The MTD tech approach: Data capture toolsby
As half the battle with a successful MTD ITSA transition is likely to be based on building practice efficiency, data capture products like Dext and AutoEntry are well-positioned to be a key building block for accounting firms, writes Richard Sergeant.
Given that receipt and invoice capture has been well-tested in the world of accountants, and software providers like Dext and AutoEntry are part of the “cloud furniture”, it stands to reason they should be well positioned for Making Tax Digital for income tax self assessment (MTD ITSA).
Although not marketed as innovation in the context of MTD, the fact they may already be in use for other clients could mean they provide a shortcut to deciding what tool to put into clients’ hands.
As half of the battle with a successful MTD ITSA transition is likely to be based on building practice-side efficiency, it could also help if the processes and workflow are already in place and understood.
Snap and go
Unencumbered by a reliance on banking data, these “snap and go” type providers create the funnel into which a sole trader can pour their data. Automation and rules set by the accountant reduce the amount of direct processing required and the data then feeds into the ledger for analysis, reporting and filing.
“We’re the first step when it comes to MTD ITSA,” says AutoEntry’s customer success manager, Brian Carolan. “We all know getting the data from clients is a challenge. We make it as easy as possible. We want them to not think about the process, and for it to be a natural thing to do”.
While it’s not necessarily going to give the same kind of on-the-go analysis as some other categories of software, data capture tools try to place simplicity at the heart of the process.
“The data needs to go in somehow and it must be in a digital format,” said Carolan. “Our strengths are the ability for clients to take and send photos of paperwork, email invoices, or even fetch regular documents from suppliers or banks.”
The ledger question
With data capture and categorisation at the front end being the primary focus for data capture tools, it is unlikely we’ll see much in the way of filing the quarterly updates or doing any of the other more complex annual adjustments required by MTD ITSA.
This doesn’t necessarily mean that integrating with one of the common ledger products is going to be required. For Paul Lodder, VP of Accounting Product Strategy at Dext, there is already an alternative available: “You can create an expense report that matches the chart of account for MTD filing and add the income. This could be exported out to an Excel sheet for bridging software or directly into tax software – we’ve already got an extensive list of integrations and it’s likely we’ll add tax in due course.”
For those firms already used to the pairing of these kinds of tools and the main bookkeeping product, there are advantages. “Xero, QuickBooks and Sage are developing their tax and compliance features so this is likely to be an efficient way of handling the full process,” adds Lodder. “But in reality, if your client doesn’t have that many transactions they won’t need the full ledger just the main totals.”
Same tool, different services
These data capture tools also create little friction when it comes to deciding what service to offer which client.
“Whether you’re doing nothing for a client except the annual adjustments, running the rule over the quarterly figures or taking the whole lot away from them, it shouldn’t really matter,” says Carolan. “We can focus on the quality of the experience and the extraction, and accountants and bookkeepers can focus on the support clients will need.”
This means that along with flexibility you can also get consistency that can be used to build up an efficient operation. Lodder also sees this as a way of reducing the impact of the extra time per client that will inevitably be required. “Creating consistency in processes, and that being the same for all your clients, creates the back-office efficiency that will help mitigate the additional cost impact of MTD ITSA,” he said.
Compared to some of the other categories of software that will compete for your attention and investment, services like Dext Prepare and AutoEntry claim to scale to help any size of organisation with their entry of financial data.
Are they ready?
The answer is they have always been ready. Although further integrations will be key, they have been sitting at the front end of data collection for some time. The trick, however, will be ensuring that the flow of data is as streamlined as possible, and in a way that remains highly cost-effective.
The hot topic of charging
Speaking of cost, the issue of pricing has been a hot topic in this area recently. Organic pricing built up over time has led to criticism for a lack of transparency or a level playing field.
It’s also worth noting that each of the two vendors featured in this article have quite different charging models, which at least provides the opportunity for each to be judged on their own merits.
AutoEntry has for some time set its stall out on the basis of pre-purchased credits and the ability to flex this without penalty. Dext, meanwhile, has recently reaffirmed its position based around users, clients and predicted volumes.
For those yet to take the leap into data capture tools due to cost, it’s worth stepping back to consider the wider practice benefits and extrapolating how much working time could be saved by using them. The end result may still be to maintain the status quo, but it will certainly be a worthwhile exercise.