How to prepare your clients & practice for MTD for Income Tax

With Making Tax Digital for Income Tax (MTD for ITSA) approaching, now is the time to begin preparing your practice.

Hands typing on laptop running Making Tax Digital software in office setting

What does MTD for Income Tax mean for accountants and bookkeepers?

Under MTD for ITSA rules, self-employed people and landlords earning above £10,000 will need to submit quarterly updates, one End Of Period Statement (EOPS) and a Final Declaration each tax year. To do this, they’ll need MTD-compatible software for record-keeping and sending updates to HMRC.

This means accountants and bookkeepers will need to take on a more advisory role with clients; teaching them how to use cloud-based accounting software, assisting them with their quarterly submissions, and ensuring compliance with digital record-keeping rules.

You’ll still be able to make submissions on behalf of your clients, but you’ll no longer do this through the HMRC website. Instead, you’ll need to send updates to HMRC via clients’ accounting software.

How to prepare your practice for MTD for Income Tax

The sooner you start preparing your practice for MTD for Income Tax, the easier it will be for your clients to make the transition. Here are three steps you can take at your practice now.

1. Ensure your team is educated on MTD for ITSA

HMRC is regularly releasing new guidance on MTD for ITSA. Make sure you’re reading this information and distributing it throughout your practice.

You could do this by assigning an MTD for ITSA guide in your practice, who can deliver update sessions to the wider team. These might take the form of bi-weekly or monthly catch-ups to discuss the latest news or developments.

2. Assess and segment your client base

Not all of your clients will need to follow MTD for ITSA rules, so make sure you segment your client base into those who do and those who don’t.

Once you’ve identified the clients that need to comply with MTD for ITSA, look at how they’re currently keeping records. Some clients may need to use cloud-based accounting software for digital record-keeping for the first time.

Others may be more comfortable using bridging software, in which case, you should advise them on the pros and cons of this approach. It’s also worth bearing in mind that using bridging software for MTD for ITSA is more complicated than using it for VAT.

3. Ensure you have an Agent Services Account and authorisation

If you want to sign clients up to MTD ITSA, you’ll need an Agent Services Account (ASA). Practices only need one ASA; they can manage all of their clients through a single account.

Next, you’ll need to request authorisation from your client, via your ASA. You can find out more about how to do this on the gov.uk website.

Is Making Tax Digital for Income Tax an opportunity for growth for practices?

Absolutely. Landlords and self-employed people will likely look to you for advice and guidance during this time. They’ll be sending more frequent updates to HMRC too, so could need support every quarter instead of just yearly for their returns.

Moreover, digitalisation increases efficiency, and so it could allow you to offer additional services to clients, such as advisory (e.g. business and future planning).

For practices that are more focused on compliance, the shift to digital recordkeeping and cloud-based accounting will allow you to handle clients in a cost effective manner, freeing up time for you to focus on expanding your client base.

Which clients will be affected by MTD for Income Tax?

If your clients are landlords or self-employed people earning above £10,000, they’ll need to follow MTD for ITSA rules from April 2024. This does not apply to limited companies or limited partnerships, but general partnerships will join the ITSA scheme from April 2025.

When will MTD for Income Tax begin for my clients?

MTD for ITSA was due to begin in 2023, but a statement was released in September 2021 to say it would be delayed until April 2024. This was to give landlords and self-employed people more time to prepare in light of the pandemic.

From 6 April 2024, self-employed people and landlords earning above £10,000 will need to begin following MTD rules for ITSA. This is known as the ‘digital start date’. All landlords and self-employed people will have a digital start date of 6 April 2024.

Do clients who registered for MTD for VAT also have to sign up to MTD for Income Tax?

Yes. They’re two separate taxes with two different systems. Clients will need to sign up for them individually.

What information will clients submit for MTD for Income Tax?

For each trade, both landlords and self-employed people will need to submit:

  • Four quarterly updates containing details of their income and expenditure
  • An ‘End Of Period Statement’ at the end of the fourth quarter
  • A ‘Final Declaration’ and full payment by January 31st

HMRC could change these requirements, so keep an eye on the gov.uk website for updates.

How to prepare clients for MTD for Income Tax

Here are three practical steps to prepare your clients for MTD ITSA.

1. Educate them on digital record-keeping

Some of your clients may be new to digital record-keeping. One of the key features of Making Tax Digital is the digital links rule, and non-compliance could be penalised. Show your clients how to keep compliant digital records and make sure they know where digital links are required.

2. Educate them on changes to Self-Assessment

Going from one annual submission to four quarterly updates is a big change. Before MTD, some clients might have got in touch once a year for their annual return. Now, they might need more frequent support.

The good news is they have less information to submit for each update. Communicate the reporting requirements to your clients, and make sure they know the submission deadlines.

3. Ensure they’re using software compatible with Making Tax Digital for Income Tax

The right software can mean Making Tax Digital feels less overwhelming for your clients. Ensure their software package is MTD-compatible and suitable for their needs.

Prepare your practice & clients for MTD Income Tax today

Making Tax Digital for Income Tax can help you deliver even more value for clients. And the earlier you start preparing, the more you can support your clients through the transition to MTD.

If you want to learn more about Making Tax Digital and what it means for your practice, check out our ITSA resource hub.

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