The importance of segmenting your MTD ITSA client base

To implement Making Tax Digitally successfully you'll need to work out what your clients can do, and when. Segmenting them into lists is a fundamental step forward. Here's how to do it.

Keir Thomas-Bryant
Keir Thomas-Bryant

The value segmenting your client base

The road to adapting your firm, and taking your clients on the journey towards Making Tax Digital (MTD) for ITSA starts now. Knowing where to start can be tricky, but arguably the most effective place is with what you know all too well, your clients.

In order to understand what systems and processes you will need you should be clear on the service offering, and the best way to do that is to have clarity on what support and help your clients will need.

The process of segmenting your clients therefore provides the turnkey to what follows, and ensures that how you will be servicing them will be highly relevant as well meeting their compliance requirements.

Involving your whole team

Depending on the size of your firm and the number of sole trader and landlord clients who meet the criteria for MTD you have, it’s unlikely that there will be just one person who knows all of your clients extremely well. When working through the process of segmentation therefore, it is important to involve as many of the team who can give an honest assessment of each client in turn.

Given that you may have an annual relationship with a good percentage of these clients, this is particularly important as any intelligence and insight could be valuable.

Defining your categories

Keeping the number of categories to the absolute useful minimum is essential. Given that you will be looking to use this data to help create your service offering, having too many options introduces unhelpful complexity. If possible try to limit to three or four, with a temporary category for ‘To be confirmed’, if more investigation is needed.

One option is to create categories around your assessment of what support each client may need. - For example:.

Category A - Will need minimal support, they will handle quarterly update filing, we will do the annual adjustments and and confirmation.

Category B - Will need some support, they will cope with data collection, we will do the quarterly updates, annual adjustment and confirmation.

Category C - Will need more support, likely to have difficulty in consistent data collection, we may need to provide regular assistance, quarterly and end of year filing.

Category D - Will not be able or inclined to deal with the requirements, we can provide fully outsourced service.

Exempt - Do they meet the criteria for exemption?.

To be confirmed - More investigation needs to be done before client can be assigned properly.

This is just a suggested format. You could also bring in other data such as whether or not they have a business bank account, use software currently, or have any specific technical requirements.

Assigning client’s to categories

Prepare a list of all those clients that you believe will be impacted by MTD ITSA, which should be available from your practice management system or tax software (if it’s not immediately obvious then contact your supplier for support). Using this list and any other data that would be useful (for example billing history for any sole traders), work as a team or through your own personal list to assign each to a category.

Working on a spreadsheet can be useful at this stage, especially if it is one that can be worked on at the same time by multiple users. Keeping things in this format for the time being allows you to import, manipulate and then export the data as required.

Prepare for some controversy along the way, and ask for justification if you disagree with someone’s assumption.

Taking time to review

Once completed it’s important to step back and see what the data is showing you. Aspects to explore are:

  • Do you have more in particular categories than others? What does this tell you?
  • Is there a fairly even split?
  • Are you confident that you still have the right categories?
  • What do you need to do to clear the ‘To be confirmed’ list?

If you have an obviously larger number of clients in one category it’s worth thinking why this might be. Are factors such as age, trade, location, competency with tech a factor? Or is that you are already providing bookkeeping services for them currently?.

Thinking through these types of questions will help create a rounded view of your approach, and a consensus across the team. You can also then start to define your service offering, and of course quantifying the scale of the challenge.

Defining your services

With a clearer view of the level of support clients will need, and how many will need each, you can start to build out the specific services.

Taking each category in turn start to define how you will position the offering by exploring aspects like:

  • Actions by the client (what they will do)
  • Actions by the firm (what you will need to do)
  • An annual timeline (when things will need to be done)
  • Time estimates (how long tasks will take, including chasing)
  • Technology (what kind of options would be most suitable)
  • Cost of servicing
  • Price to client

While some of this might be difficult to substantiate, it is better to have a good starting position than none at all. Working in as much detail as possible will certainly help in forming a view of the cost and pricing elements in particular.

There’s no doubt that these will develop overtime, but using it as a starting point allows you to then consider:

  • General and specific communications to clients
  • Updating website and other promotional material
  • Starting the conversation with potential tech partners
  • Thinking about internal processes

AutoEntry supports every client type

Given that AutoEntry is at the very front of the data collection piece, it can support every type of client category you can create. If it is the tool of choice for those confident and capable enough to handle most of MTD ITSA without support, or even if you are providing a full outsource service, AutoEntry supports and blends naturally into whatever service you are providing.

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

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