2017-2020 - K3 FDS · workshops, webinars and email/social media campaigns in order to attract new...

MAKING TAX DIGITAL 2017-2020:

A Guide for Accountants & BookkeepersLearn the essentials.

Prepare your practice and clients.

Making Tax Digital 2017-2020: A Guide for Accountants and Bookkeepers

CONTENTSMaking Tax Digital explained 3

What Making Tax Digital really means 4

Who is exempt from Making Tax Digital? 5

Important things to note about Making Tax Digital 6

Key dates you should know 7

What does MTD mean for your practice: 8

1. Understanding which clients will be impacted & when 10

2. Outlining the services you provide and your costs 11

3. Reviewing your internal processes and resources 12

4. Preparing your clients 13

5. GettingsupportfromSage 14

5 KEY STEPS

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“Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.”

HMRC

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MAKING TAX DIGITAL EXPLAINED

Making Tax Digital (MTD) is a government initiative that will eventually move virtually all tax/NIC management and payment online – that is, it mandates digital record keeping and automated filing. This will require the use of compliant software.

HMRC says over £8 billion every year is lost through avoidable errors with the existing system. However, beyond even this, MTD will help you and your clients have an up-to-date view of their tax position, so you can help clients better manage their finances. This can create more business opportunities.

Although there has been confusion about the scope and implementation of MTD, in 2017 the government substantially redrew the MTD timeline, as detailed overleaf. All earlier scopes for MTD suggested in previous years by the government, and previously announced timelines, have been abandoned.

MTD is one of the biggest accounting shake-ups ever seen in the UK. As such, many affected businesses will have to fundamentally change how their finances are run.

Sage was born and bred in the UK, and is working closely with HMRC to ensure the voices of our partners of all kinds are heard. All our products are updated well in time when legislation comes into effect, making compliance as easy as it can be.

WHAT MAKING TAX DIGITAL REALLY MEANSThe government has said it believes introducing a new digital tax system is the right direction in which to move, although it has recently revised its plans significantly.

Previously most businesses were to be included within the move to MTD by April 2019. This has now changed. In the draft Finance Bill (2017) the government announced the implementation of MTD is to be scaled-back in the short-term, as follows:

• Only VAT-registered businesses with a turn overabove the VAT threshold will need to keep digitalrecords – but only for VAT purposes and only from April 2019;

• Other businesses will not be asked to keep digitalrecords or update HMRC quarterly for othertaxes – primarily income tax and corporation tax– until April 2020 at the earliest, pending furthergovernment announcements;

• Voluntary submissions for income tax will beaccepted prior to April 2020 – although onceagain firm details are yet to be made available.

This is the total extent of MTD as it affects business at the moment. Any earlier plans have been set aside or postponed.

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• Prior to April 2020 – VAT-registered businesses where turnover is below the VAT threshold (currently £85,000);

• Charities and Community Amateur Sports Clubs (CASC);

• HMRC will provide non-digital alternative channels for those considered digitally exempt. This includes those with protected characteristics under the Equality Act who fall into the ‘digitally excluded’ legislative definition,* and also:

o Persons who cannot get online through reasons of disability, age, remoteness of location or other reasons;

o Persons who practice religious beliefs that are incompatible with the use of electronic communications.


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WHO IS EXEMPT FROM MAKING TAX DIGITAL?

HMRC has stated there will be exemptions for some organisations including:

* https://www.gov.uk/government/publications/government-digital-inclusion-strategy/government-digital-inclusion-strategy

IMPORTANT THINGS TO NOTE ABOUT MAKING TAX DIGITAL There are some things that might catch-out the unwary when implementing MTD.

SoftwareFollowing implementation of MTD for VAT in April 2019, HMRC will not provide you or your clients with the tools for digital record keeping and submission for VAT. This functionality will only be offered through commercial software providers, such as Sage. Following the proposed inclusion of other types of business tax in 2020, the government will again require the use of software.

Quarterly updatesUpdates to HMRC need to be made at least quarterly.

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Opting outOnce your client starts reporting VAT under MTD there is no option to opt out again, even if circumstances change – for example, if their turnover falls below the VAT threshold. Additionally, if a business voluntarily opts in for MTD, they will not have the option to opt out again.

Collecting dataTo make life easier, standing data such as a client’s VAT registration number, business name and address, and VAT accounting scheme, will be collected at the registration point of Making Tax Digital, so won’t need to be submitted with each update unless there is a change to this information.

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KEY DATES YOU SHOULD KNOW

Public beta of MTD for VAT. Affected businesses can optionally take part using compliant software.MarchAPRIL

2018:

MTD for VAT becomes mandatory; businesses with income greater than £85k are mandated to keep digital records and report for VAT using MTD- compliant software.

MarchAPRIL 2019:

Earliest potential date for mandated digital records keeping and quarterly updates of income tax and other taxes – pending further governmentannouncements.

MarchAPRIL 2020:

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Stay on top of developmentsMTD continues to be a work in progress, with a staged rollout. However, most agree the fundamental framework and timeline is now complete and immutable. Periodically check the Sage website (www.sage.co.uk/makingtaxdigital) for updates, where you’ll find further advice and tips about MTD. Keep-up with HMRC too and communicate all you hear to clients.

Act NOWThe staged rollout of MTD offers the temptation for both accountants and businesses to avoid thinking about it. However, MTD for VAT will be in force within just a couple of years, with the rest of the business tax system pencilled-in to follow a year later. To avoid loss of business or even penalties your practice needs to immediately review processes, resources and software – as do your clients. This might involve training and certification.

Be the experts & create a plan Because of MTD your relationship with some of your clients is going to fundamentally change. Inform your clients about MTD and the profound effect it will have on their business practices. Work with them to create a plan.

For example, 89% of all VAT returns are currently filed directly via the HMRC VAT online services account rather than using software. However, filing direct via the HMRC gateway will not be an option from April 2019 for those that fall into scope for MTD for VAT. How many of your clients are aware of this?

Use MTD as an opportunityIn a recent survey with 500 accountants and bookkeepers,* 40% of accountants saw MTD as a good opportunity to help small businesses thrive and survive, and 38% said it would help acquire new clients.

MTD offers a chance to get in touch with clients that you might ordinarily only speak to once a year, so take the opportunity to advise. However, you might also consider running MTD-themed conferences, workshops, webinars and email/social media campaigns in order to attract new clients, or add value for existing ones.

Considering future clients as well as existing ones is important. 70% of new business start-ups are tech-savvy millennials, so their expectations of interacting with their accountant will be different to more traditional businesses.

Accountants and bookkeepers already understand the importance of keeping good and accurate records and are already familiar with online filing from a VAT perspective, but in summary you might consider the following.

WHAT DOES MTD MEAN FOR YOUR PRACTICE?

* Sage survey of 500 existing Sage accountants and bookkeepers (Feb 2017)


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The 5 key steps you need to take

01

Understanding which clients

will be impacted and when

02

Outlining the services you

provide and your costs

03

Reviewing internal

processes and resources

04

Preparing clients

05

Getting support from Sage

10

UNDERSTAND WHICH CLIENTS WILL BE IMPACTED AND WHEN

This will help you assess your workload and develop a software solution to manage it. You will need to consider how many clients you have and, of those, how many will be initially impacted by Making Tax Digital for VAT. Think about your clients future needs as well. With potential business growth of some clients it could mean an even greater number will be affected by 2019.

Review your client base and establish who will be impacted and when:

Ask the right questions Understanding the answers

How many clients are VAT Registered – or likely to be?

What is their current and projected turnover?

How many may retire or exit? What are their succession plans?

Lets you understand the volume of clients impacted – and when.

How are your clients submitting their VAT returns?If their turnover is above the VAT threshold they will need to submit their returns via commercial software.

When are your clients’ VAT quarters?Helps you assess when your clients are going to be impacted.

When is your clients’ financial year end?Use this to review clients’ software requirements as this is a good time adopt software to help them manage their business in real-time.

Are they using software to manage their accounting needs, or their business?

Helps you understand what support they need and their plans for MTD software compliance.

Are they keeping records manually or via spreadsheet?

If they are impacted by MTD, their VAT returns will need to be submitted via commercial software. Can they switch to software easily – and how can you help?

How easy is it to interact and correspond with the clients?

Could automation and software help overcome waiting for information from clients?

"Many cite that their business is too small, simple or that they haven’t even thought of using software. However, with the digital transformation to our tax system around the corner, this may mean that spreadsheets are not the most effective way to capture, record and submit your expenses and income. “

Adam Prince, VP Compliance at Sage

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OUTLINING THE SERVICES YOU PROVIDE AND YOUR COSTS

Many accountants have found that changes such as auto-enrolment have led to opportunities to provide more support to clients, but the challenge has been incorporating this into their fees.

Make MTD work for youAssess how best to work with your clients. You will know from experience which clients are more capable than others. Educate your clients on the impact of inaccurate submissions and calculations and provide them with extra support and tuition to help pre-empt avoidable mistakes.

Making Tax Digital is an opportunity for practice and service growth. It is worth considering how you will package MTD support to existing and new clients and how you will differentiate yourself from your competitors.

Creating MTD service plansAsk the right questions Understanding the answers

What services will change? Can you offer more to clients when redesigning the services you offer because of MTD?

Monthly, quarterly or annually – which is best for your client?

Lets you understand not just client needs, but also their willingness to engage – and how frequently they would like you to work with them.

What payment methods are correct?Is it time to switch to monthly or quarterly payments, rather than annual?

What business advice is required?Take the opportunity to be a trusted advisor, rather than just the people who deal with the numbers.

Who are clients outsourced to – with special regard to bookkeeping?

Evaluate all the services your clients are using to see if you can fulfil all needs in one central place.

Use the opportunity to show clients the power of modern accounting software to automate.

Who will manage them? Who will deliver?Ensure staff resources are available for seamless continuation of services.

"To be an accountant of the future you will need to adapt: "Clients’ expectations are changing. Through technology, clients will expect a quicker delivery of service and a fast response.”

Richard Bugler, Managing Partner at Albert Goodman LLP

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Can quarterly and yearly dates be automated, as well as bank feeds?

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REVIEWING YOUR INTERNAL PROCESSES AND RESOURCES

Consider how you currently engage with your clients and whether this will need to evolve. Once you’ve reviewed your services and costs, it’s also good to know what your team spends most of their time on.

"Small and medium businesses are at the heart of the UK economy. Thanks to technology doing the number crunching, the accountant can help those companies grow, in turn driving the UK economy’s growth.”

Sean Evers, Director of Accountants and Bookkeepers at Sage

03


Automating processes is keyBank feeds are a great way to automate more manual processes and getting clients to use software will also reduce your costs to serve.

Remember:• If you are planning on expanding your client base

and offering new services, the less time spentprocessing the better.

• Be confident everyone in your practice is familiarwith the bookkeeping software a client is usingand know how to get the best out of the software.

• Consider how you will tackle tracking exceptionsand errors. It will be important to know thatadjustments need to be identified whenmanaging quarterly returns.

• Make sure your clients have accessed their digitaltax account well in advance.

• Agree what the sign off processes and touchpoints will be, identify the volumes you areworking with and what tools you have at yourdisposal to support these.

Create an MTD migration planEnsure clients understand the importance of moving to MTD sooner rather than later – move now and the price stays the same, but moving later is likely to incur higher fees.

Prioritise clients based on “skill” and “will” – and determine the best MTD package for them based on this, such as mobile tools, cloud accounting etc.

Set a target for MTD conversion, such as having 80% of eligible clients switched to MTD within 360 days – while acknowledging that 20% of businesses won’t move.

Use MTD as an opportunity to acknowledge unprofitable clients, and aim to change the situation.

Now is the time to start preparing your clients. Talk to them, let them know they are in safe hands and you are there to support them. You could create a communication and engagement plan for the key segments of your clients.

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PREPARING YOUR CLIENTS04

Current clientsWork out which of your clients use software and which don’t.

Future clientsUse social media, business press and business events to show that you’re ready and prepared for Making Tax Digital.

Clients who’ll transition easilyLet them know they are on the right software now and working well. Your reassurance will be good to hear.

Many accountants are going to be involved in the public beta of MTD. It might be worthwhile considering this for your practice and involving some of your clients. This way you get to refine your plans and working practices to ensure a smooth transition. Interested in participating? Speak to your account manager.

Manual receipt clientsGet them to use software as soon as you can. The earlier you do, the better it will be for both of you.

Not all manual receipt clients will be opposed to adoption. Over 71% of individuals have smartphones and are using technology to make purchases every day. So, build case studies to show how other clients have benefited, and what the adoption experience was like, all thanks to you.

Clients who are using spreadsheets already show a willingness to input records. Capturing income and expenditure on a smartphone using Sage Expenses & Invoices (https://uk.sageone.com/mobile/) or Pegg (https://hellopegg.io/) is an excellent, easy-to-use alternative. And they don’t need a computer to record either, it can all be done from their mobile phone in real- time. Easier for both of you. Get your clients to download the app onto their smartphone and see how simple it is.

The best time to move clients to software is often at the beginning of a financial year. Do this during the 2017/18 tax year to make it easier for go live with MTD.

Amongst Sage customers there are many accountants who find real value in providing training and support on software. Our team of experts would be happy to support you with running client workshops. We will support you and your clients every step of the way, helping you to understand exactly what this means for you and your business.

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GETTING SUPPORT FROM SAGE05


We are working closely with HMRC to ensure the transition is smooth. We’re involved in HMRC’s private beta and we’ll be participating in the public beta. Use our dedicated area at www.sage.co.uk/makingtaxdigital as a resource for your practice and your clients, and watch out for regular updates as we uncover more about Making Tax Digital.

Sage provides ongoing support to accountants and businesses. Our dedicated team will work with you and support you to educate your team and your clients. We have a range of solutions that will help to automate many processes. We are developing seminars and webinars suitable for you and your clients.

We are working hard to help small businesses adopt new technology to make the transition to Making Tax Digital a positive one.

Are your clients

digitalready?


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CM/22/02/18/209784

©2018 Sage Software, Inc. All rights reserved. Sage, the Sage logos, and the Sage product and service names mentioned herein are registered trademarks or trademarks of Sage Software, Inc., or its affiliated entities. All other trademarks are the property of their respective owners.

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