In my part of the world we have 31 and 17 years of experience of what is about to happen to the UK profession with Making Tax Digital – MTD.
In 1986 New Zealand got their version of MTD. The NZ government introduced GST (your VAT) and bi-monthly reporting. For 31 years, the NZ Accountants (or their clients have done it direct) have filed / lodged GST returns for their clients every 2 months.
In the year 2000, Australia got our version of MTD. On July 1, 2000 GST (10% on sales) was introduced and so was quarterly reporting. For 17 years, every 3 months, Australian businesses have lodged a Business Activity Statement (BAS) to the government and remit an estimate of GST collected less GST spent.
In both cases the accountants did the bulk of the work initially until the clients were comfortable doing it themselves. Effectively the accountants become book keepers for a while.
In both cases the Accountants were overwhelmed with compliance work at the start. Just imagine going from annual reporting to reporting 5 times per year!
If you think back to 1986 or 2000 the technology was pretty ordinary compared to today. The accountants were receiving spreadsheets, copious amounts of paper, shoe boxes or data coming from basic hard drive accounting systems. Some would say not much has changed today.
As the technology has improved in both countries the respective governments have simplified the process of receiving data. In New Zealand (where 50% of small businesses are on cloud accounting) a small business can file their GST directly from the cloud accounting software to the government – by passing the accountant. In Australia (where 30% of small businesses are on cloud accounting) the government is introducing ‘standard business reporting’ (SBR) which means all businesses will report the same way. The estimation is that there will be a reduction of ‘red tape compliance’ of $500M – $1BN for small businesses because of SBR. That’s $500M – $1BN of accounting fees gone.
As the technology improves so is the ability for efficiencies and seamless data transfer. Eventually all personal income tax returns will be abolished and so will the need for micro businesses returns. Governments all over the world are abolishing (or planning to) the need for personal income tax return filing.
I have been advising the accounting profession for 23 years. When I look back to what the accountants were doing in 2000 (and talking to the older accountants about the 80’s) I reckon it was about 5 years before both Accountant and client got the hang of their version of ‘MTD’.
Based on experience, there is a mountain of work coming your way as your clients roll over to MTD. Do not kid yourself about the workload ahead. Right now accountants are spending approximately 80% of their day checking and processing data. The reason there is so much checking and processing going is because the data received is bad, incomplete, inaccurate, and redundant data. The accountant spends most of the day checking, re-keying and processing the data because the systems are poor and the people using them (the client) don’t necessarily know what they are doing.
If you are going to tackle the volume of work ahead with MTD (some say up to 4 times the volume per client) then you have to change your efficiency & workflow model. If you don’t you will have to hire many more accountants. Not a good strategy for profit.
Our accounting firm members are not hiring more accountants to build capacity. They are implementing 8 key strategies which drive efficiency. If you can drive efficiency (time down) then you can increase average hourly rate (only if you price up front) and gain capacity. Here are the 8 key strategies our members implement to get efficiency.
- Policies and processes – complete documentation of the best way to do everything
- 18 step workflow process – a step by step process to speed up throughput of work
- Efficiency model – a 5 step process to dramatically reduce the time to manufacture your product
- The firm is on the cloud – complete IT overhaul with no server
- All clients on a cloud accounting system – 30% – 60% efficiency gain right there
- Team performance – a 5 step model on getting the best out of people
- Use of more administration people – accountants typically spend 2-3 hours per day doing administration tasks associated with the accounting jobs
- Offshoring book keeping and accounting jobs – there are fully qualified accountants all over the world willing to work for less than £4 per hour.
The collective of the 8 strategies enables our member firms to be 50-80% more efficient then before. If you can be 50% more efficient then you can free up 4 hours of an Accountants time per day.
If you can free up (at least) 4 hours of an accountants’ time per day you can serve your clients better with additional services. Your cost structure remains the same and your revenue more than doubles.
There is a lot to like about Making Tax Digital. There will need to be a technology and system overhaul in the next 2 years otherwise it’ll be difficult to handle the volume of work.