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How to evaluate your client base for MTD

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Do practitioners know enough about their clients to map out their MTD ITSA transition plans? TaxCalc offers some practical advice on how to fill in any gaps.

9th May 2022
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The latest software supplier to offer up a guide to preparing for Making Tax Digital (MTD) is TaxCalc. But chief marketing officer Andy North said his motives for publishing the guide weren’t just to sell more software. “A lot of advice being put out around MTD was to ‘Worry about your tech stack’ and ‘Think about your pricing’. But there was very little to explain exactly how to tackle these problems,” he told AccountingWEB.

“We know that many accountants lack anything like a clear vision for what decisions they need to make in the run-up to April 2024. We wanted to lay out a ‘what you need to do’ approach to each problem and, most importantly, in what order.”

Breaking down your client base

Deciding what services to offer to which clients is a vital first step that any practice needs to think through. 

Most firms know many clients are sole traders, how many are partnerships and how many are limited companies. For MTD for income tax (ITSA), these groups need to be further divided into those who will and won’t be brought into the new reporting regime, their digital readiness and how much support they are likely to need. 

Key client information 

The “brains trust” of TaxCalc practitioners who contributed to the guide identified key pieces of client information you need to ensure you have complete visibility over MTD planning. These criteria include:

1. Digital start date

From 6 April 2024 all sole traders and property landlords who were in business prior to 6 April 2023 will have to file quarterly income and expenses statements under MTD. Sole traders and property landlords who start up after that date will have to move into MTD in their third tax year of trade. Partnerships get an extra year and start in April 2025, while limited companies will be brought into the regime at a later date.

2. Accounting year end

Under the planned basis period reforms, quarterly submission periods will now be the same for all businesses under MTD ITSA, irrespective of their accounting year end date. There will be a transitional period and ongoing apportionment for any clients not using a tax year end. Identifying those clients now will allow you to decide whether they would be better off continuing with their current year end, or switching to 5 April for the 2023–24 tax year.

3. Exempted clients

These clients fall into two groups – those whose combined business and property income is below £10,000 and those who HMRC accepts are unable to keep digital records due to age, disability, location, religion or other reason. 

4. Digital readiness

Like MTD for VAT, MTD ITSA requires business records to be kept digitally and filed using functional compatible software. If clients don’t keep formal records or maintain their books on a good old-fashioned manual ledger, they are clearly not digitally ready and may require further support. An important consideration is whether they are keeping their records up to date with sufficient regularity to meet the quarterly reporting requirement. If they aren’t VAT-registered, some clients may update their records once a year in order to prepare the end of year accounts and tax return. That won’t be possible under MTD and, again, those clients should be identified as not yet being digitally ready. 

5. Financial tech-savviness

Aptitude for financial technology was identified by the TaxCalc practitioners as an essential factor. They classified clients in three groups on this measure: 

  • Tech Happy: if not already keeping records digitally, these will be easy to convert. 
  • Tech Apprehensive: will get there with a bit of persuasion. 
  • Tech Averse: either will not engage at all or will take a lot of handholding.

You may decide that your Tech Averse clients must take your full bookkeeping service if they are to remain clients, or consider whether to support Tech Averse clients at all, or at least not take on any new ones.  

Working relationship 

There is no doubt that for many clients MTD ITSA is going to present a big shift in their working relationship with you. Clients that you only hear from once a year are now going to have to interact with you at least every three months. For some clients, that may be a lot more proximity to you than they had ever wanted or anticipated!  

TaxCalc director of product compliance and guide author Dean Shepherd urged practitioners to overcome any reluctance and consider using MTD ITSA as an opportunity to gain a greater awareness of their clients and their needs.

“If you aren’t interacting with them every month, why not? If they’re not using digital tools already, why not? If there are benefits for both them and you in taking them on a digital journey, irrespective of MTD ITSA, then kick off that journey now,” he urged.

 

Download the full TaxCalc SimpleStep® Guide to MTD Readiness for more practical advice like this.

Replies (29)

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By Hugo Fair
09th May 2022 10:29

Think you might be missing a word, John ...
"4. Digital readiness
.. If clients don’t keep formal records or maintain their books on a good old-fashioned manual ledger, they are clearly not digitally ready and may require further support."

Try inserting 'only' before 'maintain their books' - and you get a different (probably the intended) meaning.

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By Hugo Fair
09th May 2022 10:41

"If you aren’t interacting with them (clients) every month, why not?"
Possibly because (many of) the clients don't want that ... they signed up for accounting compliance & filing (as doing this is seen as a non-optional overhead); not a range of other services that may be seen as intrusive and/or simply getting in the way of running their business in the way they want.

Also, ".. will allow you to decide whether they would be better off continuing with their current year end, or switching to 5 April for the 2023–24 tax year."
I thought we we were warned all the time "not to let the (tax) tail wag the dog"?

But the problem isn't segmenting or understanding your client-base ... it firmly remains the fact that no-one (including HMRC) yet has a clear view of what individual taxpayers will have to do.
And in that vacuum, it is impossible for agents to advise (or indeed for taxpayers to choose to close or retrench their business or whatever) ... and so the cobwebs build up and nothing happens.

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Replying to Hugo Fair:
paddle steamer
By DJKL
09th May 2022 15:53

Hugo Fair wrote:

I thought we we were warned all the time "not to let the (tax) tail wag the dog"?

.

It is not really the tax tail wagging the business dog, more the possible extra compliance costs arising from having an awkward year end, and that consideration is a business consideration not a tax consideration.

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Replying to DJKL:
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By Hugo Fair
09th May 2022 17:32

Hmm, true but ... my version of the tax tail is not just about the total tax 'take' (it includes what you might consider business considerations - such as the timing of payments and the relevant rates/thresholds, as well as the direct costs & efforts of compliance).

There's an example on another thread today ... of a business that has a peak at Easter but (due to the moving date of Easter) would, if it moved to a 31/3 or 05/4 Y/E, find itself with 0 or 1 or 2 such peaks in specific financial years.

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Replying to Hugo Fair:
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By Hugo Fair
10th May 2022 10:00

Re: that quote from TaxCalc's director of product compliance Dean Shepherd:
"If you aren’t interacting with them (clients) every month, why not?"

Do Taxcalc apply that same 'standard' to themselves and their clients?

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By ireallyshouldknowthisbut
09th May 2022 16:20

Its funny, ITSA has been 1-2 years away, since what, 2015?

7 years on and erm, here we are again and the only commercial solution to this are:

1. Get the client to submit any old tosh
2.Put you client in touch with some random low paid individual to file any old tosh
3. Build a "poo flicker" to send some data to HMRC's system (and risk getting a disciplinary from your professional body) yourself
4. Quadruple your fees and really annoy your customers by trying to do is properly. O and probably get a divorce & nervous breakdown given the routine 20 day straight, 12-14 hours/day stunt you will need to pull every 3 months to actually file decent quarterly returns.

I'm aiming for (1) or (2).

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Replying to ireallyshouldknowthisbut:
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By SXGuy
09th May 2022 16:34

It beggers belief that
A) hmrc honestly thinks the tax payer will do the quartly stuff themselves

B) they honestly believe we have enough time to do yearly clients quaterly on top of our vat and paye clients

C) they don't care so long as they get something working and some form of data through.

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Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
10th May 2022 09:55

Is latter part of 4 an argument for MTD?

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Replying to DJKL:
By ireallyshouldknowthisbut
10th May 2022 11:16

DJKL wrote:

Is latter part of 4 an argument for MTD?

Higher fees seem to be what our man at the top Giles gave as why accountants should embrace this. And seemed to miss the face they had already told businesses this would save them money. Hmmmm. This perhaps why some of the tech driven "businesses that purport to do accounts" as opposed to old school accountants, seem to like it as they see it as a chance to charge more to send junk data to HMRC which the data churners can spew out.

Old fashioned people like me trying to act in their clients interest are of course woefully out of touch. That and I know our clients wont pay for it.

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Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
11th May 2022 09:57

I was more angling for the peace and quiet post a divorce. (I might then be permitted to smoke cigars in the house)

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By SXGuy
09th May 2022 16:30

Damn us lazy accountants for not already interacting with our yearly clients on a monthly basis.

What are we doing with all this free time on our hands not seeing hundreds of clients each and every month.

We couldn't possibly be using that time TO ACTUALLY DO ANY WORK.

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Replying to SXGuy:
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By MCV71
09th May 2022 19:00

Meeting clients and social media updates up to 7 hours a day as per the AWeb article last week. Who needs to do actual accounts work?!

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Replying to SXGuy:
ALISK
By atleastisoundknowledgable...
10th May 2022 07:53

I love it when people (potentially not in general practice?) tell me I need to interact more with my clients, speak regularly to them and have all of their data run through Futrli Predict so I can call them when they’ll have cash flow issues and sell them a host of advisory services.

If only I’d seen the light about how I could upsell an Uber driver earning £20kpa who grumbles about paying £100pa for his tax return. Maybe I can even outsourcing that conversation to the Philippines, then I’d be able to work 2 days/wk & bring home 6 figures.

Grumble over. Sorry.

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By MCV71
09th May 2022 17:48

Ah another advertorial slating people who dont use digital solutions even if not best for the client, as backwards

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By MCV71
09th May 2022 18:51

I actually find this quite offensive "“If you aren’t interacting with them every month, why not?"

My client base is micro-business. They don't need interaction every month.

But as a Taxcalc customer, if they think I'm inadequate I will be taking my custom elsewhere

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By Jo Nokes
09th May 2022 23:09

I watched the webinar a couple of weeks ago, between ICAEW and HMRC. A load of waffle, from the man from Xero and a guy from HMRC, but not a word about the problem of the work bunched into four months, not a word about the fact that the quarterly submissions have nothing to do with the end of year submission, nothing about how this all gets put together with the other income stuff. I was seriously depressed for a couple of days reflecting on it. Then I produced a client’s return, based on 12 agents rent statements, and one P60, and pondered how was I going to explain MTD to her

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By Calculatorboy
10th May 2022 04:37

Oh the arrogant ignorant infered assumption that we do not know our clients!

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By Peter-S
10th May 2022 10:22

What is this obsession with interacting with clients every month. My local garage doesn't contact me monthly to see if the car is OK, my solicitor doesn't contact me regularly to see if there are any legal problems, my doctor isn't always checking on my health. I go to these people when I need some help or advice. My clients come to me when they need some help or advice. I shouldn't think anyone wants to be badgered monthly - or even quarterly in many cases I would wager.

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Replying to Peter-S:
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By MCV71
10th May 2022 10:55

It's always mentioned by people who have never been an accountant. Sales spiel by marketing people who think the actual work gets done by itself somehow

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By D V Fields
10th May 2022 12:54

“If you aren’t interacting with them every month, why not? If they’re not using digital tools already, why not? If there are benefits for both them and you in taking them on a digital journey, irrespective of MTD ITSA, then kick off that journey now,” he urged.

He didn’t need to prove he was out of touch; we already knew.

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By MCV71
10th May 2022 13:30

"overcome any reluctance". What sheer arrogance. Making out accountants who aren't worshipping at the altar of cloud are stick-in-the-mud technophobes.
We are doing what is best for our clients individually. Not what is best for sofware companies.
You've lost my future custom Dean

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Glenn Martin
By Glenn Martin
10th May 2022 13:31

For me Covid has done more to advance MTD than HMRC and the professional bodies have, by virtually eradicating cash trading from the economy, which I assuming is where HMRC think the black hole is that they have developed MTD to stop.

My window cleaner is not the sharpest, instead of the old model of washing you windows when your at work, then coming back on a night to try and do the debt collecting, he now just sticks a note through your door to pay him via paypal. He now does not have to trail the streets for 2 hours unpaid collecting which has got to be a good thing for him. Covid has digitised his business.

From the accountants point of view he needs to connect his bank account to something like Coconut to code out his income and expenses. You set one rule for Paypal to income and that all his income dealt with. Its not a big task and why would you not want to deal with someone who has moved a little with times, but instead make your staff endure dealing with people who turn up with a bag of crap to sort out each January.

I am not for MTD nor was I for Brexit but they happened so you have to make it work for you, as what is the alternative.

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Replying to Glennzy:
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By MCV71
10th May 2022 15:35

Has MTD happened? All we have actually done since 2015 is just submit VAT return figures through a different portal.

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Replying to Glennzy:
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By Ian McTernan CTA
10th May 2022 15:43

And when you set that income rule for Paypal you then get all his payments from paypal in- including everything that isn't income.

Are you then checking all those to ensure you haven't included things that aren't income? People use paypal for many different things and money can be flying back and forth merrily, setting Paypal to income could mean all the payments out to Paypal for other items are deducted from his income in spite of being not related to his business.

Rules and auto adding on software are very dangerous and can take longer to sort out than just getting that 'bag of crap'...especially if they are not reviewed by an expert.

Just imagine a client setting up an auto added rule for Travel (including hotels, subsistence, train fares, Uber, etc) over the last few months with variable VAT rates and you can see the problems you will have to unravel. Much easier for me to make all the entries than review them once they have posted...

I'd also wonder why he's using Paypal for that with their large fees when he could just as easily use direct payment into his bank...

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Replying to Ian McTernan CTA:
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By MCV71
10th May 2022 18:58

As I have said before, bank rules are just an electronic bag of screwed up receipts. You still have to check each one to make sure it is correct. Often takes longer than rattling through paper receipts

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Replying to MCV71:
Glenn Martin
By Glenn Martin
11th May 2022 09:43

I don't think is really the case once transactions are digitised it makes it easier to amend and look at the data. If someone has posted a load of transactions to wrong code they can be easily re posted using tools like find and recode which can repost 100 transactions in seconds, tools Dext precision etc also audit for errors etc.

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Replying to Ian McTernan CTA:
Glenn Martin
By Glenn Martin
10th May 2022 20:52

He uses a PayPal as he gets your email address so he can then reply and say oh by the way your gutters are full I could do them next time I am here for £20

It’s also convenience anything that makes it easier to pay you is a good thing paying by transfer for £5 is less likely to get engagement as people are lazy so pay for convenience

It’s about the difference between a glass half full of half empty yes he might code his birthday present from his Gran to income but then again he might actually know what he is doing and do it right

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Replying to Glennzy:
paddle steamer
By DJKL
11th May 2022 09:59

Mine still collects with his money belt, in fact they will be round tonight to collect their £9.60 as they were doing the windows at 8.15 this morning before I left for work.

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Replying to DJKL:
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By Hugo Fair
11th May 2022 21:32

£9.60! Do you only have 3 windows?

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