I saw a question about MTD (making tax digital) today.
The whole profession has been wondering how to charge for all of the additional work while at the same time all of our clients seem to be under the impression that there won’t be any more work to do.
I love a good analogy so let’s talk about window cleaning.
Imagine you get your window cleaner to come round once a year at the moment. Your windows will need a lot of work which will take them and of course they have had to make their way to you to do the work in the first place. Yes they have people on the street they do while there but still it’s a trip that has to be covered in the price.
Now let’s say you want another four cleans a year. Even though the windows won’t be as dirty they won’t really take that much less time to clean and the trip to get there is still needed.
The fifth clean now isn’t really needed but they still have to nip out and cast their eye over it just in case.
Actual time up a ladder cleaning is easily three times what that single clean was. What would you expect the window cleaner to charge then?
- No change? Clearly not. Nobody would expect this increased level of work for no change in price.
- What about five times the price? Again, nobody would expect this. The four cleans are a little easier than they once a year clean so simply multiplying by fives would be just as wrong as no change in price.
- I suspect most people would agree that 2-3 times the price is completely understandable.
Now back to taxes. The admin surrounding each submission is like the trip to the street to clean the windows. It still needs done. Information will still need to be asked for, opened, reviewed, formatted and sent for approval before submission.
The information being submitted will still need to be checked. A landlord with five established rentals will easily have say 40 transactions a year per property. Say 200 once a year at the moment. They will still have 50 per quarter. The admin doesn’t take less time just because there are fewer transactions.
Checking of them does but maybe not as much as you think. Seeing if there are twelve rent payments, twelve mortgage payments per year does not really take much more time than checking if there were three of each you see.
If you have hundreds of transactions a month and no record keeping system then you might find that your costs will be many times your current.
So what can be done by you now?
- First you can pay for four full cleans. In the tax world this means you don’t change the way you do anything at all and your advisor will need to do significantly more work and will end up charging you far more for the privilege every quarter. There will be a charge for the final submission as well.
- Second you can clean your own windows – ie submit your own quarterly updates. HMRC are not providing software to do this so you will need to use something like Hammock or Xero to keep your records. Someone like me could then help with the annual check up to make sure everything is good before finalising the figures, much like what happens now. For many people this will be what happens. If you take this route then your costs will likely be much the same as they are now. All that will have changed is the way that you keep your records. They won’t be any more right or wrong simply because you have already submitted them quarterly.
- Finally if you don’t fancy learning new software and you could delegate the task. You will still need software and to do some of the basics like tracking income and expenses but your advisor can pick up the data quarterly directly from the software and check it over before it goes in. Sure this will cost 2-3 times what you currently pay but it will ensure the right figures go in every quarter and any error made in a quarter can be spotted before they compound across the year.
Most of this discussion will bedecked by the software choice and whether you use it well. We are also to some degree at the mercy of HMRC as until the final systems are in place it is hard to price the job properly.
For now though, as a minimum, take steps to get your records digital. By digital I mean accounting software rather than just scans of receipts or a spreadsheet. That time will never be wasted and will always reduce evetual costs.