MTD: Is there a tech solution?

A standout theme of this year’s Accountex event was Making Tax Digital for Income Tax (MTD ITSA). Practitioners were, and are, looking to software vendors for the key that will unlock their approach to a potentially increased level of interaction between their clients, HMRC, and themselves.

But, while technology is an obvious requirement, a successful solution needs to be looked at more broadly.

The tech part

One of the core drivers for MTD is to reduce the number of errors in tax fi lings caused by, in HMRC’s opinion, manual processes. Being able to keep digital records and then file quarterly updates, end-of-year adjustments and the final confirmation will therefore require compatible software.

This then breaks down into two areas - the client-facing tools, and managing the internal process.

Tech for your client

Given that a typical firm is likely to have many sole traders and landlords that meet the £10,000 revenue level, the client-facing tools you choose may have to cover a broad range of abilities – and attitudes – to bookkeeping and technology. Looking at a range of options therefore is important as you may need to be able to offer more than one. You know your clients best, and while some may be fi ne with snapping receipts and basic coding, others might fi nd it easier to hook their bank accounts to something that will do most of the initial work for them.

Tech for the practice

Making sure that you can review, repair and fi le the data easily should be a key requirement of how you will manage the practice side. Many of the client-facing solutions will offer a dashboard of some sort, whereby you can have a ‘helicopter view’ of what is going on and dive in where required. Others provide integrations with bookkeeping or even directly into their tax software. Finding a ‘tech mix’ that works for you requires both to be in balance and minimise the amount of moving between one system and another.

The service part

But for the tech to work, it has to be underpinned by a clear service. An easy way of thinking about the services is by considering what kind of help clients are going to need. This typically breaks down into three areas:

Very little – They can do it themselves and will only need you to undertake year-end adjustments

Some – They can do most of it, but will need you to also review quarterly.

Lots – They need to outsource to you completely.

This will be as true for new clients in the future as it is for those on your books now. Segmenting your clients by literally making lists under headings such as these, will help quantify what you’ll need to have in place and guide what tech you might need. It will also help you price effectively. There’s no escaping it’s going to cost you more time, and this will need to be passed on. Having three well-defined, and fully costed, options should make the transition easier and provide consistency as you bring on new clients.

The education part

Keeping yourself up to date with the legislation so that you know how MTD ITSA will impact the kinds of clients you have is essential. This is particularly relevant in areas where clarification is still to come e.g. fi ling for multiple sources of income and landlords with shared ownership of properties. Although there is no hard deadline, HMRC has suggested that the technical details will be available at some point after summer. Regardless, clients will need to know if they are impacted and how. It’s going to be a big change and the more warning you can give the better. Although HMRC has committed to a communication strategy, you shouldn’t rely on the key information getting through. In fact, it is better if it comes from you as their trusted accountant first if possible. Even just getting the basics to them at this stage would be useful. Few clients will act in advance of when it is needed, but they should know that you are on top of the situation and will need to talk to them in due course.

‘Solving MTD’ together

Technology in itself isn’t going to solve MTD ITSA for any firm, but it is a mandatory component. While it seems like there is a long way to go until April 2024, it’s best to start thinking about it now if you haven’t done so already. However, don’t think you have to do it all yourself. The major software vendors in particular also know that they need to be ready, and they will be pulling out the stops to help you along the way. Collaboration and sharing ideas with your peers will also help you to talk about and find solutions to mutual problems. Using your personal network will ensure that you are dealing with those whose opinion you trust and can hold confidence in, particularly powerful as many of the challenges are not necessarily solved just by implementing new software.

Richard Sergeant is MD of Principle Image: iStock Point and a freelance journalist