Tech series: 'MTD has been an absolute breeze for us'

How did inniAccounts start?

inniAccounts was myself and two other chaps from contractor and freelancer backgrounds, all relatively IT savvy. It was about 15 years ago, when we couldn’t do things like email our accountants, and you didn’t know what your tax bill was going to be. We were building our own spreadsheets that were doing a pretty good job of tax calculations, in real time, and we asked around our networks and realised we had something. Our original ambition was to become an online software company – this was pre-Xero, pre-cloud accounting –  so we built a really good platform and tried to partner with accountants. But we couldn’t find any partners who were forward-looking enough to work with us, so we formed our own accountancy practice which is cloud and tech first.

It puts us in a really lovely position today, compared to many practices. Something like MTD has been an absolute breeze for us, and I understand for a lot of accountants, it has not been quite so simple. The big effort for them has not been the last mile of MTD, the big effort has been getting clients to do digital bookkeeping, whereas we have been doing that since year one. Today we are predominantly looking after independent professionals such as IT contractors, actuaries, marketing professionals, people who are running small services businesses.

Do you think the role of the accountant is changing generally?

There are a lot of things converging, so it is going to be an interesting time for accountants. MTD is starting to force the hand of digitisation. We are also now starting to see that the first cohort of millennials starting to become the next generation of successful business owners. What the next generation wants is a digital experience first. It is not about going to sit down with an accountant every year to hand over a pile of receipts. It is going to be a case of giving information on a continuous basis to help them make decisions.

Plus you’ve got MTD coming along at some point over the whole range of business and personal taxes. And that is a huge amount of change for the industry to cope with.

I think of small businesses today, about 25% get an advisory service, have 50% have a compliance only service, and 25% have no accountant whatsoever. I think there is always going to be a role for advisory. And to those guys today in that 25% delivering an advisory service, ourselves included, I would say congratulations, this is exactly the place that you need to be. The place that I find a worry at the moment is those who are in that 50% of compliance only. There are almost three million businesses in that compliance-only category. If you look at the ONS numbers, in the next few years, 1.2 million of those businesses will die, and they will be replaced by 1.4 million businesses which will be the millennial, digital first businesses. Their first port of call is going to be engaging with a vendor rather than an accountant. If you are starting a small business these days, you are probably going to start with a package, see how you get on, and then decide if you are going to need professional services on top of it. Accountants in that compliance-only space are going to lose a lot of their base over the coming years. Software vendors have got very deep marketing pockets. On the positive side, that will always be an opportunity for anyone who can truly understand their customers and add more value, rather than just filing the accounts and returns, and that’s where the advisory service sits.

How does the tax calculator work?

The key thing about the software is something called LiveCash – that’s the bit of tech which we won the Queen’s Award for Innovation for, in 2016. When you log in to the app as a client, you see three numbers: it tells you how much money you have got in the bank, how much money you owe, and how much cash you have got available to spend. So for example: you have received a payment from an invoice of £10k from a client, and what the software does at that point is calculate in real time what your VAT and corporation tax liability is on that profit, and it takes it away from that money that you’ve got in the bank account. What it means for our clients is there is that one number which is cash available, and if they spend up to that amount, they will always have enough left over to reach all their tax liabilities – and that is the bit that really gives our clients comfort.

What will the impact of IR35 be in the near future?

The impact is going to vary, depending on which sector your clients are operating in. If you look at HMRC’s own numbers, they have said two thirds of independent professionals are outside of IR35. Immediately, most firms can take comfort in that. Then you’ve got a third of independent professionals who should be inside IR35, of which only 20% are currently compliant. The risk there is that 80% of that third across the whole of the market, and with that, from a personal point of view, we are not particularly worried about the IR35 changes. When we look at our clients, the work that they do, and how they engage with their end client, it is very obvious that the majority are firmly outside IR35.

What is the impact of MTD going to be – are there going to be winners and losers?

There is a certain cohort of accounting practices who are on a very positive stretch, and MTD will not phase them at all. Then there are those who are working with older, more well-established clients who have got non-digital practices, manual bookkeeping – the brown bag-type clients – and it can be a bit of a job to get these guys to go digital, and get them over the line for MTD. With MTD for VAT, there’s no tangible benefit really for the end client. You’re there as an accountant saying ‘you’ve got to embrace digitisation’, and they will say why? What’s the positive impact going to be for me, because I’m quite happy to send you my bits and bobs every quarter so you can do my tax returns. That’s probably quite a tough question for the accountant. It comes down to ‘because you’ve got to.’

Is this resistance to MTD putting off the inevitable, as we move towards real-time information and filing for everything?

If you look at the original white paper for MTD, it was really forward-looking. There were things in there like HMRC talking about real-time ledgers and prompts, so you go and buy a lamp, and the bookkeeping software figures out the allowances you get from that, and then applies them in real time. It happens there and then. It has been real-time from day one for most of our client activities, and this white paper really cemented that and confirmed that we are on the right path.

What are the kinds of skills accountants of the future will need?

There is a bit of a watershed coming over the next few years, and I think to survive in accountancy, or to thrive, over the next 5-10 years, there are going to be a couple of profiles of people who are going to do well. There is always going to be a need for technical experts who have got a really deep technical knowledge, the stuff that an algorithm just can’t answer. These are the kinds of people who will spend the whole day with spreadsheets, HMRC handbooks, trying to solve a very tricky problem, and get satisfaction out of doing so. On the other hand, there are the people who have got the people skills, the empathy, the people who can sit down with a client and truly understand what it is they are trying to achieve, and perhaps even help them clarify themselves what they are trying to achieve, and then figure it out. And that becomes more of a kind of business coach/mentor type role.

What are the other changes do you think we might expect to see over the next five years in the industry?

I can’t foresee anybody coming along in the next five years with a solution that puts accountants out of business, because it automates everything. But I think we’ll see accountancy platforms making life incrementally more efficient for those people who embrace it and use those features. Accountants need to develop a wider knowledge of the eco-system of digital products that are out there, to support their clients, and how they can glue it all together. I suspect for most practices, there is probably somebody sitting there in the office, a junior member of staff, who would be able to do that for them, but there is the perpetual challenge in lots of firms that people aren’t groomed for senior roles until they’ve had a number of decades worth of experience. There are probably a lot of people out there who could help, if they were just given the chance and the voice.