How to price accounting services for Making Tax Digital (MTD)

Practices are making plenty of changes to accommodate Making Tax Digital (MTD). It’s time to make sure your fees reflect this.

Since the introduction of Making Tax Digital, accountants, bookkeepers, and clients have made, and are still making, lots of changes to meet the legislation. This includes updating processes and systems and adopting MTD software.

These changes take time and cost money. So, it’s only right that your practice pricing doesn’t get left behind.

This practical guide will help you find an MTD services pricing structure that works for you and your clients.

Choosing the right pricing model for your practice

How you price your MTD services doesn’t just dictate how much money you earn. It impacts how much free time you have, the amount of work you need to do, and how clients perceive what you do.

Here, we break down three models you can use for your practice.

Option one: fixed fees

Fixed pricing is fast and easy to implement. For every service, you set a fixed price that takes into account the cost of delivering the service and your desired profit margin.

To work out the cost of delivering the service, you factor in things like staff time, software subscriptions, and any other resources or equipment used. Then, you add your percentage profit on top.

Fixed fees make it easy to predict your revenue, so you always know how much you have coming into the practice. And, it provides consistency for clients. A single price for a single service is easy to explain to clients.

There are drawbacks, though. You need to review fixed pricing regularly to make sure it reflects the scope of services. If a task takes longer than anticipated or requires additional resources, you could end up eating into your profit margin and making a loss.

Option two: tiered packages

Your clients will have different levels of confidence when it comes to MTD. A few might be happy to do their own bookkeeping, and hire you to do their MTD returns. Others may want to pass the work off to you entirely.

Offering tiered pricing enables you to meet clients where they’re at, by providing a variety of service options for them to choose from. You can bundle services up for a set price, and guarantee yourself a chunk of income with every MTD client. For example, you might bundle up tax returns with an ongoing MTD advice service, so clients can get their submissions taken care of and have your guidance where they need it.

In reality, tiered pricing packages will look different depending on the type of clients you have, their businesses, and the industries they operate in. But, here’s an example structure you could build on:

• Basic pricing: A package that includes MTD software set-up and all MTD for VAT or MTD for IT submissions.
• Standard pricing: A package that includes MTD software set up, MTD for VAT or MTD for IT submissions, plus all bookkeeping and reconciliation, and regular Making Tax Digital advice.
• Premium pricing: A package that includes MTD software setup, MTD for VAT or MTD for IT returns, bookkeeping and reconciliation, ongoing MTD advice, training, and advisory for tax planning and cash flow, plus additional integrated apps to help clients get more from their software.

This is just one example – you can shape your packages to include specific services your clients value.

Option three: value-based pricing

Where many pricing models encourage you to charge based on time or materials used, value-based pricing requires you to explore the impact of your services for clients. It’s about pricing based on the outcomes and value created for clients.

For example, for MTD services, your clients could get a significant amount of value from an app advisory service that teaches them about MTD software and integrations that minimise and simplify their admin. Even if this service was inexpensive to provide, if it helps clients improve their processes, save time, and maintain compliance, it’s a significant benefit that should be rewarded.

Value-based pricing isn’t a simple calculation, which can make it harder to implement. You need to talk to clients about the outcomes and impact of your services. Where do they get the most value? Which services have created wealth, saved time, improved compliance, or delivered better financial visibility for them?

Once you know this, you can price your services based on client outcomes. What matters here is that you can communicate the benefits and value for clients to help them understand the cost.

Why pricing MTD services matters

Making Tax Digital is a huge shift for practices.

For MTD for Income Tax, one yearly assessment is replaced by four quarterly updates and a Final Declaration. That’s five submissions, compared to the previous one. Moving towards a digital service demands that practices educate staff and clients, adopt new software, and adapt processes to fit the legislation. This can equate to a lot of additional work.

Pricing MTD services matters because it enables you to charge your worth. Instead of absorbing the costs that come with these changes, you can price your services so that your efforts are represented in your fees. How you price your accounting services for MTD will ultimately determine whether your practice earns a sustainable income or not.

Clients are more likely to value and pay for Making Tax Digital advice and services when you clearly communicate the benefits. So, be sure to highlight that beyond compliance with MTD rules, digitisation can help them get a clearer picture of their finances, plan for cash flow gaps, and manage spending.

What’s included in MTD services?

MTD service pricing requires careful consideration. Don’t just pluck a number from thin air – factor in the following to make sure you’re charging your worth:

• Initial client setup on MTD-compliant software
• Ongoing compliance work and quarterly updates (replacing the single, annual return)
• Client training and support with using MTD software and processes (MTD advice)
• Software subscription costs
• Any workflow or process adjustments you need to make to align with MTD rules

Give clients an insight into these factors too, so they know how MTD impacts your pricing and what’s included for them. Some of these items they may not have considered before, so it will help clients get a sense of how much work is involved.

You could even charge for some of these services separately – for example, offering paid training sessions on MTD for businesses that want to brush up on their skills.

How to address client concerns and communicate value

Make sure your MTD services address client pain points, and that you’re listening to the things that matter most to them.

Transparency is important here, so be sure to explain why the pricing changes are happening, and highlight that Making Tax Digital has an impact on accountants and bookkeepers as well as their business.

For example, if your clients are concerned that they can’t afford the extra fees, costs, or software, you might respond with something like:

Communicating early with clients about pricing changes can help you avoid tricky conversations and allow plenty of notice. Providing service options gives clients more chance of finding something that works for their budget – this is where package pricing can come in handy.

It might also help to show clients the data or metrics that support the value of your services. A simple way to do this is to show them a client case study or outcomes achieved through your MTD services.

Finding software to support profitable pricing

With the right software, you can reduce the administrative workload for you and your clients, and make room for fulfilling work. Consider this, when you’re deciding which software to use for Making Tax Digital.

MTD software is designed to simplify and automate processes, so you spend less time typing in the figures. In some cases, this means it takes less manual effort to deliver compliance services, which could create a bit more profit for you.

Many practices rely on a combination of tools to get the work done. But, if these are disconnected, this often means you have to duplicate work across several systems. Today, a single piece of software can replace lots of disconnected tools, which means you only need to do a task once. You can also add connected apps to this software, which can speed up compliance tasks.

With software making you and your team more efficient, you can put your efforts into delivering high-value work instead. In some cases, you may be able to scale your practice without having to double the size of your team. With repetitive tasks automated, your existing team is freed up for technical tasks that require human expertise and critical thinking skills.

Xero accounting software can help practices improve efficiency and create more room for profit. Features like automatic bank feeds pull in client transactions automatically, so you don’t need to upload bank statements yourself. And, the bank reconciliation predictions feature suggests matches for statement lines, speeding up the bookkeeping process.

Plus, data from Xero bookkeeping flows into the client tax return - whether that’s VAT, MTD for Income Tax, or even non-MTD self assessment. No more switching between bookkeeping and tax programmes to get submissions sent.

And, customisable dashboards in Xero show you client insights on cash flow, invoices, and key financial metrics, putting data at your fingertips ready for advisory. You can guide clients on better financial decisions, based on live data.

How Xero helps you deliver and price MTD services with confidence

When it comes to Making Tax Digital, impact on accountants, bookkeepers, and clients shouldn’t be underestimated.

Getting your pricing right can take the pressure off your practice. If fees are fair for you and your clients, you won’t need to take on a surplus of work to make ends meet. MTD for accountants can be less of a burden, and more of an opportunity to strengthen your practice.

Plus, with MTD-compatible software, you can reduce the administrative burden on your team and clients. Xero accounting software is MTD-compatible and HMRC-recognised, with features that not only support compliance but help your practice run more efficiently. MTD-friendly features include:

• MTD for VAT and Income Tax submissions
• Customisable permissions so you can share the workload with your team
• Flexibility to collaborate with clients, so you can work together efficiently
• Connection from the bookkeeping right through to tax returns, so you don’t have to copy information between software programmes
• Reports and analytics that help clients go beyond compliance, and make better business decisions based on reliable financial data

Xero MTD features are scalable, meaning they work for 1000 clients as easily as they work for 10. You can onboard clients onto the same processes and single software package, to standardise practice operations and simplify your compliance approach.