20th Oct 2016 10:42

Yes I agree about the nerviness bit. Even I feel nervy...
Even (relatively) simple forms such as auto enrolement opt- out if you have no Employees at all finish up with a warning ..."Really..are you sure...you might get prosecuted!! Think again. Its probably not right is it ? If you get hauled off to pokey for getting this wrong what will the neighbours think ?

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By Barkster
20th Oct 2016 10:46

I have been taking a very brief look at a few of the online accounting software offerings, with a view to seeing if the aforementioned "Johnny the Window Cleaner" stands a hope in hell of using any of this, and then whether we can get the info out of it that we need, and they all seem to come up severely wanting. Xero are throwing money at sponsoring and advertising and sweet-talking large firms of accountants but I find their software lacking - I have witnessed transactions disappearing from VAT returns once the VAT return has been submitted etc. The "matching" routine, allocating payments or receipts to invoices is fine if there is a direct match, but a nightmare if there isn't.
I tried Zoho, the first transaction I had for my client was a £101.00 deposit into their new Ltd Co bank account, being £1 share capital and £100 Directors Loan - that sent them into a flat spin - there was talk of "raising invoices" !!
Freeagent freely admits you cannot create new balance sheet categories - non-starter for me then.
I tried converting Sage into both Kashflow and Xero - what a disaster and waste of time that all was.
Is there a forum on here to discuss the various merits (or not) of the accounting packages (which isn't sponsored by any particular software house) ? Because if not, there needs to be, and then perhaps the software houses can look at that forum and see what features and capabilities we accountants want, rather than what they think we should have.

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Replying to Barkster:
Chris M
By mr. mischief
20th Oct 2016 11:44

There was a decent article in the Software section just last week comparing the various companies.

Note that I would happily put £10k at even money that at least one of the smaller guys will have busted in the next 5 years. See my postings on this subject in other threads. So when I discuss this subject with clients I ALWAYS discuss the insolvency risk along with the benefits or lack of them of the different packages.

Hint - as in most sectors of the economy some of the companies making the most noise have the dodgiest balance sheets.

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Replying to mr. mischief:
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By Barkster
20th Oct 2016 13:58

Thanks.
Can you please point me in the direction of that article, as I cannot find anything on here - I hate this new website.

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By sparish
20th Oct 2016 11:31

.

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Chris M
By mr. mischief
20th Oct 2016 20:45

https://www.accountingweb.co.uk/tech/accounting-software/an-accountants-...

Here is the link. I totally agree the new website is utterly rubbish for navigating around, it really makes you wonder what goes on in peoples' heads when they are specifying these IT projects.

Whether it is Xero, Accountingweb or HMRC they all seem to get totally carried away with the flashy techie drivel and miss out on basic stuff like can you get around the site, does the VAT return actually post properly and so on.

I actually gave up posting on here in disgust, and will probably do so again once MTD is either killed off by the sensible MPs or finds its way into a Finance Bill or Statutory Instrument drafted by one of the numpty MPs.

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By AndrewV12
15th Nov 2016 10:02

Ahhhh the quarterly tax returns issue has raised its head again, I almost forgot about that one.

He added that much more detailed recordkeeping will be needed to prepare accurate quarterly tax returns.

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By AndrewV12
15th Nov 2016 10:06

Extract above
According to Lamont Pridmore, the £1,250 a year figure will be as a result of spending on accountancy costs and software fees.

SEE CHANGE AS AN OPPORTUNITY - they say.....
I was wondering why a load of new accounting software has appeared on the market, claiming to solve all issues, some clients will pay £1,250 and some will not, it all depends what accountant you have. Happy time for some Accountants, a pain in the backside for others.

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