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The MTD tech approach: Data capture tools

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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.

15th Jun 2022
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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.

Replies (13)

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By johnjenkins
16th Jun 2022 09:32

Richard, half the battle is not "practice efficiency".
The whole battle is to first try and justify to clients that MTD ITSA is something they have got to do. There isn't enough bookkeepers to go round, so most will have to do the bookkeeping themselves. Therein lies the biggest problem.
Richard, believe me when I say that MTD ITSA in it's present format (namely £10k turnover) will not be working by April 2024. I very much doubt if the project will ever be ready and viable. The new pilot scheme should be interesting to watch.

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Replying to johnjenkins:
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By Hugo Fair
16th Jun 2022 10:56

Quite ... but you (or rather everyone) needs to realise that Pilots (even the well-run ones) ONLY help to identify pitfalls of the grand canyon variety.

They are by definition self-selecting of the interested parties (software suppliers, agents, taxpayers) in that only those with some degree of vested interest (whether commercial or intellectual or whatever) will volunteer ... and in particular it won't include those who are sceptical of the objectives, let alone those who are deficient in a love of technology (or even a competence with it).

The correct use of a Pilot is NOT to find out what software still needs to be developed ... it is intended to take fully-tested software (that has been built based on a well-defined specification) and then find out how 'users' manage to break it (or just give up) due to them doing things that the developers never contemplated anyone trying!
[To use the old terminology it comes after beta-testing and before 'go live'].

Anyone who treasures their sanity will run in the opposite direction if asked to join a pilot that is such an ill-defined mess ... and if they don't I'd advise asking them why not.

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Replying to Hugo Fair:
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By johnjenkins
16th Jun 2022 13:40

Agree

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Richard Sergeant
By Richard Sergeant
16th Jun 2022 10:59

I quite believe you Jon, and have no issue with that perspective. However, what happens if it does happen, and in a form quite similar to what is proposed, in timescales not a million miles away?

The variances here might be debated, but the legislation is passed and the train is on the tracks.

The battle on the client side is the trickiest part, however one still needs to consider what is required internally to run an efficient MTD ITSA service - if that is indeed something you want to do.

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Replying to rsergeant:
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By MCV71
16th Jun 2022 12:36

"the legislation is passed and the train is on the tracks"

And this Government since 2012 have never made u-turns.....?

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Replying to rsergeant:
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By johnjenkins
16th Jun 2022 13:42

The train might well be on the tracks but if there are no passengers and nowhere to go, what then?

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By Silver Birch Accts
16th Jun 2022 18:27

Just like HS2 train on the tracks, yet that scheme is being pared back as will this.

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By Hugo Fair
16th Jun 2022 11:02

I'm sorry, Richard, but data capture is the least important aspect facing those with the threat of MTSD ITSA on their horizon.

When you say "these 'snap and go' type providers create the funnel into which a sole trader can pour their data" ... that is akin to saying that all you need for household re-cycling is a giant funnel to capture everything (or a dustbin as it used to be called)!
The hard work (and the value) comes from the effort in identifying & treating each item correctly in the first place - before it causes major problems downstream!

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Replying to Hugo Fair:
Richard Sergeant
By Richard Sergeant
16th Jun 2022 11:09

Quite agree Hugo. What perhaps we didn't quite pull out in detail is the rules aspect that should help with this. It does however require some setting up, but am assured that 'on the whole' it is quite effective.

Regular bills and regular purchases etc can be identified. The advantage here is that have been doing it for some time that the 'automation' part should be up to good level of scrutiny. As ever I make no recommendations other than to explore IF you think it suits.

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By KenKLM
16th Jun 2022 12:27

Take a picture and capture the expenses .. simple as that ? So what if clients lose receipts ? What if they have mileage claims instead of receipts ? Capital allowances / super CA's ? Use of home ? Other estimates ? Its not that easy is it ? Quarterly returns even if not VAT registered - many clients cannot be bothered with annual accounts / once a year and many are useless at keeping receipts. We're doomed Mr Mannering .. doomed I tell you !

Like the export of asylum seekers to Rwanda .. the policy will not be reversed it seems as we appear to be run by lemmings and sycophants these days with no grasp of reality.

Meanwhile another little industry for software APPS !

I take umbrage at the suggestion practices are inefficient . I dare so most practices have to be ultra efficient to keep on top of the never ending deadlines to avoid penalties. The efficiency needs to be the client end ... which is sadly lacking and every quarter we are going to be chasing our tails .. that's if we don't retire to avoid the chaos.

One question .. these quarterly returns - are they going to be staggered so they do not fall into the same months ? e.g. Mar / Jun / Sep / Dec as opposed to spreading the clients over the 12 months so that workload is spread and is more manageable ?

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Replying to KenKLM:
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By johnjenkins
16th Jun 2022 13:46

As MTD is reliant on 5th April then I would assume it has to be Mar / June / Sep / Dec.

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Replying to KenKLM:
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By NotAnAccountant2
16th Jun 2022 15:35

KenKLM wrote:

One question .. these quarterly returns - are they going to be staggered so they do not fall into the same months ? e.g. Mar / Jun / Sep / Dec as opposed to spreading the clients over the 12 months so that workload is spread and is more manageable ?

If you go way, way back to the early consultations about MTD, there was going to be no spike in work as people would have different year ends.

Now they're forcing everybody onto the same year end, forgetting that they "assuaged" people's concerns by saying that wouldn't be the case...

So you will have 30 days from 6th April (Easter), 31 days from 6 July (school summer holidays), 31 days from 6th October (half term), and 31 days from 6th Jan (I understand January is a time for accountants to sit back and put their feet up :-P )

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By JD
16th Jun 2022 14:55

Having spent a rather large amount of time this week sorting out a Dext/Xero based book keepers pile of rubbish which included a whole series of credit notes for invoices never paid (duplicated entries as client/book keeper are far too happy just snapping away with no real idea of what they are doing) combined over confidence due to misleading adverts about the capabilities of these products, I am afraid I would respectfully disagree with any suggestion that these products or MTD is anything to do with efficiency.

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