Hammock study highlights practices ‘need to change’ to embrace the competitive advantage brought by new legislation.
A poll of 150 accounting firms and 150 landlords in the UK, conducted by independent research house Censuswide, uncovered that landlords are drastically underprepared for the upcoming Making Tax Digital deadline, presenting a clear opportunity for accountancy firms to upgrade their services to become more strategic partners.
It’s not all doom and gloom
Changes to regulation are often associated with added restrictions and time-consuming efforts to comply with the new requirements. However, when it comes to MTD for ITSA, over half of accountants (60%) view the changes as a competitive opportunity to be able to better serve landlord clients by providing consultative services. There is a clear opportunity for accountants to educate existing and prospective landlord clients around the pending changes, helping them to prepare for the upcoming deadlines.
The results from Hammock’s research support this notion with almost 60% of accountancy practices believing that the deadline will provide them with greater scope to focus on consultancy services for landlords. In addition, more than half (58%) of accounting firms view the deadline as an opportunity to acquire a new pool of landlord clients.
And rightly so, with the research finding that almost a third of landlords (30%) do not currently engage an accountant to manage their finances.
Landlords are in the dark
The upcoming change in legislation means all landlords with annual income in excess of £10,000 will need to use MTD-compatible software to keep digital records and file quarterly updates for business income and expenses, as well as an end of period statement and a final declaration. This marks a significant change to the way that finances are managed and yet 21% of landlords revealed that they are unaware of the MTD for ITSA deadline and the changes that are coming with it.
The need for digital adoption
As its name suggests, Making Tax Digital has been introduced to drive the transition from manual processes, such as spreadsheets and physical filing, in favour of integrated, easy to manage solutions for finance management.
Hammock’s research displayed that there is lack of consistency when it comes to the processes being used by landlords to track their finances.
When asked if the MTD deadline will make managing landlord clients in the current format unsustainable, over half (60%) accountants agreed, citing that not having standard processes (40%) and the use of paper receipts and invoices (38%) as the main reasons why.
It is clear that the adoption of software that digitises financial reporting is the answer. Almost half (43%) of accountants named transitioning to a digital solution as the number one action that landlords can take to better manage their finances.
It may seem simple, yet a third (33%) of landlords polled said they still use spreadsheets to manage their finances, with a further 12% relying on physical files, all of whom cited end of year tax returns as their single biggest headache.
A stark digital divide exists in the industry and, with under two years until deadlines need to be met, the change needs to start happening sooner rather than later.
Capturing the opportunity now
The opportunity presented by MTD for ITSA is apparent, but accountants must act fast if they are to make the most of it.
By having access to up-to-date records of their landlord clients’ property finances, accountants will free-up the time spent collecting spreadsheets and receipts, enabling them to focus on providing higher value consultancy.
Many practices found that transitioning their clients to digital solutions compatible with MTD for VAT was more challenging and more time consuming that they had anticipated, and they are eager to act timely ahead of the MTD for ITSA deadline. Hammock founder and CEO Manoj Varsani is calling on firms to start engaging their landlord clients as soon as possible.
“The accounting firms we regularly engage with recognise the opportunity that MTD for ITSA presents to enrich their offering to landlord clients. The practices that move to digital services sooner rather than later will reap the most reward.”
A large segment of the market has not started planning for a transition to MTD: two-thirds of accounting firms aren’t planning on making any changes in the next three months in preparation for the MTD deadline. One in five (20%), meanwhile, said they were not aware of MTD for ITSA.
Landlords will soon be seeking advice and real-time services, and the accountants who develop a digital offering will be best positioned to provide those services.