The big bookkeeping question

Over the next few years Making Tax Digital is expected to be rolled out beyond VAT-registered business to other taxes, including corporation tax and income tax. Is MTD an opportunity or a threat for accountants? With record-keeping central to MTD, what is the accountant’s strategy for their clients?

Is now the time to manage their books? Financial Accountant spoke to accountants, software companies and small business experts to get their views on the pros and cons of providing a bookkeeping service.

Lessons from Australia: digital tax returns and bookkeeping

Australia began to move its tax system online in 2000. Its experience may give some clues as to how MTD may affect bookkeeping in the UK and whether more accounting firms will off er it as a service.

In Australia, many accountants will either partner with bookkeeping firms, acquire bookkeeping firms, or outsource bookkeeping work to firms in Asia that are cheaper, says Trent McLaren, head of accounting and strategic partnerships at Practice Ignition, a software company which makes client proposal documents, client engagement letters and handles recurring billing for practices.

McLaren, who is Australian, reckons that UK accounting firms could follow the example of counterparts in his country. Bookkeeping isn’t just about checking transactions, he suggests, it’s also about understanding tax rules and how different transactions should be accounted for.

If bookkeepers spot these errors, it can save accountants time when submitting their clients’ tax returns and free up time resource to think about offering more profitable advisory services, such as strategy, longer-term tax planning or IT consultancy. “A lot of small businesses come unstuck because they might put a transaction to a … wrong account, or they might put personal transactions on their business accounts,” McLaren says.

Small businesses often don’t understand VAT rules, he adds. Della Hudson, a consultant to accounting firms, author and former accounting firm owner, agrees that providing bookkeeping services can be a good move for accounting firms.

“[My old accounting firm], independent of MTD, found that good quality bookkeeping made our accounting a lot more efficient,” she says.

“When we first came across, for example, Xero’s Receipt Bank (see page 22 for more) we found that we could do bookkeeping [such as bank reconciliations] in a fraction of the time [than previously] and brought it in-house. The technology speeds up the process.

“Although we offered a bookkeeping service, I’d have been equally as happy if [a client] used a good third-party bookkeeper. We weren’t too bothered as long as the job was done.”

Accounting firms can sell small clients bookkeeping as a fixed-fee service (maybe £1,000 a year or less) throughout the year and make a small profit, experts say.

Perhaps more importantly, bookkeeping can enable accounting firms to improve the quality of their basic accounting data from clients, moving it from shoeboxes packed with records on scraps of paper to a digital format.

The next phase of MTD (quarterly reporting for income tax and corporation tax) is an opportunity for accounting firms to sell bookkeeping/ management accounting services to some of their small business clients, Hudson says. There may be technological considerations, though.

If the accounting firm and client uses the same cloud-based accounting software a bookkeeping service will be easier because the client won’t have to use a new software package. For some accounting firms, bookkeeping isn’t profitable enough to be worth the effort.

Yet there is growing demand for bookkeeping, says Carl Reader, chairman of D&T accountants and a small business expert.

Frequent bookkeeping services can increase the contact an accounting fi rm has with its client, help build trust and improve client retention, he says. Can handing over all bookkeeping be the answer?

Reader is sceptical: “We’ve had bad experiences doing that.” Risks include a bookkeeper poaching some of an accounting firm’s accounting work, making mistakes or being reluctant to use new technology, he says.

“Bookkeepers tend to be reluctant to use things [such as] Receipt Bank to automate the process [because it would be like] turkeys voting for Christmas.”

Nick Huber is a freelance journalist