Preparing your clients & practice for Making Tax Digital for Income Tax

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Making Tax Digital for Income Tax (MTD for ITSA) is drawing closer and now is the time to start preparing for it, ensuring your practice is ready for the coming changes.

What does Making Tax Digital for Income Tax mean for accountants and bookkeepers?

As new rules for Making Tax Digital for Income Tax come into play, 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. Those affected by the rule change will need to use Making Tax Digital compatible software to keep their records and send updates to HMRC.

Accountants and bookkeepers will soon have the opportunity to take on a substantially larger advisory role for their clients. This will include helping them with their quarterly submissions, educating them on how to use cloud-based accounting software, and making sure they remain compliant with digital record-keeping rules.

As their accountant, you’ll still be able to make submissions on their behalf, however you’ll no longer use the HMRC website to do so. Instead, you’ll be required to send updates to HMRC via your clients accounting software.

Simple steps to start preparing your practice for Making Tax Digital for Income Tax

To make the process as seamless as possible it’s important to start preparing your practice as soon as possible. Below are a few simple steps that you can take to make the transition smoother.

1. Educating your team on Making Tax Digital for Income Tax

HMRC are fully aware of the effect these changes will have, and they have been incredibly proactive in releasing guidance on MTD for ITSA. It’s important you take the time to read these updates and share them with your practice.

We recommend appointing a Making Tax Digital for Income Tax guide in your practice. It will become their responsibility to provide updates to the team when appropriate. These updates could be delivered on bi-weekly or monthly basis, depending on what works for your practice.

2. Evaluate your client base and segment them

For future efficiency, it’s important you take some time to bucket your clients into those who need to follow MTD to ITSA rules and those who do not.

Once identifying those who must comply with Making Tax Digital for Income Tax, get familiar with how they’re currently keeping their records. You’ll likely find the changes will mean some clients will be using cloud-accounting software for the first time and as a result may need extra support from you.

Others may be more comfortable using bridging software, in which case, it’s important you advise them on the benefits and potential pitfalls of this approach. One thing to note is using bridging software for MTD for ITSA is more complicated than using it for VAT.

3. It’s essential you have an Agent Services Account and authorisation

Firstly, if you want to sign clients up to Making Tax Digital for Income Tax, you’ll need an Agent Services Account (ASA). Note, practices only need one ASA as they are able to service all of their clients with a single account.

Next, it’s imperative you request authorisation from your client, via your ASA. You can find out more about doing this here.

Is MTD for ITSA an opportunity to grow your practice?

The answer to this is a resounding yes. These changes are definitely an opportunity for your practice, with landlords and self-employed people looking to you for advice and guidance over this period. This is due to the fact that they’ll be required to send more frequent updates to HMRC, meaning they will likely need more help every quarter instead of just yearly for their returns.

Increased digitalisation within your practice will also naturally increase your efficiency, affording your practice the time to offer a wider array of services to your existing clients, such as advisory (e.g. business and future planning).

For practices that are more focused on compliance, the shift to digital record-keeping and cloud-based accounting will allow you to handle clients in a much more cost effective way, opening up time for you to spend on growing your client base.

Knowing which clients will be affected by Making Tax Digital for Income Tax

From April 2024, all self-employed people and landlords who earn over £10,000 will be subject to following MTD for ITSA rules. Currently, HMRC have stated that the changes won’t apply to limited companies or limited partnerships, but from April 2025 general partnerships will join the ITSA scheme.

When will Making Tax Digital for Income Tax begin for  clients?

Originally, Making Tax Digital for Income Tax was due to begin in 2023. However in light of the pandemic and in order to give those affected more time to prepare, HMRC confirmed it has delayed the initiative until April 2024.

6 April 2024 is the point at which those affected will need to begin following MTD rules for ITSA. This is being referred to as the ‘digital start date’.

Do clients who are Making Tax Digital for VAT registered also have to sign up to Making Tax Digital for Income Tax?

VAT and Income Tax are two separate taxes with two different systems, therefore clients will need to sign up for both separately.

What information will clients need to submit for Making Tax Digital for Income Tax?

Those who are landlords and/or self-employed will be required to submit:

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

It’s important to remember HMRC can change these requirements, so keeping an eye out for changes is imperative. Stay updated by visiting gov.uk.

Simple steps to prepare your clients for Making Tax Digital for Income Tax

Below you’ll find three steps to help prepare your clients for Making Tax Digital for Income Tax.

1. Ensure they are in the know about digital record-keeping

One of the major features of MTD is the digital links rule, and non-compliance could be penalised. Show your clients how to remain compliant with their digital records and make sure they know where digital links are required.

2. Keep your clients on top of changes to Self-Assessment

Going from one annual submission to filing four updates a year will feel like quite a change. Clients may now need more support and will therefore likely be in touch more regularly throughout the year.

Thankfully with the introduction of this new system, they will need to submit less information for each update. It’s important to let clients know about the reporting requirements and make sure they know when the submission deadlines are.

Make sure their software is Making Tax Digital for Income Tax compatible

To make the transition smoother, guide clients to utilise a compatible software solution that works for you, them and their business.

Start preparing your practice & clients for Making Tax Digital for Income Tax today

The changes are an opportunity for you to deliver even more value to your clients. The earlier you start preparing, the more you can support them on their journey to becoming Making Tax Digital ready.

For more information about MTD and what it means for your practice, check out our resources for accountants and bookkeepers.

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