The planning checklist for accountancy practitioners

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1 Making Tax Digital: The planning checklist for accountancy practitioners by Rebecca Benneyworth, MBE BSc FCA Tax consultant In association with 1 March 2017

2 Introduction This paper explains the requirements of HMRC s Making Tax Digital (MTD) regime and what you and your firm need to do now to prepare your clients for the changes. MTD is without doubt the biggest change to the administration of tax since the invention of PAYE in the first half of the last century. It will affect every individual who is a taxpayer and every business in the UK. In particular, it will change the way that businesses keep their accounting records and report their income to HMRC, and the services that they need from their accountant or tax agent. The new regime will also offer the opportunity for self-employed taxpayers to pay their tax through optional pay as you go instalments, based on the data filed with HMRC under MTD. 2

3 Key MTD requirements There are some exemptions for charities and similar organisations and there will be a turnover cut-off below which businesses will not have to comply with the requirements set out below, but in general: Businesses must keep digital accounting records. There will be rules about what these records must include by way of detail. Businesses must analyse their expenses at a minimum under the headings used in the current self-assessment return. Businesses must update HMRC with their income and expenses at least once every three months via a software that complies with MTD. Once a year the accounts for the business must be finalised by adding year-end adjustments and capital allowance claims. Such adjustments are optional for the quarterly updates. The time given for this will vary depending on the client s accounting date, but will be the usual 31 January deadline for clients with a 31 March accounting date. Taxpayers will enter details of their income from other sources onto their personal tax accounts (PTA), or check the amounts shown on their PTA are correct. Unincorporated businesses will start reporting under MTD for the first accounting period starting after 5 April Very large partnerships will be given more time to adjust, as will some small businesses above the exemption threshold. From April 2019, businesses which are registered for VAT will also have to make their VAT returns through their MTD software. Limited companies will join MTD from April

4 Making Tax Digital timeline April 2017 July April April 2019 April 2020 Public Beta to test MTD processes Finance Bill 2017 completed primary legislation final Secondary legislation released for comment & finalised Go live for accounting periods starting after 5 April Legislation affecting companies finalised VAT returns to be filed using MTD software Limited companies join MTD for both corporation tax and VAT March 2017 Jan 2018 Jan 2019 Jan 2020 April 2020 March 2017 onwards Spring 2017 July January 2019 April 2019 From April January 2020 Decide whether you wish to encourage clients to join the public beta Start migrating clients with turnover greater than 85k to accounting software for new accounting periods. First quarterly updates are filed Self assessment returns filed for Last clients migrate to MTD (31 March accounting periods) Year end updates start to be filed (10 months allowed) Last ever self assessment returns filed ( ) plus last year end updates for 31 March 2019 year ends 4

5 Practice Planning checklist Start NOW! Given the scope of Making Tax Digital and the fact that it will involve almost all of your business clients within the next three years, there is an awful lot of work to do. If you let this issue slide, you could find HMRC expecting quarterly updates while you re still showing clients what online record keeping is all about and trying to close off their self assessment return. It s much easier to make that transition on a gradual basis. This checklist suggests a few starting points. Gather the facts about your clients How many clients will be affected by MTD? You will need to separate those that are VAT-registered (or likely to become so in the next months), and limited companies, which are scheduled to go live is successive years after At Spring Budget 2017, the government announced a one year deferral from mandating MTD for unincorporated businesses and landlords with turnovers below the VAT threshold of 85,000. Clients with turnover above the VAT threshold will need to on-board in According to HMRC, around 400,000 unincorporated businesses and landlords will be required to use the new digital service from April From the clients you have identified as affected by MTD, you may need to identify whether any are exempt for the following reasons: Charities and community amateur sports clubs Those who are digitally excluded, who will fall into two categories: A person who is a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications; or Persons for whom MTD is not reasonably practicable for reasons of disability, age, remoteness of location, or any other reason. 5

6 Many firms will need to migrate clients over to a cloud accounting solution to make it easier to comply with MTD. When they do so, Clients using accounting software successfully. Clients using spreadsheets. Clients using manual records. they will discover the benefits of having more up to date records, which will eliminate some of the chasing previously needed to collect tax data. Of the affected clients you have remaining, how many use existing software to keep their accounting records? How do they cope with day to day record keeping? Will they need support to comply with the detail of MTD? Does their current software support their VAT accounting or is this done separately. Develop communications plan. Check that the software you choose is MTD compatible. Decide on your firm s approach to spreadsheets. Communicate with client. Discuss whether bookkeeping support will be needed. Of the clients who don t currently use software to keep their accounting records, how many use (and are competent with) spreadsheets for record keeping? Spreadsheets will be allowed for MTD use, but the data they contain will need to be submitted in conjunction with other MTD software to comply with the regulations. How many of your affected clients currently use manual records, and of these how many do you expect to struggle with digital accounting records? Issue new letter of engagement and prompt to start filing. Offer support to your clients in selecting the right software and help them set up. Support your clients as necessary to complete records and update HMRC. 6

7 Think about the services you will provide Are you planning to support the use of a very wide range of accounting packages, or will you focus on narrowing down your choice to two or three software packages? Are you intending to provide bookkeeping support to clients who do not currently use bookkeeping tools? Think about the scale of demand that is likely for this service. Will you be supporting clients who currently use spreadsheets to find and use the necessary software that will enable them to comply? You may prefer to encourage them to move to more capable software packages. Will you be providing a quarterly checking or reconciling service for quarterly updates where clients have kept their own accounting records? How will the bookkeeping and VAT support work you already provide to clients need to adapt to meet the requirements of MTD? Are you planning to combine the accounting and VAT functions in the software or is that not technically possible? Will you want to offer training to clients in using particular software packages? How will you otherwise offer support, if at all? Once clients are successfully moved to accounting software will you plan to support them by offering budgeting services and periodic management accounts? The initial registration for MTD (known as subscription) will be done through the business tax account. Are your clients signed up for the business tax account already? Do you plan to get those who are not enrolled in their own name signed up, and will you provide direct support for that function? 7

8 Making a profit from MTD services Have you started to plan access to software for your services to enable you to support clients with record keeping? Will you be using cloud based software, or desktop based accounting packages? If you currently provide spreadsheets to clients, will you continue to do so? Will you be using a standard chart of accounts for most clients, or will you design client specific charts? Does your chosen software support your plans? What are your staff needs to support this new service model? Have you got the right staff already, or do you need to recruit different staff? Is your firm skill base top heavy do you need more staff who can support record keeping and fewer with higher skills? Start thinking about recruiting and training staff for the new MTD requirements. Do your existing staff have the skills and knowledge to deal with any new accounting software you are considering? Will they be sufficiently skilled to train or support clients moving to accounting software for the first time? Start to calculate how much staff hours you are likely to need both in transition and in steady state. This will come at different times for separate groups of clients depending on their accounting date, so organise them into distinct groups you can communicate with, advise and support when it s most appropriate. Allow time to plan and implement your chosen support model for quarterly updating and for the annual accounts function. 8

9 What should I do now? Start thinking about pricing. The type of services you are moving towards may need a different pricing model from the traditional hourly rate. Many of the small firms doing this type of work do so on a fixed fee basis. Setting the fixed fee may be challenging, but one approach is to cost up the resources you will need to deliver the services and divide that across the work output that will be delivered in terms of volume number of clients/ number of quarterly returns and year end accounts. Once you have set clients up properly with a new accounting system you should see time reductions in year-end work, provided that the appropriate level of support has been provided for clients who need it. You should regard clients accounting failures as a failure to appreciate the level of support needed you will need to assess that for each and every client individually. ^^ Read up on the latest MTD guidelines from HMRC Start work on your client list Make decisions about software that your firm will support clients to use Plan recruitment if necessary Identify if you are going to move spreadsheet accounts to a different solution Contact clients to make them aware you are on the case and will make sure they stay compliant Listen for further announcements around the MTD exemption threshold; the threshold for extended time to join; any delays offered; and the possibility of government financial help for businesses. 9

10 About the author Rebecca Benneyworth MBE BSc FCA is a lecturer, writer and consultant on a wide variety of taxes. Rebecca is well known for her down-to-earth approach to tax and her ability to make the subject matter both clear and interesting. As a practitioner herself in Gloucestershire she is interested in all issues affecting smaller firms and chairs HMRC s Digital Advisory Group. You can hear what she has to say about MTD and her experiences at QuickBooks Connect in London on 6 March (1pm & 4:15pm). 10

11 About Intuit QuickBooks About AccountingWEB Intuit is known as the 30-year-old start-up in Silicon Valley, with a reputation for innovation and reinvention. The company s vision is to improve their customers financial lives so profoundly that they can t imagine going back to the old way. It is this vision that has allowed Intuit to grow QuickBooks Online into the world s No.1 cloud accounting solution that accountants and small businesses know and love today. With over 1.5 million users worldwide and global offices spanning across 6 continents, we are committed to solving big, important problems for our customers and delighting them by going beyond their expectations. AccountingWEB.co.uk is the largest independent online community for accounting and finance professionals in the UK - providing award-winning content and online engagement between members in a true community environment. Accountants in practice represent just under half of our visitors and we reach 75% of firms outside of the top 20 with content designed to help them become more efficient and successful. 11

Guide. Making Tax Digital: A Guide for Agents. keytime.co.uk keytime.co.uk call

Guide. Making Tax Digital: A Guide for Agents. keytime.co.uk keytime.co.uk call Guide Making Tax Digital: A Guide for Agents keytime.co.uk keytime.co.uk call 0161 484 3500 1 Making Tax Digital A guide for agents Contents 1.0. What is Making Tax Digital 2.0. What does it mean for my