Accountant vs. Tax Software ‒ When to use each option

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With new Making Tax Digital (MTD) rules from HMRC soon to come into effect, landlords and any other self-employed individuals will have to submit their accounts directly to HMRC via recognised software. The changes will create a sudden demand for tax software, inspiring a number of developers to create MTD-ready software.

Yet, if everyone is required to use MTD tax software, you may wonder what happens to accountants. Do you simply replace your accountant or is there still opportunity for them to add value?

While MTD tax software does, effectively, replace your accountant, things aren’t always that straightforward. While you may receive advice and updates from your software provider, there may still be some situations where contacting your accountant is preferable.

When should I use an accountant?

As a landlord, you’ll know that accountants don’t come cheap. Even the most cost-effective accountants still charge hundreds of pounds. While the received logic is that accountants should save you more money than they cost, it doesn’t always work out like that. In fact, as technology has improved and the tax system has become simpler, accountants are adding less value than ever, especially for relatively simple accounts.

Tax software, however, can’t give you specific advice – not until AI gets a lot better, anyway. If you need someone to investigate your tax situation or it’s particularly complex, an accountant is probably the best way to go. They can provide personalised advice that can prove really valuable.

Here are some situations where an accountant may be the best option:

1. Complex, multi-level tax affairs
   Earning income from a variety of sources, such as property, capital gains or inheritance, can develop a large and complex tax portfolio. When there is lots of complexity and money involved, you may find more peace of mind having a dedicated accountant looking after your tax affairs. They may also be able to find more tax efficiencies using some creative thinking that, at the moment, software lacks.

2. Creating long-term tax plans
   Software is designed to keep you on top of your current tax situation – not plan or prepare you for the long-term. Tax software might, for example, show you a real-time estimate of your tax liability but won’t show you how to plan for the following year or make suggestions on how to make the most of your allowances. If you want a long-term tax plan, it’s best to speak to an accountant who can understand your needs and take you through the process.

3. Difficulty keeping organised
   Some of us are more organised than others. Keeping accurate and up-to-date account information isn’t always easy, especially when you are busy or have a lot of paperwork. As a result, many of us leave it until the last minute to complete our tax returns. If that sounds like you, an accountant may be an easier solution. It may be a pricey solution but you can rest easy knowing your accountant will take care of all the paperwork on your behalf.

4. Great relationship with your accountant
   If you’ve used the same accountant for a number of years, you’ll likely have built up quite the rapport. Even if you could reduce your accountancy fees, you may value that relationship more than the difference in cost. One way to keep costs down while maintaining the relationship with your accountant is by using software to do most of the heavy lifting, getting your accountant to add value and create tax plans.

When should I use tax software?

For the majority of landlords, your tax portfolio will be fairly straightforward and could be better managed with tax software. While software can’t give you advice or find ways to save, it will reduce your accounting fees and make it quick and easy to submit your tax returns.

By using tax software, you will also prepare your business for the coming MTD regulations, putting you more in control of your tax affairs.

It may be better to use tax software if…

1. Tax self-assessment is something new
   If you haven’t submitted a self-assessment tax return in the past, it can seem a bit daunting and expensive. Tax software not only walks you through the information you are required to provide, but it will also do all the calculations for you and submit your tax return directly to HMRC – all without the need for an accountant.

2. Saving for your tax bill is difficult
   Putting aside the right amount of money to pay your tax bill come January isn’t always easy. You may have fallen on hard times this year, for example, due to the coronavirus, and needed to dip into your savings. Without completing a tax return, it is hard to know how much you would owe at the end of the year. Tax software can provide a real-time estimate of your tax based on the current information, helping you put aside just the right amount and avoid nasty surprises in January.

3. You are short on time
   While your accounts may be straightforward, it can still take a large amount of time to prepare your accounts. You need to download bank statements, find receipts, identify relevant transactions and then sit down and complete all the paperwork. Some tax software, such as APARI, allows you to simply upload your bank statements and tag the relevant transactions, completing all the calculations and paperwork for you.

4. You are short on money
   Being a good landlord requires some upfront costs which can leave you struggling financially at times. Accountants, on the other hand, are notoriously well-paid. The great thing about MTD tax software is that many providers offer a basic plan for free. Only if you need a particular service, such as a conversion to the old style self-assessment tax return or some specific accounting advice, would you need to pay anything!

5. You’re know what you’re doing
   Some landlords like to keep financial records for their own benefit. If you have fairly good records then your accountant may not be adding much value – only working out a few basic percentages, putting it into the correct format, and submitting. Tax software can provide an easier way to keep track of financial information as well as completing all the work usually done by your accountant, saving you time and money.

Regardless of what your tax affairs look like, you will be facing a transition to MTD tax software in the next few years anyway. So, even if you have a complicated tax situation and an accountant you get on well with, you will still need to start using software soon.

By adopting tax software now, you will be able to better organise your taxes in digital format, saving you time and money now, and stress later. The worst that can happen is that you will find the new approach difficult and ask your accountant to step in, potentially saving time and money anyway. So, why not start now and simplify your tax?

Get started with a free MTD account from APARI.

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