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Making Tax Digital - should you be concerned?

Making Tax Digital - should you be concerned?

Making Tax Digital is a government plan to update HMRC with financial information four times a year instead of simply at the year end. This is set to affect about 1.6 million companies, 2.4 million self-employed and 900,000 residential landlords.

The government had wanted businesses to comply by April 2018. HMRC has relaxed the timetable for these proposals under considerable pressure from all over. So that’s a relief as the timing appeared very rushed. The new timetable will mean that businesses above the VAT threshold of £85,000 will need to keep digital records from 2019 but initially only for VAT purposes. Businesses will not need to keep digital records or update HMRC quarterly for other taxes until at least 2020. Businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system - the government said this will affect about 3.1 million businesses.

When eventually MTD is introduced the actual reporting should not be time-consuming, assuming the business is using software which will be adapted, otherwise this will impose a significant and costly extra requirement which will be especially noticed by micro-businesses. It also begs the question as to what information is going to be reported quarterly and what HMRC will do with this information. The quality and meaning of quarterly information for HMRC is to our mind a bit of a mystery at the moment. Currently the only profit information which is formally reported is at the year end which is usually after significant checking and adjustment by the external accountants.  Will this mean that such attention is required quarterly or will it mean that such information is of limited use? Will it force businesses to use accounting software? Will HMRC have access to fully detailed accounting records rather than just the formal statutory accounts summary? Will it encourage more income to be declared or discovered or less costs to be claimed? Time will tell us what the consequences will be.

Anthony Pilkington

Managing Director

BookCheck Ltd

"We Measure so our Clients improve" - is it a strap line or a fact?


Our strapline sounds good and seems reasonable but what is a realistic expectation and how do we prove it  - that's our challenge.

Years ago I was the Financial Controller for parts of very large companies - Unilever, Marsh & McLennan, TV Times, Time Life and Times Warner. Naturally I reported monthly otherwise I would have been shown the door pretty quickly.

I left this world to start BookCheck which from the first has provided monthly Management Accounts but the strange thing is that such monthly MI is almost unheard of in our prospects with turnovers from £250,000 up to £1 million and unlikely, especially in quality, above that. So why is this? There are two key reasons:

  • lack of skilled resources to produce them
  • lack of knowledge or experience to use them and benefit

Although our prospects have a natural bias in that they are talking to us, very few have Management Accounts (or MI) or if they do then it's so unsound it's worse than useless. So would these businesses be under achieving profits by not measuring?

It ought to be possible to produce quality MI, use it and then expect a significant increase in profitability but by how much?

How do we calculate a range of expectations? The ideal would be to measure our clients but that will take time. So we wonder are there are any UK statistics on this subject that we could use?

At least we have one client example - they started with us engaged on 25 contracts with a typical life of 2 to 3 years. The business was impressive however they had a big weakness - they didn't know the individual contract profitability. Now they do from our BAR - BookCheck Advanced Reporting, now they work on the lower profit areas to improve, they also focus on the higher profit areas to increase such business. It's all so obvious but it hadn't been achieved previously. Over time it's increased their Gross Margin by 3% which on a turnover of £3M has added £90,000 to their bottom line. That's one heck of an achievement from just reporting.

Measuring overheads likewise is the basis for a significant reduction in costs but by how much on average? Would 10% be reasonable?

Our challenge is expanding this information across our client base in the meantime does anyone have any research on what a reasonable expectation might be? Of course the interesting extension is what would be the effect of properly used MI on the results of UK plc?

Author - Anthony Pilkington, Managing Director of BookCheck Ltd image from aussiegall