Problems
Firms preparing accounting records and VAT returns for clients are already experiencing the problems that are likely to be an issue when Making Tax Digital income tax self assessment (MTD ITSA) comes into effect.
Where a cloud-based accounting software solution has been implemented, we automatically have access to transactions as they happen through the bank feed. But this is not as useful as it sounds. Most of us have spent time using search engines to try to identify what a particular expense is for, in the absence of clients providing back-up information.
Reviewing how the data collection works within your firm is best tackled by reviewing the process for preparing VAT returns for clients. This will provide some insight into what measures are appropriate for the start of MTD ITSA. Remember that a potentially significant number of clients who will come within MTD ITSA are not currently registered for VAT, so the challenges over data capture are likely to be materially increased.
Solutions?
Scenario
Your client operates a cloud-based accounting system but does not upload receipts for payments made, and /or prepares invoices using external software such as Word or Excel.
This situation is common and possible solutions include:
- Offering encouragement and support to the client to start invoicing from within the cloud-based accounting software. Several of the leading software companies provide extensive support – often at no charge – to encourage users to get more from their product. However, in practice business owners often do not like the ‘standardised’ layout of the invoices and want or need to use their own established format – sometimes at the request or insistence of their clients. Some also believe that the email delivery method is impersonal or unprofessional. There are also some customers who find invoices received by email difficult to deal with, particularly when your client’s customers are not digitally savvy. Ultimately you will need to negotiate with the client and push them as far as you can to make best use of the software. As a fall back you might request that outgoing invoices are blind copied to a suitable inbox so that your staff can reproduce the invoice within the accounting software, but this is likely to be labour intensive and potentially expensive unless you recruit sufficient junior staff to cope with the workload.
- Suggesting that your client recruits a bookkeeper to prepare the accounting records. Where the amount of work demands this, some clients may be willing to use an external bookkeeper to support them. Where this is a preferred option, you will need to be aware that submitting quarterly updates will require the submitter to be authorised, which currently would displace your own authority to act in relation to self assessment. By the time we get to 2026, HMRC will have released a ‘multiple agent’ function allowing a client to appoint more than one agent to act in respect of self assessment.
- Uploading receipts using an app on their phone. Encouraging clients to do this will significantly cut wasted time trying to identify payments made. Where the software does not have this functionality there are other options including standalone receipt capture apps that will digitise the receipts for transmission into accounting software.
- Physically collecting paper receipts. In some cases, this will be more effective (allowing the client to deliver these on a regular – probably monthly – basis). This could work well in local practices where the client is not digitally confident, but again can be labour intensive. Putting the firm in control of the process rather than the client will be the key to keeping things on track each quarter.
Ultimately, decisions about streamlining the process for this type of client will involve the firm deciding what range of services they wish to deliver as part of their MTD ITSA strategy. This might range from purely dealing with the ‘finalisation’ phase each year (finalising the accounts and completing the other tax-based tasks, leaving the client to organise record keeping and quarterly submissions) right through to the opposite end of the spectrum where all of the bookkeeping and quarterly submissions are brought in house.
Workload issues
Having to submit quarterly updates for mandated clients within the same month four times a year presents a huge challenge in terms of workload management. For clients where one of the main cloud accounting packages is used to keep digital records, once the records are up to date, the submission should take a minimal amount of time as there is no requirement to make tax adjustments in the quarterly updates.
In contrast to VAT, the quarterly MTD ITSA submission does not contain a legal declaration and HMRC does not intend to charge inaccuracy penalties for the submissions. More guidance is needed from HMRC, but in theory, once the bookkeeping is complete the submission can be made immediately.
In larger firms with separate accounting and tax teams, it might be that the accounting team will make quarterly submissions and then hand over to the tax team for end of year finalisation. Once decisions have been taken about exactly how the process will run in the firm and the number of affected clients identified, this will inform staff planning. Where bookkeeping is being done within the firm, the most efficient approach will be for this to be done on a regular basis, so that at any one time most clients’ records will be within a week or so of being up to date, which will avoid cramming all the bookkeeping work into one month for all affected clients.
Inevitably the bunching of work around the quarterly submission dates will represent a staffing challenge and you may need to recruit part time staff working flexible hours just to cover the submission months. Obviously, there will also be VAT returns for clients on a calendar quarter stagger – which may of itself already present staffing pressures within your firm. If that is the case, then it is clear that additional staff resource will be essential.
Author
Rebecca Benneyworth MBE, BSc, FCA, sole practitioner, tax speaker, writer, consultant and chair of the Tax Faculty’s Technical and Oversight Committee.
