Solving the MTD client data challenge

by
Keir Thomas-Bryant
February 3, 2022
Accountant and client discussing Making Tax Digital

The data challenge

Getting all the data you need from clients is always a challenge. Spending the time trying to decipher missing, incomplete or unexplained expenses and invoices creates a lot of back and forth, and a significant overhead.

Even for those clients you are doing the bookkeeping or VAT for this challenge doesn’t just disappear, but you may have systems like AutoEntry already in place to help.

Making Tax Digital for Income Tax (MTD ITSA) will see all self employed and landlord clients earning £10,000 or more in revenue, being required to keep digital record and file quarterly updates. Many of these clients may not necessarily be keeping a regular track of their finances, or could even be using a system that they’ve created themselves from diary entries, notes, and spreadsheets. More than certainly these systems will not be compliant by themselves under MTD ITSA.

Either way, the client data challenge for these types of businesses could be significant, especially from the point of view of an accounting or bookkeeping professional trying to check the data before filing.

The impact of quarterly updates on annual clients

For those that have been used to an annual process, moving to a quarterly one may be a shock. Given that there are an estimated 3.5 million people who will fall into the new system, this will cover a very broad range when it comes to their attitudes, skills and abilities to keep up to date digital data.

For those that are less inclined to do regular bookkeeping so far, the move towards quarterly updates may be particularly challenging. Although it has become a bit of a cliche to talk about “shoe box” clients, where piles of receipts may be kept in one place until it’s time to sit down and do the tax return, it’s a cliche which still has a strong ring of truth about it.

This paper pile could actually be one of the reasons why some choose to wait until the last moment - with it sitting there as a growing reminder of an unloved task ahead!

Removing paper from the equation

On a positive note therefore, getting rid of the paper as they go along could be the key. As the totals for the previous period’s income and expenditure are likely to be part of the core update requirements, and keeping proof of the transactions important for verification, putting the two together in a safe place seems logical and compliant. Encouraging clients therefore to digitise their paper records immediately, daily, weekly or monthly could make a huge difference in terms of their ability and willingness to comply.

With a change of habits as well as software required, making the step as easy as possible therefore has to be a high priority.

The importance of a client facing tool

A critical aspect of solving the client data challenge therefore is ensuring that the software and the processes are in balance with the user. Something which requires them to do something new always comes with a risk, as does anything which makes it more complicated.

Helping clients to develop new habits, such as regularly capturing receipts and invoice data, is always going to be easier to do if the technology is simple and effective for them to use.

For some the step through to categorisation, reconciliation and sending the updates could actually be well within their comfort zone. However, given that many small businesses have a degree of fear of not doing things correctly, and what might happen to them if they misreport to HMRC, the chances are that they will look for professional support.

Accessing ALL the data

From an accountant and bookkeeper's perspective, clients who can master data upload provide a shorter route for them to get on with the job of analysis and review. Technology that can also fetch regular bills, import all bank and card statements, and learn how to categorise the data further reduces the amount of time required in collating and dealing with what will be large volumes of data across the firm.

The more the process of data collection can be made as frictionless as possible, both for the client and professional, the greater the chance of accessing all the data and being able to build a sustainable service for the long term.

AutoEntry is the first step for your MTD ITSA clients along their digital journey, and provides you with the automation you need to build out a consistent and scalable service.

Visit our Making Tax Digital page for more insights and tips to get you MTD ready

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