Are your clients ready for MTD?Published on 19th June 2019
Making Tax Digital (MTD) for VAT arrived at the beginning of the tax year. Most accountants - and most clients - should already be working on compliant systems, and enjoying the benefits in terms of simpler bookkeeping and error-free returns. But what about those clients who are having problems making the transition?
Time is running out for them.
Who needs MTD?
Since April 6, VAT has been digital. Businesses with turnovers over the VAT threshold of £85,000 are no longer able to use HMRC’s manual service to compile their VAT returns.
If your clients submit their own VAT Returns and want to continue to do so, they will need to sign up for MTD. Most have already adopted suitable software, but with the first post-MTD VAT deadline upon us, those who have not made the leap are going to face problems - and that will inevitably lead to headaches for you as their accountant.
These businesses may be traditional operations reluctant to change, and start-ups who already have plenty to deal with. If they are small, with a turnover under £85,000, they currently have some breathing space. However, it will be temporary. All tax will probably become digital in the very near future.
So what can you do to help businesses who need to go digital, but currently won’t, or believe they can’t?
MTD in easy stages
HMRC requires businesses to make digital returns, but it does not actually require them to use a software package that allows them to keep records and submit VAT Returns. This might be the logical and most efficient approach, but the taxman has probably estimated the numbers who will resist change, and provided an alternative.
This is bridging software, which allows users to connect non-compatible software such as spreadsheets to HMRC systems.
HMRC have provided a long list of suitable software titles.
So, while some clients may be ready to adopt new software packages which automate their bookkeeping, change-averse clients can continue to use spreadsheets as they have done in the past and then manually type them into the HMRC interface. Some clients may take an even more manual approach and use paper calculations, before typing the figures into HMRC’s online service.
However, this is not really a viable approach any longer. MTD also requires digital records - Excel files count as digital records, but cannot be used for submitting VAT Returns.
What's more, this approach is time-consuming and is liable to error. If your clients fall into the latter two categories, there is an opportunity for you to help them adopt the new MTD system, and enjoy the benefits. You will be saving them time and from the risk of errors, and lightening your own workload - you may never have to spend hours over handwritten sheets trying to work out where the mistakes are again!
So do you have clients who seem to be MTD resistant? The first step is to talk to them and try to understand the problems - what it is that is preventing them from adopting MTD? Then you may be able to work with them to overcome these problems.
If some of your clients are still just using Excel, you should discuss with them the benefits of moving to cloud accounting software.
Pointing out the benefits of Sage, Xero or Quickbooks can be easy. They already use a computer and, once they grasp the principles of online accounts, it is very easy to adopt these market-leading programs. A little reassurance from yourself, and pointing out the availability of online help and training, could be enough to bring them into the modern era.
Of course, many accountants will still find themselves working with clients who insist on paper systems. Small businesses who have been working with ledger books for decades, and even those who will give you the figures on the back of an envelope still exist. You may have to accept that these clients will never be able to adopt MTD, no matter how much you cajole them, or whatever the taxman may offer as penalty or inducement.
You may simply have to make their VAT submissions on their behalf.
This can be unprofitable in terms of your time, but it does offer you the opportunity to maintain a dialogue with your client, and to introduce your other services. With some workflow software of your own, you can, at least, bill for the time you take.
You can use the VAT for Agents online service to submit your clients’ VAT Returns and final VAT Return (VAT193), view clients’ VAT Returns and set up Direct Debit instructions to pay HMRC. Remember, you must be an authorised signatory on a client’s bank account to do this.
It all means doing more for your clients, which could support your own profitability.
Funding may be required for MTD - to provide suitable IT hardware and to pay for compliant software. Costs may be an issue for smaller clients, who have obsolescent IT, or no IT at all. For funding solutions that could help your clients, simply call us at Rangewell for the answers they need.
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