How to evaluate your client base for MTDby
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.
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.
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.
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AccountingWEB’s Editor at large has been with the site since 1999, rising from news editor to editor in chief, global editor and head of insight. As a roving editor, he continues to investigate the profession's use of technology around the world. He devotes his spare time to technology history and an oddball collection of stringed instruments...