How should accountants be preparing their clients for MTD?

April will see the introduction of the government’s Making Tax Digital (MTD) initiative, in one of the biggest upheavals of the tax system for decades.

The move will see any VAT-registered business currently turning over more than £85,000 a year obliged to file quarterly VAT returns digitally, using compatible software, with the ultimate aim of bringing other elements such as income and corporation tax into the scope in future.

According to research by AAT, there remains much to be done ahead of the looming deadline. Just 44% of accountants currently feel they are prepared for the 1 April deadline, with 28% unsure and the same number admitting they are not prepared.

Some 41% have chosen software to digitalise VAT returns with 24% planning to rely on existing software. However, 16% say they have yet to decide which package they will use, with a further 9% saying they are close to deciding.

Ensuring use of compliant software

There are other steps accountants will need to take too, beyond ensuring their own software is compliant. “For agents making VAT submissions on behalf of clients, it’s necessary to first set up an agent services account with HMRC,” says Chris Downing, director of product management at Sage. “This account is required to access the new HMRC online services, including MTD. However, it’s important to remember that it takes five working days after the last non MTD VAT return per client to move onto the new platform. Timing here is key.”

Accountants also need to understand which elements of their customer base will be affected, says Phil Thornton, senior product manager, tax and accounting, at Wolters Kluwer UK. “Once the clients making the transition have been identified, it will then be a case of understanding how they submit VAT returns today,” he says. “In instances where the accountant submits on behalf of his or her client, will that continue? For clients who do their own submissions, what solutions do they use and will these be suitable for MTD?

Finally, accountants must understand which clients maintain manual records and currently submit VAT returns using HMRC’s online filing service. What does the transition to MTD look like for them?”

Weekly WebEx conferences

Then there’s the matter of preparing clients, and here there is much work to be done. According to Richard Asquith, VP of global indirect tax at Avalara, only around 30,000 of the 1.2 million businesses that will be expected to adopt MTD for VAT have currently registered with HMRC, and a large proportion of those that have done so have not yet testing their software or Excel filing solution.

“HMRC runs weekly WebEx conferences for agents and businesses on the process,” he says. “This is a fantastic source of information to help inform clients on progress towards MTD and what is needed. Accountants can then use this for mailings or WebEx conferences for their own clients.”

The reality is that many businesses have buried their heads in the sand and simply aren’t prepared, says Stuart Hurst, head of cloud accounting at the Manchester office of UHY Hacker Young. “It varies in terms of the systems currently in place in the business rather than the size of the organisation,” he says. “The clients that currently use spreadsheets will be the most affected by the transition as they may have to make more adjustments and are more likely to be putting it off.”

Step by step guidance

Accountants need to get in touch with clients now if they are to ensure they will be compliant by the time they next need to file a VAT return, says Steve Cox, chief evangelist at IRIS Software Group.

“In our mobile-first world, the use of apps has been a succinct way of communicating directly with clients,” he says. Accountants also need to check they have the right compliance and systems foundations to cope with bridging solutions, he adds, with IRIS’s own survey suggesting 39 per cent of firms have not changed their underlying technology and will be relying on bridging software.

Accountants should also be providing clients with simple step-by-step guidance on what they need to become compliant, including running training sessions on software. “During these sessions the clients will learn how to set up the software and see the benefits of becoming digital,” says Mandy Chubb, head of management accountancy at Goringe Accountants.

“This also provides a platform for any questions and concerns they may have. For those clients unable to attend, ensure the guidelines are available on an MTD-dedicated section of your website along with a detailed frequently asked questions page, and clearly state in your email sign-offs what digital tax changes are coming.”

Changing ways of working   

There are potential advantages for accountants that can successfully handle clients’ transition to MTD. “It offers a chance to get in touch with clients that you may not ordinarily speak to each day,” says Downing. “So take the opportunity to enhance your trusted advisor status. This is also a good time for accountants to run MTD-themed conferences, workshops, webinars and email/social media campaigns in order to attract new clients and to add value to existing ones.”

There could also be beneficial changes in the way firms operate, helping to smooth out workload across the year, suggests Hurst. “Things will move from interacting with your client once a year to having more touch points in the year and giving more real-time advice,” he predicts. “This should see work across the year increase, but a reduction in time spent preparing year-end accounts.”

Download AAT’s free MTD for VAT ebook.

Nick Martindale is a freelance journalist, editor and copywriter. He regularly contributes to a wide range of national and business media, including The Telegraph, Raconteur supplements in The Times and HR magazine.