Five steps to put accountants ahead of the MTD curve
With such massive changes, as Making Tax Digital brings, it’s easy to focus on the difficulties that lie ahead.
But, in fact, the reforms offer a brilliant opportunity for accountants to re-evaluate their practice and set it on the path to greater prosperity.
It’s the ideal time to pause, review and reflect on how the practice can be more efficient and effective.
Company's mission
Approaching MTD from this perspective, IRIS has created a five step programme to make a success of complying with the new rules, in line with the company’s mission to make accountants’ lives simpler, more effective and more productive.
IRIS’ digital experts have broken down the essential components of MTD and assembled these into an insightful guide that can be followed through a series of articles, webinars and a whitepaper.
The programme is aimed at placing accountants in pole position to take advantage of MTD.
The steps are:
- Profiling your clients
- Profiling your practice
- Selecting technology
- Enabling the practice
- Ongoing obligations
Once accountants have been through the five steps, they will have laid solid foundations for making a success of MTD compliance.
As alluded to above, at the centre of the five steps, is reassessing and re-evaluating the practice, then re-shaping it to be more effective and profitable.
That’s why steps one and two are about profiling – for clients and the practice. It means accountants gain a deeper understanding of how to streamline their client base and see how they can optimise profits. By undertaking these steps, firms can discover what might be possible for the future.
New system
Carrying out this review may, for example, point towards a new system of charging a premium for clients who are primarily paper-based, because they clearly require the most amount of work. Perhaps some clients would be happy to adopt online bookkeeping if they realised how straight forward it is.
Understanding the client base, accountants can then appreciate how much time and effort is required. They’ll see more clearly what types of clients they have and how many fit into each category.
The programme poses a number of vital questions that accountants must answer themselves.
These include:
- Who is making the first submissions to HMRC in April and how?
- Is the firm planning to use a bookkeeping solution, receipt digitisation, bridging software or a combination?
- Are disparate systems being used to record VAT submissions?
Following the IRIS five step programme will soon make MTD much clearer and less daunting. Discover more here.
MPs force rethink of controversial HMRC loan charge
HMRC's efforts to claw back "unpaid" taxes through its loan charge have been dealt a potentially fatal blow.
A cross-party group of MPs led by Ed Davey has forced the government/Treasury to rethink the retrospective tax/anti tax avoidance measure aimed at freelancers and contractors.
The aim of the loan charge, set to feature in the April 2019 finance bill, is to end disguised remuneration schemes - where agency workers and the like were 'loaned' money rather than being paid a salary that would have attracted tax and NI. The "terms" of the "loans" were such that they would never have to be repaid.
The scheme gave HMRC the power to go back 20 years in pursuit of tax "avoiders". This is where it ran into trouble and earned, with some degree of justification, the label "retrospective taxation".
Review the policy
The government now has to review the policy before the end of March.
HMRC’s pursuit of retrospective loan charge taxes has been criticised by the House of Lords economic affairs, which said there was “disturbing evidence” and “reports of increasingly aggressive behaviour towards taxpayers”. It calls on the Government to reform the Loan Charge, which Lords declared is “clearly retrospective” and ”undermines basic principles of tax fairness and certainty.”
Mel Stride, finance secretary to the treasury, said the government accepted the call for the review but maintained that the disguised remuneration schemes were "gross aggressive tax avoidance."
Tax principle
Ed Davey had this to say: "This review is about an important tax principle. The government are in effect in breach of the rule of law with the retrospective nature of their loan charge. And the unfairness of that has brought misery to thousands of people. While ministers have listened, the review that’s now been established must respond to the concerns of MPs...
“Treasury ministers have a duty to respond seriously and substantively.”
Loan charge action group spokesperson Steve Packham said: “We are delighted that MPs have forced the government into accepting a review of the appalling loan charge which, if it comes in, will destroy families and cost lives. This is a victory for the campaigners, for parliament and for the rule of law." He said it was vital the review was "genuine" and not a "whitewash".
Misleading information
Phil Manley, partner at DSW Tax Resolutions and a LCAG campaigner added: “Despite being forced to concede defeat, it was an appalling and utterly ungracious response from Mel Stride. He conceded to having a review, but then tried to preempt its conclusion, parroting the same misleading information the Treasury have been peddling for months.
"As he knows full well, but again deliberately misrepresented, the Rangers case says employers are liable, not employees!
"He also continues to claim that the schemes were defective, but he knows that this is meaningless and has no basis in law, especially as he also knows the schemes were legal at the time.
“So we need some honesty at last from him and the Treasury. We call on the Government to now, at last, listen to the overwhelming evidence and majority parliamentary support for reform to this manifestly unfair legislation before it destroys the lives of tens thousands of families in just three months’ time.”
How wealth tax tweaks could raise £7bn a year
It's rare in polite circles to hear talk of tax rises. The idea of charging richer people extra for good public services (certainly as a mainstream concept) pretty much bit the dust at about the same time Margaret Thatcher hit the scene.
So it was interesting today to see a discussion about wealth taxation in Accountancy Daily. I mean, it's not exactly a bastion of left-wing politics!
Philip Hammond could raise £7bn a year by 2022-23 just by making tweaks to five wealth taxes according to Torsten Bell and Adam Corlett of the Resolution Foundation.
Significant progress
They say: "Raising taxes is never easy. Raising taxes with the government’s slim parliamentary majority is harder still, and raising taxes on wealth in those circumstances, given our diverging senses of fairness, is not a walk in the park. But that does not mean it does not need doing, and the good news is that significant progress can be made despite these constraints.
"There are three reasons it is needed. First, one of the biggest challenges facing our country is how to fund the rising cost of public service provision as the population ages.
"This demographic headwind and wider health cost pressures are set to increase the price tag of the current welfare state by £36bn a year by 2030, and £84bn by 2040.
"Second, we need to manage those pressures while avoiding the danger of further suppressing living standards growth for the working age population, which has already been the main victim of both the financial crisis and the long-lasting productivity slump that has followed.
Completely flat
"Third, wealth in the UK has grown significantly in recent decades while tax on it has remained completely flat. Since the 1980s wealth has surged from three to nearly seven times our GDP (or £13 trillion). It is simply a bigger feature of the modern UK, relative to income, than our political economy likes to admit."
Torsten and Adam believe progress can be made across five areas. Here are their views:
1. Limit entrepreneurs’ relief
"Entrepreneurs’ relief has cost £22bn over its first 10 years, giving a very small minority huge capital gains tax cuts with no evidence of anything to show for that huge bill. Worse still, new figures from the Office for Budget Responsibility (OBR) show that the annual cost is now projected to rise from £2.6bn in 2018-19 (more than is spent on school sixth forms) to £3.9bn in 2023-24."
2. Tweak council tax
"Everyone knows council tax is in need of reform or – in our view – replacement, being more like the poll tax it was meant to replace than a genuine property tax. In Scotland the Greens have said that (further) reform of the tax would be the price of their support for an SNP Budget. Indeed Scotland has already made baby steps in the direction of a fair (proportional) property tax, with increases for the top bands of council tax and an increase in deductions for low earners.
England, they say, is stuck with the most regressive system in Britain. "Even just copying the marginally improved Scottish structure in England and Wales, would have raised an extra £1.1bn in 2015-16, while £0.7bn could be raised by removing the single person’s discount from the top bands. If those options are too scary, councils could also be given their own flexibility to increase the relative taxation of more expensive properties in their area (with some power over the multipliers that determine council tax rates for different bands of properties)."
3. Tighten up inheritance tax
"Inheritance tax manages to be a hot potato despite only a tiny minority ever having to pay it: one of the reasons why we’ve suggested replacing it entirely. But some changes could be made in the here and now without affecting most people. In 2020-21 people will be able to pass on £1m tax-free. Stopping there rather than continuing to increase the thresholds with inflation would be very sensible and raise £200m a year by 2022-23."
5. Fairer pensions tax relief
"There’s a case for completely reforming pension taxation, such as moving to flatter rates of tax relief or looking at the £17bn employer national insurance tax break for pension contributions.
"But a smaller change would be to reduce the maximum generosity of the tax-free lump sum. The current ability to take over £250,000 tax free is worth up to £119,000 to an additional rate taxpayer, £105,000 to a higher rate payer, £53,000 to a basic rate payer and nothing to lower income pensioners who’d be below the personal allowance each year anyway.
"That’s very generous, very regressive, and a strange incentive not to stagger your retirement income. Capping the tax-free lump sum at £40,000 would raise £2bn a year while leaving three quarters of future pensioners unaffected."
How to ensure your VAT clients provide happy returns
It’s a situation that's far from ideal for most accountants - preparing a VAT return from a bag of receipts, or trying to reconcile a client’s bank account only to find dozens of transactions that have no matching paperwork.
Chasing a client eats up precious time that could be spent on other work. And it can be stressful when you’re working to multiple deadlines, even causing longer-term issues when it comes to preparing financial statements.
So how do you get encourage clients to keep and provide good VAT records?
Be clear, be concise
Remember, clients will often engage an accountant to manage their affairs because they only have a loose understanding of accounting and the tax system - they rely on your expertise to help guide their business. This gives the accountant some room to let the client know how best to organise their VAT records.
Accountants all have preferred styles and methods and it’s important to communicate clearly with your client as to how you work best:
- Prepare a sheet of general VAT guidelines to hand out to your clients. All clients have their own internal bookkeeping systems but laying out concisely what documents you need and how best to organise them can help the client work their system to your needs too.
- If something isn’t working, let the client know. It could be your client’s sales are being recorded in a confusing way, or they pay suppliers by cheque and don’t keep a record of who they have paid. Whatever the issue, discuss it with the client early so it doesn’t become habitual and harder to change down the line.
- Keep discussing! Nothing is set in stone, your clients will often change areas of their businesses, find new revenue streams and new suppliers with different standards. Do a quick assessment of the VAT records provided each quarter, and let the client know how to best adapt their record keeping to changes in their business.
Explain the benefits
Even after trying to communicate how to best provide good VAT records, there isn’t always incentive for the client to do so – they’re paying you to handle this sort of thing after all!
Make sure your client knows why their records are important - they won’t want to pay more tax than necessary and VAT records often provide the cornerstone for a business’s entire accounting system.
Poor documentation can lead to lost VAT claims, problems in preparing end-of-year accounts, higher corporation tax bills and difficulty preparing regular management accounts for the client.
Finally, don’t be afraid to be open with the client when it comes to calculating your fees. Accounting fees are normally time-based and, by letting them know by eating up your time can lead to a higher fee, they will often become far more receptive to your recommendations.
By focusing on the benefits to the client, whether that’s in accounting fees, tax savings or reporting, you’ll find a greater willingness to provide you with proper records. They are in business to make money and they understand that you are too.
Making tax digital
As part of the government’s Making tax digital strategy, the VAT return process is the first area that HMRC is aiming to digitise in April 2019. Making tax digital aims to improve compliance by making VAT Returns more transparent via the requirement of digital records for VAT transactions and receipts.
While this may prove a challenge for some businesses, it should hopefully improve the quality of VAT records provided as digital images of invoices and receipts will be required via a paperwork solution such as Receipt Bank.
This will make it far easier for accountants to read records – saving yourself time – but should also be sold to the client as positive too! After all, finding space for six years-worth of VAT records can be a challenge and by encouraging your clients to go digital both of you can benefit from improved records and less paperwork to store!
You can find more on Making Tax Digital here.