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The MTD tech approach: Bank account and ledger in one

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Bringing together banking and bookkeeping tools could bring more discipline to clients’ record keeping, with a new breed of software promising to bridge the gap between recording and reconciliation. With MTD ITSA imminent, can vendors do enough to persuade accountants and clients to move their key cash relationships for the sake of efficiency?

28th Jun 2022
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The rise of challenger banks has provided welcome competition to the traditional business account providers. Given that sole traders have a habit of measuring business performance on the basis of what is in their bank account, placing cash at the heart of their financial administration seems to be a legitimate approach.

In the context of MTD ITSA, bringing together the banking (or money handling for those that aren’t strictly banks) together with basic bookkeeping tools reduces the separation between recording and reconciliation even further.

For clients that are digitally confident, not necessarily experts, this could bring more discipline to their record keeping, while reducing the number of apps they may be using.

Banks and e-money business accounts 

Both Starling and CountingUp are good examples here. From the outset, it’s important to state that Starling is an actual bank, and CountingUp an e-money business account provider. 

This fact may make only a marginal difference to your clients, but is an important distinction to make nonetheless. Both have protection to safeguard deposits but fall under distinctive regulations. Starling has the additional ability to lend, whereas this is a future option for CountingUp under a consumer credit licence. 

The “money and ledger” approach

Compared to receipt capture solutions that focus on the purchase side, these “money and ledger” services incorporate tools that also allow invoicing and requests for payment.

“Small business banking is well understood by sole traders, while keeping their books in order is more intimidating,” explained Tim Fouracre, CEO of CountingUp. “Our approach reduces the gap between the two by containing the transactions and the source of reconciliation.

“It means we can create interesting workflows that help keep them in touch with their finances,” continued Fouracre. “For example, instant notification about purchases, being prompted to snap receipts, all transactions being automatically categorised in real time and reconciled without them lifting a finger”.

While this exists across both products, Starling offers these features as a part of their optional Business Toolkit - an approach some accountants may find useful, as having a standalone business account may be a priority first step in helping clients make the MTD ITSA journey.

Simplifying the tech for sole traders

“We are trying to keep things as simple as possible - from how quickly you can get an account up and running to making sure you’re not jumping across multiple systems to complete basic tasks,” said Starling’s Partnership Manager Oli Krishnan.
This stripping away extraneous applications and processes is at the heart of the approach, and is especially useful for sole traders that have built up overly engineered systems to keep track of where they are. “We see it as providing a to-do list or an aide memoire for those who want to have a bit more control,” continued Krishnan. “Tools which can help you to remember which invoices to chase, paying the VAT or putting money aside for your tax bill”.

 

Does it work for accountants?

When it comes to creating an equally simple, scalable MTD ITSA solution for accountants the two have markedly different approaches.

Making a clear comparison to what might be expected to be a ‘standard’ approach for larger entities, Fouracre takes the view that “you don’t need two or three other apps creating replication of data or extra steps. You don’t need to connect bank feeds or have standalone receipt capture and ledgers as it all sits in one place.”

Furthermore, with CountingUp, accountants have complete access to all their clients and the data through their Accountant Hub. 

“You can already file VAT returns, add journals and produce a meaningful P&L, trial balance, and balance sheet already”, added Fouracre. “So you should be able to run MTD ITSA from here too”. 

This isn’t quite the case with Starling. For a start, their website confirms “we can’t yet provide access to third parties (eg accountants)”, and VAT filing is limited to those who are both on the flat rate scheme and a cash basis

This shouldn’t create any specific difficulties for accountants thinking about it as part of their ITSA armoury. “Clients can service most of their needs in one place, but the broader market place creates the streamlining of processes through deep API integrations,” Starling’s Krishnan outlined. Connections with all the major ledgers and standard CSV exports means that getting the data into the compliance software shouldn’t be a major issue, and also may allow you to utilise existing established workflows. 

Whether or not filing the quarterly updates and handling the year end work would be possible, Krishnan could only confirm at this stage that “naturally we’ll have to add new features based on regulatory change and client feedback”. 

Are they ready?

The simple answer is it depends on what you see as the firm's approach. Starling doesn’t need to be an ITSA solution as it is first and foremost a bank, and one that can scale to cover most very small to growing businesses banking needs. It has, however set expectations with current features that it will be able to fit neatly into the MTD agenda. 

Whereas, CountingUp absolutely has to be there and be competitive. Functionally rich and with a more defined MTD agenda, it has more of the things which would allow accountants to run more of the end-to-end process in one place. The challenge, however, is whether or not this additional richness just proves to be too much for the most basic clients.

Pricing reflects this difference too, with Starling offering a free bank account and a flat rate of £7pm for the Business Toolkit. CountingUp operates a tiered scheme likely to be £9pm for most ITSA-impacted clients

In the race for the hearts and wallets of accountants and bookkeepers, the value to clients of bringing the money and the transactions together may be enough to swing good volumes their way. Providing that is, they can persuade their clients to move the key cash relationship from their existing banks and onto a new platform.

Replies (23)

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By Hugo Fair
29th Jun 2022 10:24

"Providing that is, they can persuade their clients to move the key cash relationship from their existing banks and onto a new platform" ... and there you have it (the foundational fallacy).

Why would you do this (with all the ensuing heartache, from transferring/renegotiating overdraft facilities to informing/transferring all your client/supplier DDs etc) ... in return for such a nebulous benefit?

And suggesting that MTD ITSA is the driver for making this change ... despite neither supplier having anything to offer in that space yet (and one of them not appearing overly committed).
It's like me saying that you should transfer all your business to me because I'm thinking (or even hoping) to have a methodology which might bring you benefits eventually (or might not - who knows)!

Thanks (5)
Replying to Hugo Fair:
Tom Herbert
By Tom Herbert
29th Jun 2022 13:14

I'm pretty sure I saw 'Foundational Fallacy' on the John Peel stage at Glastonbury last week...

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Replying to TomHerbert:
Richard Sergeant
By Richard Sergeant
30th Jun 2022 10:03

They were quite good actually.

Thanks (1)
Replying to rsergeant:
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By Hugo Fair
30th Jun 2022 14:47

I'd describe their sound as slightly derivative of early Hawkwind (around the time of Space Ritual), but with frequent nods in the direction of Isaac Asimov's philosophy!

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Replying to TomHerbert:
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By Hugo Fair
30th Jun 2022 10:53

Nice one. It would've seemed quite unexceptional in 1967, but may be perhaps more frighteningly apposite in 2022. Anyway I like it when a phrase comes together!

Thanks (2)
Replying to Hugo Fair:
Richard Sergeant
By Richard Sergeant
30th Jun 2022 10:07

All fair comments as usual, Hugo.

However, I would also suggest that in discussions with accountants at Accountex this year, there was an interesting consensus of trying to get sole traders onto a stand alone business bank account to help as a 'foundational step' towards being able to categorise transactions more neatly.

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Replying to rsergeant:
Morph
By kevinringer
30th Jun 2022 10:21

So we now add to the cost of MTD, the cost of operating a business bank account. No wonder the banks are jumping on the MTD bandwagon as, like the software industry, it's a cash cow.

Thanks (1)
Replying to kevinringer:
Richard Sergeant
By Richard Sergeant
30th Jun 2022 10:28

Only if you want the MTD tools. Starling business account is currently free.

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Replying to rsergeant:
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By Hugo Fair
30th Jun 2022 11:02

I guess my somewhat hidden point, as always, was that anything that helps (preferably the agent AND the taxpayer with assisting HMRC as an added extra) is obviously a good thing.

But this willingness by so many to then label each such 'thing' as the golden key for all is equally obviously misguided. Indeed it verges on the dangerous if it encourages even one person to make a decision that is antithetical to their or their business' well-being.

My gripe is less with the messenger than with those (step forward the comms functions in software companies, banks and govt) who deliberately use the 'story' to obfuscate the reality so long as it makes their own lives easier.

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By Paul Crowley
29th Jun 2022 11:26

Do not yet have any clients with either bank
People still use cash and cheques

Thanks (1)
Replying to Paul Crowley:
Morph
By kevinringer
30th Jun 2022 10:20

Most of my clients are farmers in digitally-excluded Wales. Cheques still rein supreme. The banks may well think that bank feeds solve MTD, but there's way more to MTD than that. Almost every farm expense needs sub analysing between different categories. Most bank receipts are net of expenses (eg livestock auction fees, milk processor charges etc) so need grossing up. Then there's the complexity of farm private usages: farmhouse(s - most of my clients are partnership), multiple vehicles, different income streams that need accounting for differently under MTD ITSA (eg rental property). And don't forget herd basis, 2-year and 5-year farmers averaging, loss relief restrictions and so on. We then find that bank feeds are trivial and be almost no help at all.

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Replying to kevinringer:
Richard Sergeant
By Richard Sergeant
30th Jun 2022 10:29

This style of solution may not be the best for these types of clients...

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Replying to rsergeant:
Morph
By kevinringer
30th Jun 2022 11:09

This type of client makes up 90% of my client base. They're still expected to comply with MTD even though it doesn't work for them unless they spend considerable time/money attempting to comply.

Thanks (1)
Replying to kevinringer:
Morph
By kevinringer
30th Jun 2022 11:14

I don't think there is ANY solution for "this type of client" ie the typical self-employed, digitally-challenged, very-busy-and-hardly-have-enough-time-as-it-is-without-having-to-take-on-more-pointless-tasks-just-to-satisfy-the-unrealistic-whims-of-ex-chancellor-George-Osbourne. Is there ANY mainstream solution for typical farming partnership, a mainstream solution that automates herd basis, farmers' averaging, farmhouse expenses etc?

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Replying to rsergeant:
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By johnjenkins
30th Jun 2022 11:16

The theory of MTD is sound. However in practice it doesn't work. The reason is very simple. You cannot go from "low tech" to high tech" just like that.

Thanks (1)
Replying to Paul Crowley:
Tim Fouracre
By timfouracre
06th Jul 2022 11:42

Paul Crowley wrote:

Do not yet have any clients with either bank
People still use cash and cheques

You can deposit cash with most digital banks (and certainly with Countingup) at any post office or paypoint outlet. Combined that's something like 30k branches/locations.

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Replying to timfouracre:
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By Hugo Fair
06th Jul 2022 17:35

The ability to do something is not an effective response to an expressed lack of interest in doing that thing.

If Paul's clients are using cash (at least some of the time) then that must be because they're happy to do so.
Suggesting that they find a PO to visit (so that your App will undoubtedly then provide more comprehensive figures) is not in itself a benefit to the sole trader - which is exactly the overall problem with MTD.

Thanks (1)
Replying to Hugo Fair:
Tim Fouracre
By timfouracre
07th Jul 2022 07:37

If referring to completeness of records rather than the capability for a client to desposit cash into their current account then there's the functionality to journal in any non-bank transactions.

I'd be very interested to speak to anyone on this topic (please pm me to arrange) as I simply want to listen to keep improving the experience for both client and accountant. If you've got ideas I'd love to hear them.

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By Jimess
30th Jun 2022 11:34

The banking Apps, in my opinion are of limited use. The biggest issue with all of this is getting clients to understand things like drawings are not wages and HP repayments are not van leasing and any other accounting anomalies that we would analyse out of the P & L as a matter of course but the client thinks they are allowable for profit. I have a couple of clients who use Counting Up. They show me a three line account on their phone when they bring their books in and say - "that's my profit this year" - invariably it is incorrect and I have to explain over again the difference between profit and loss account items and balance sheet items, that the banking App only records whatever goes through the bank account so you have to add in Paypal receipts/payments and cash jobs/payments and anything else that does not hit the bank account. I have to reiterate the fact that the beers down the pub with their co-workers when working away, or their grocery shopping payments are not allowable costs, nor are the payments for personal clothing, holidays, or anything else they may pay through the business account that is not a business expense. It doesn't matter how many conversations you have with some clients, they still do it.

Thanks (3)
Replying to Jimess:
Richard Sergeant
By Richard Sergeant
01st Jul 2022 14:11

MTD is not going to rememedy this wholesale, but it may nudge a few in the right direction.

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Replying to Jimess:
Richard Sergeant
By Richard Sergeant
01st Jul 2022 14:11

MTD is not going to rememedy this wholesale, but it may nudge a few in the right direction.

Thanks (0)
Replying to rsergeant:
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By johnjenkins
01st Jul 2022 14:26

We come back to the whole point. There is no need for mandatory MTD. It doesn't solve any problems regardless of what HMRC think. As for nudging people in the right direction, natural progression would eventually achieve the purpose.

Thanks (2)
Replying to Jimess:
Tim Fouracre
By timfouracre
06th Jul 2022 11:35

Fantastic to hear you've got a couple of clients using Countingup.

If your clients have granted you secure access to Countingup you can log in on the web and journal in any transactions so that the P&L they see in the app reflects any external/non-cash items.

I'd be keen to better understand how you work with your Countingup clients so we can improve the experience for both of you. PM me if you'd like to do that.

Thanks, Tim (Founder, CEO Countingup)

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