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Accounting software – Great up to a point, but then let people take over

For many years some specialist contractor accountants have developed their own technology solutions to help clients provide data in a format that would enable those providers to deliver great service at a reasonable price. Some use spreadsheets whereas others created their own cloud based systems. The common objective has been to reduce the time spent on obtaining and processing data and to improve the accuracy of input. For the more serious providers this meant more time for personal service (advice and guidance based on personal circumstances). Over time it expanded to meet the ever increasing need for vigilance in an environment where HMRC are increasingly challenging the data.

 

Technology was simply deemed to be one of the tools of the trade, with some providers having sharper tools than others. As a contractor accountant, and with more than  18 years’ experience I have always believed that if we can harness  the means to deliver compliance work efficiently, by this I mean the outputs that every adviser delivers such as accounts and tax returns, then the door is wide open to broaden personal service to provide value added  advice and guidance. I’ve previously used the explanation of 80% personal service supported by 20% technology many times, to explain what I and we at Intouch consider to be the best “balance” for contractors.

 

With the growth in online accounting services such as FreeAgent and Xero or the plethora of new entrants such as Pandle coming to market, there is an undeniable change occurring to how clients and accountants rely and depend upon technology to capture and then process data. This will continue to evolve as Making Tax Digital becomes a reality and by 2020 I would expect all small companies to be fully within the embrace of MTD. It’s exciting times, as well as challenging.

 

The critical question is: “Will technology alone ever to be enough to protect and advise the needs of contractors using personal service companies?” Respected online providers such as FreeAgent have a great product, but alone all it can only ever function as a data collection tool with various levels of integration between the business and personal requirements to file returns online. Without appearing to criticise these providers, the problem I see with current technology is the lack of validation which leaves people with a false sense of security and the risk of filing inaccurate information. This is especially true for new entrants to the sector as experienced contractors are historically more savvy- but even then they must work hard to remain up to date in an ever changing landscape.

 

Allow me to explain with a very simple example using FreeAgent (whom Intouch respect hugely), you can declare a dividend in FreeAgent and create the necessary documentation. Great news! It even flows through to your tax return data. However, the dividend is not validated against shareholdings and so any amount can be paid and declared as a dividend. If you have more than one shareholder and only one payment it’s very easy to fail to record the dividend correctly. In this example technology can fail unless the user has adequate understanding of the wider ramifications of what they are doing and intervene manually to correct the error.

 

In my example, a lack of validation allows the data to be recorded incorrectly albeit totally innocently and whilst it is recorded very effectively, it’s still incorrectly reported. It’s the danger with all technology, and often described as “rubbish in rubbish out”. (No offence intended).

 

So, whilst technology does not fully address the issues of validation and verification at the point of entry we are left with accountants that check the data, wasting expensive resources or poor service providers, simply accepting any data warts and all.

 

Allow me to cite another common problem. Adding an expense into an accounting system is easy, as is allocating it to one of the nominal expense categories provided. But when are any of the questions asked?

 

1. Is the expense allowable as a tax deduction?

2. Does the expense include any personal element?

3. Does it count as Relevant Goods for Limited Cost Trader issues?

 

There are providers in the market that won’t bother asking, they will assume the original answer is correct (even if it looks dubious) and automate the result. This places the entire burden for accuracy, and risk of challenge by HMRC, firmly with the contractor. There are other providers in the supply chain who ask the questions at the end of the year when they do accounts, or when returns are prepared. (Far too late in the day to advise on what amounts are available to draw out safely) there are a few of us who  firmly believe the best time to ask and check for error is when the data is input in the first place.

 

We therefore resurrect the debate over who is responsible for the validation of data, the client or the accountant or nobody? Is it better to ignore validation altogether, leave it to the last minute, hope for the best, or get it right first time?

 

I vote for get it right first time.

As pure accounting technology solutions proliferate, and I see the value in this, accountancy providers are likely to fall somewhere between the carers and the care not’s. The caring variety will continue to try to get the right answer, even if it takes more effort, or requires more complex technology, whilst the others can offer a cheaper service and a ‘who cares?’ approach.

 

You will find increasingly that HMRC care!

I find that when you ask a client “do you want the right answer, or the easy answer?” the answer is “the right answer”; and if clients want the right answer then someone must take the extra steps necessary to understand all of the specific circumstances. This solution is not always delivered by technology, though in time I hope it will be. What it does mean for all of us is that if you (the client) want the right answer, and HMRC expect the right answer, you need to be prepared to provide the right information and have it validated by both the software used for data capture and more importantly by the accountant being paid to protect you. I believe technology should make things easy, but not at the expense of the right answer.

 

So I conclude that if you require quality answers, alongside planning and guidance, you need personal service in addition to, and supported by technology. If you are experienced and have the time to “self-diagnose”, or worst case the right answers are not important to you, or value of service is measured only in terms of price, then go with a technology only solution. Forget about needing the input of a professional accountant, but you need to recognise that you won’t always get the best result, and may attract unwanted attention from the taxman if he notices.

 

As always there is a compromise. Personal service and technology should work hand in hand. But I believe that the minute you escalate technology to be your deemed adviser directly at the expense of personal service (the human factor), you risk the wrong answer.

 

At Intouch our strategy has always been one which provides our clients with 80% professional service from our dedicated personal accountants, supported competently with 20% tailored and contractor specific, self-validating technology.

 

It does mean a little more effort when you enter data, but actually not that much more, for what you lose on entry you save later on. The balance we have created between technology and the provision of personal service is something we are very proud of and hope to continue. We know it works very well for serious, career and financially minded contractors that hope to get the most out of their contracting lives.

 

To us, technology is a valuable tool that lets us do our real job of protecting and advising. It allows us to deliver the best personal service whilst we continue to strive to make our technology the sharpest tool in the toolchest. If you’d like to find out more about our comprehensive monthly service, get in touch and speak to an expert adviser today.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.