So far with MTD, we have largely focused on the general principles that will apply from 1 April 2019 – the who, what, how, and when. This event gave accountants a chance to look at some of the practical issues that will apply, with specific solutions highlighted by the speakers.
Tax titan Rebecca Benneyworth emphasised that we should never forget the key difference between VAT and income tax, namely that VAT is a transactional tax. We need to be aware of the VAT issues of every transaction we process and this issue will be even more important with the introduction of MTD.
Benneyworth highlighted that there are many quirks within VAT that HMRC didn’t recognise as a potential challenge with MTD at first: capital goods scheme, partial exemption, margin schemes and TOMS. VAT is not the easy tax for MTD that HMRC might have anticipated.
Matt Flanagan, a cloud business systems specialist and managing director of Bluehub, surprised me with the revelation that the average age of UK business owners is currently 51 but this would fall to mid-30s in eight years’ time. This is an important statistic for the future development of accountancy practices, knowing that most new clients will have been fully brought up in the digital age of modern technology.
Four stage process
Flanagan’s session highlighted a four-stage process for dealing with MTD:
- Identify clients who are within the scope of MTD – ie businesses trading over the VAT registration threshold.
- Review the current accounting systems of each client – are they MTD compliant?
- Define client requirements after April 2019 – this might involve the adoption of new accounting packages.
- Offer an MTD solution to each client – acknowledging the skills and mindset of each client.
Points based system
Flanagan suggested we give each client two marks out of five – one for the quality of the client (1 being low and 5 being high), recognising the client’s mindset and therefore likely reaction to the challenges of MTD. The second mark recognises the quality of the client’s accounting system. For example, is he relying on an old system from the 1990s that could collapse at any moment?
If all of your clients score 25 (5 x 5), then MTD should be a piece of cake. But a mark of 1 to 5 indicates more challenging times.
Dealing with clients
The client liaison theme was extended by Phil Sayers, founder of Proten Sales Development, who considers that “clients need to work with processes adopted by practices”, which would often need some time spent with the client ie an MTD conversion effort. He considers that a standard letter notifying clients about the introduction of MTD might not be effective, so a simple note in red along the lines of: “I need to speak to you in the next two weeks about something urgent – will you please call me” might generate better results. I like that idea.
Benneyworth gave an example of a farmer using Farmplan software to raise its sales invoices. A journal might be raised to enter the monthly or quarterly totals from Farmplan into Sage. This would be fine for the first year of MTD during the soft-landing period. But from 1 April 2020, this software link from Farmplan to Sage would need to be done digitally using import tools, so there must be no re-keying of data, cut and pasting, or manual journals.
There were presentations from Receipt Bank, FreeAgent and BTCSoftware, all of which made me realise how far we have come in the last 10 years. An example was quoted of a sole trader bookkeeper who had the capacity to act for 120 clients rather than 30 after he adopted Receipt Bank.
Benneyworth gave three final tips in her session:
- Encourage clients to join the HMRC pilot scheme, assuming they are one of the 500,000 businesses now eligible to do so.
- Suppress VAT codes in accounting software that are not needed eg a business would not need a reverse charge VAT code if it does not buy services from abroad.
- Examples of letters that can be sent to clients can be found on the ICAEW MTD hub, along with other useful information.
With the introduction of MTD less than five months away, we now need to be interested in some of the finer details. As the conference chairman John Stokdyk rightly commented: “It is time to get on track and get ready for April.”
This article was taken from Accountingweb.co.uk, For the original article follow this link: Accountingweb