Navigating the pain points of MTD ITSA – how can you prepare?

To tackle the issues and errors caused by years of paper tax returns and physical filing, the government and HMRC have been slowly pursuing a more efficient and effective digital filing system. This transition aims to help taxpayers avoid inputting error and allow for records and knowledge of tax liabilities to be kept up to date. The whole project has been called Making Tax Digital (MTD).

As part of this digital roll-out, the MTD requirements, which currently cover only VAT registered businesses, will be extended in April 2024 to all of those who have self-employed income and/ or property income of over £10,000. This latest phase of the wider project is known as MTD ITSA (Income Tax Self-Assessment).

MTD ITSA is expected to affect a broad selection of individuals, including around 2.6 million self-employed and 1 million landlords. It will apply to those with an annual business income above £10,000 and will involve the use of an MTD-compliant software to submit figures to HMRC on a more regular basis than is currently required. Instead of one annual submission those within the MTD ITSA requirements will need to submit the following using data from their sole trade and/ or rental properties:

• Quarterly updates to HMRC, detailing income and expenses.
• An End of Period Statement (EOPS) as a summary of the four quarters and
• A final declaration containing details of any further income.

While this may seem like tomorrow’s problem, there are only 18 months to go until the deadline and the scale of the challenge will make it impossible for everyone to transition within the final few months.

In order to ensure our clients are ready for the 2024 deadline, we are putting preparations in place to provide as much information and support to our clients as and when they need it. We want to work with our clients to create a plan for the next 18 months so that we anticipate any client specific issues in advance and resolve ahead of any requirement to file.

Our current knowledge is built on information released by HMRC and also working with software partners to ensure we understand as much as possible about how this complex change will work and how it will affect our clients. One of our next steps will be to invite some of our clients to join the pilot so that we can help understand this process better from the clients’ perspective.

Demonstrating value
One of the big challenges for us as accountants is to help you, our clients, see the benefits of the system that HMRC is developing. We truly believe that if the new digital systems are embraced and used to their full potential then this can help to drive forward businesses and make them more profitable.

An up to date system of data can help with cashflow, creating budgets and an improved understanding of incomings and outgoings. This helps to prevent bad debts and unnecessary expenses.

So, what can you do now to prepare?
The best first step is to talk to us about compatible software and together we can find a system that works well for you and your business. We can help to find efficient methods to record data and we have many options of how we as a team can complete the work involved to get you not only compliant but effective with your finances.

Now really is the best time to start thinking about the upcoming changes. I know it may seem early but with thousands of individuals needing to change, leaving it to the last minute isn’t going to get the best results for you or be the most cost effective.

We will be providing more information as and when we have it so please keep reviewing our articles and reading any emails you receive from your client manager.

If you need support with your MTD accounting, please get in touch with me or one of my colleagues today, and we’d be more than happy to help.

Clare Bowen