What is Making Tax Digital?
From April 2022, MTD rules will be extended to all VAT registered businesses, regardless of taxable turnover. This means that businesses who fall within the thresholds must use compatible software to:
- keep and maintain digital records
- submit their tax return directly to HMRC
Accountants and bookkeepers will need to prepare their clients for digital recordkeeping and submitting VAT returns via HMRC-recognised MTD software.
How will Making Tax Digital affect accountants?
From April 2022, you and your clients will need to use MTD compatible software to keep digital records and send VAT returns. You’ll also need to sign up for an agent services account via HMRC.
How to set up your accounting practice for MTD:
For a smooth transition to MTD rules, you need to:
How do you check if a client is registered for MTD?
Once you’ve signed a client up for MTD, you’ll receive a confirmation email within 72 hours from HMRC. The software your clients use should also indicate whether they’ve authorised an MTD for VAT connection.
How to add clients to your Agent Services Account
Copy across existing VAT clients from your HMRC online services account. Allow plenty of time for clients to get set up.
If you want to act for a client that you have not copied across as detailed above, they’ll need to sign up to Making Tax Digital. You can then ask them to authorise you but you cannot do this step for them.
How do I authorise a client for MTD?
In your agent services account, select ‘ask a client to authorise you’. This creates an authorisation link for you to send to your client. Just make sure they use it before it expires. Find out more on the gov.uk website.
How to set up your accounting practice for MTD for VAT:
Here’s a brief overview of what you need to do to set up your accounting practice for MTD for VAT:
Which of my clients will be affected by MTD for VAT?
Landlords and sole traders with gross income greater than £10,000 will need to follow MTD for ITSA rules from April 2024. General partnerships will follow in 2025.
How do I sign my client up for MTD for VAT?
You’ll also need:
- An agent services account
- MTD compatible software
Expect a confirmation email from HMRC within 72 hours. If you don’t receive one, contact HMRC to confirm sign up.
How to make sure your clients are compliant with MTD for VAT phase 2
HMRC has introduced a new penalty system which will apply from January 2023, so it’s especially important for you to make sure clients are compliant.
Ensure your clients are using HMRC approved or bridging software that meets the MTD requirements. Don’t wait until the deadline to talk to your clients about MTD.
How do I submit my client’s VAT return as an agent?
MTD compatible software, such as Xero, has a function where you can submit your client’s VAT return directly to HMRC.
Once you’ve been authorised by a client, you’ll be able to submit VAT returns via their compatible software. Where this feature is located depends on the software, so reach out to your provider if you’re unsure.
What about clients who want to continue using spreadsheets?
If you still have clients who are reluctant to adopt full MTD software and want to continue using spreadsheets, they must use bridging software to ensure they comply with MTD rules.
How to set up your accounting practice for MTD for ITSA:
From April 2024, MTD for Income Tax Self Assessment (ITSA) will apply to unincorporated businesses and landlords with a total business or property income above £10,000 per year. To prepare, you must:
Please note ordinary partnerships are due to enter MTD for ITSA from April 2025.
Which of my clients will be affected by MTD for ITSA?
Will clients already signed up to MTD for VAT need to also sign up for income tax?
Which of my clients do not need to use MTD for ITSA?
Trusts, estates, and non-residential companies will not need to use MTD for ITSA, but this is subject to change as the rules roll out.
When do my clients need to sign up to MTD for ITSA?
How do I sign my client up for MTD for ITSA?
First off, make sure you have:
- Your government gateway login
- MTD for ITSA compatible software
You’ll need to sign your client up via compatible software, and you can only do this if they’re already registered for self assessment. HMRC has a guide to signing up for MTD for ITSA.
How to make sure your clients are compliant with MTD for ITSA
Clients will need to use MTD for ITSA compatible software in order to submit their tax returns. Make sure you confirm that they have this software in place before signing them up to MTD for ITSA.
Between now and the deadline, the rules could change. Bookmark our accountants and bookkeepers resource page for regular updates on MTD.
Need more information on Making Tax Digital for accountants?
Over 100,000 accountants and bookkeepers are using Xero in their practice. Xero keeps everything stored in one place, so you can focus on the most important thing: growing your practice and supporting your clients. Learn more about why to choose Xero for MTD here.