MTD ITSA: Should You Start Preparing Now?

A big challenge facing accountants in the UK is Making Tax Digital for Income Tax Self-Assessment, also known as MTD ITSA. This move is the next step in the government’s ongoing plan to digitise taxes in the UK. Digitisation of taxes will enable HMRC to effectively assess income and, in turn, make it easier for taxpayers to pay their dues.

WHO WILL BE AFFECTED BY THIS?

MTD ITSA will apply to self-employed individuals, landlords, and partnerships whose combined gross income exceeds £10,000 per year.

WHAT CHANGES FOR THEM?

Those falling under the ambit of MTD ITSA will need to keep digital records using compatible software and send updates to the HMRC for their Income Tax. Further, these individuals and businesses no longer need to submit a self-assessment tax return. Instead, they’ll need to send four quarterly updates, an end-of-period statement, and a final declaration to HMRC.

These changes come into effect from April 2024 for self-employed individuals, while for partnerships it’s effective from April 2025.

IMPACT ON ACCOUNTANTS

Accountants can expect to receive increased interest and requests from clients for advice and guidance on how to tackle this new change. Accountants will lead the charge in educating clients about the requirements of MTD ITSA.

In addition, this move brings added opportunities for accountants to grow their service offerings even further. Clients will require a lot of handholding throughout the process, especially during the initial stages of signing up, adjusting the admin process, and choosing the right software.

SHOULD YOU PREPARE FOR MTD ITSA NOW?

Although you have time until 2024 when this comes into effect, it’s a good idea to get started earlier to avoid hitting roadblocks closer to the deadline.

It can be time-consuming to get to speed with MTD ITSA before your first submission. There are a lot of changes and submissions involved in the process. Furthermore, it can take some time to narrow down on the right software for your business. So, it’s a good idea to browse the available options now and narrow down on one so that you can familiarise yourself with it.

In addition, it’s a smart idea to begin logging your current financial year income and expenditure as and when it occurs as this will help you to submit the corresponding tax return at the earliest.

HOW DO YOU GET STARTED?

Here are three steps that you could follow to get started on your MTD journey:

• Find the right software provider now: Don’t wait until next year to find your software provider. Begin your research now! Think both short- and long-term when assessing options as you’ll need software that can be used before and after MTD ITSA. It’s equally important to understand how well the software integrates with your existing tools, future development plans for it, and the developer’s relationship with the HMRC .
• Acclimatise your clients with digital record keeping: It’s a good idea to get your clients used to digital records right away. The more acclimatised your clients are with digital storage, the better it will be when the time for switching to MTD ITSA arrives.
• Begin today: You’re sure to encounter quite a few challenges as you pivot to MTD. Therefore, it’s a smart idea to begin the process now instead of waiting to do it later. The extended deadline will provide you with enough time to get your clients onboarded early and become familiar with digital record keeping. This practice will make the path smoother and lead to minimal disruptions.

NEED HELP WITH MAKING TAX DIGITAL?

If you’re unsure where to start or have any queries regarding making tax digital for income tax self-assessment (MTD ITSA), reach out to our experts at [email protected] or call +44 208 146 0808.