How will Making Tax Digital for Income Tax affect sole traders?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is the next stage in the government’s plan to modernise the UK tax system. From April 2024, sole traders with an annual turnover above £10,000 must comply with the new MTD for ITSA rules. This includes using MTD-compatible software to keep and submit digital records, including quarterly updates, an End of Period Statement, and a Final Declaration.
Ensure you're up to speed with MTD for ITSA
MTD for ITSA is a big change for both you and your clients. The earlier you prepare, the smoother the transition will be. Read Xero’s guide to Making Tax Digital for sole traders to learn more about what it means in practical terms — including who is affected and what the new obligations are.
Establish your MTD offering for sole traders
MTD for ITSA presents the ideal opportunity to grow your client base. Many sole traders who have previously completed their own Self Assessment tax returns may be looking for an accountant for the first time, while existing clients may need extra support.
By offering a service that addresses clients’ potential pain points, you can position yourself as the right practice to help them navigate the changes.
1. Educational support
MTD for ITSA means changes to how sole traders handle their taxes. The current annual Self Assessment will be replaced by several new reporting requirements. Sole traders are likely to be looking for guidance from accountants on what these changes mean and how they can stay compliant when MTD for ITSA comes into effect.
As their accountant, you’re best placed to provide the support they need and to educate them on how MTD is an opportunity to embrace digitalisation. There are also plenty of MTD for ITSA resources that you can direct them to.
2. Accounting software guidance
Along with the new reporting requirements, sole traders will need to use MTD-compatible software to submit their tax information to HMRC. Many sole traders will still be keeping paper records and be unfamiliar with cloud-accounting software. This is a good time for firms to position themselves as experts in this area — for example, by becoming Xero certified. This will reassure prospective clients that you are the right practice to support them through the transition to cloud accounting and digital record-keeping.
3. Compliance guidance
With so many changes ahead, sole traders may be concerned with how to ensure they are fully compliant.
Currently, many self-employed people only seek help once a year to complete their annual Self Assessment. MTD for ITSA requires quarterly updates, along with an End of Period Statement and Final Declaration, so clients may require your help throughout the year.
It’s important to position yourself as a continuous source of support not only in the lead up to MTD for ITSA but after it comes into effect, too.
Marketing your offering to sole traders
Once you’ve established how your practice can help sole traders with MTD for ITSA, you can market your offering to potential clients.
1. Highlight your MTD expertise on your website
Consider creating a page on your practice’s website dedicated to MTD for ITSA. You can link to guides and resources on what sole traders need to know about MTD for ITSA and outline the support and services you can offer. Including testimonials from existing sole trader clients will add credibility and demonstrate your expertise in helping the self-employed.
It’s worth spending some time on Search Engine Optimisation (SEO) to help boost your online presence and bring potential clients to your website. Create content targeting the most commonly searched questions that the self-employed are searching for around MTD for ITSA.
2. Tap into your existing sole trader clients' network
If you’ve got any clients already signed up to test MTD for ITSA software, be sure to ask them to share their experience in case studies or reviews which you can then promote as part of your marketing strategy.
3. Run an MTD for ITSA webinar
You can help sole traders prepare for MTD for ITSA by running a free educational webinar. This is a chance to educate existing and potential sole trader clients about the upcoming changes and showcase your services.
4. Connect with sole traders on LinkedIn
Social media platforms like LinkedIn can be a good way of connecting with new clients. Make sure your profile is updated to include the specific MTD services you can offer. Post regularly with any MTD updates to demonstrate your credibility in this area.
You can also search for and join relevant groups on LinkedIn (for example, search for groups for UK freelancers or gig-economy workers). You can then interact and network with sole traders in these groups, marketing your MTD for ITSA expertise and services.