Setting up new business procedures for MTD for ITSA

Accountants and bookkeepers discuss how they’re preparing clients for MTD, and the software they’re using.

The clock is now ticking down to the introduction of Making Tax Digital for Income Self-Assessment (MTD for ITSA). Clients with a qualifying income of over £50,000 will be affected from April 2026, with the income threshold falling to £30,000 from April 2027 and £20,000 the following year.

In theory, digitalisation should make it easier for everyone to pay the right amount of tax and the government hopes it will help close the estimated £5 billion self-assessment tax gap. But the requirement to file quarterly accounts and use compatible software represents a big change for many small businesses. And MTD poses a lot of questions for accountancy practices, such as:

• How can we ensure that our clients are ready for the new requirements and that they will comply with them?
• How will we manage the introduction of any new software needed for MTD?
• What will be the implications for our practice in the longer term? 

We spoke to accountants and bookkeepers to find out what steps they’re taking to prepare.

We’re considering starting a separate company for MTD

Sylvia Bourhill FMAAT, owner, Another Answer Books and Accounts

We’ve been doing some webinars about MTD for clients and other businesses in the local area, which we promoted on social media. I’ve also done presentations for businesses and written articles in our local magazine. It’s important to keep it MTD in front of people so they don’t just stick their heads in the sand.

I’ve also managed to persuade three of my clients to join the pilot starting this year, which I won’t be charging for. It means we can work our way through it together so we’ll be ready next April. I’ve signed them up through QuickBooks, which is a simple option and seems to be on the ball with the changes.

Cost is going to be a big issue in the future. We’re considering starting up a separate company that will just do MTD. I have a business with 10 staff and overheads and people at the lower end of the income threshold are unlikely to be able to afford what I would need the charge them to do their bookkeeping and MTD. A small MTD company would make it more affordable.

Verdict: Joining the pilot is a good learning opportunity which should help us get ready. Cost is going to be an issue in future but we’re considering starting a separate company for MTD.

We may have to lose clients that won’t engage

Karen Chugg FMAAT AATQB, owner, Phoenix Bookkeeping

Firstly, I have to check clients’ turnover. Those affected will be sent letters by HMRC but I can’t guarantee they will pass them on. Thankfully, my list will be quite small for the first year.

I’m a Xero-only practice, although I do also use VT+ for the smallest clients. Xero have now announced Xero Simple, which will be perfect for MTD, so I’ll be contacting clients to make them aware of the need for the software. We also want clients to have a bank feed so they can stay on top of their accounts monthly.

It won’t be easy to get people to change their ways. We live in a rural area and still have a lot of small ‘paper bag’ clients, who won’t touch software and some won’t do online banking. We’re looking at the easiest way of getting that information from them, and trying to persuade them to open business accounts.

We’re going to have to move all our self-assessment clients over to our Agents Services Account. I hope that we can see them on a list there, because you can’t with the VAT clients and have to type the VAT number in to find them. I don’t want to have to do that for the self-assessment clients too.

I anticipate that a few clients won’t want to engage with MTD and won’t bring the paperwork in on time. I’ll be disengaging anyone who won’t work with us as we won’t have time to deal with clients who won’t be compliant.

Verdict: Getting clients to engage with MTD is going to be the biggest challenge, and we won’t have time to deal with clients that won’t be compliant.

Start preparing early using a gradual, stepping-stone approach

Samantha Mitcham FMAAT, owner, SJCM Accountancy

My practice will be sticking with our preferred software vendor, Sage. We are not a one-software-fits-all practice, but we’ve done our research when it comes to MTD and I think Sage have by far the best offering for my clients both from a price point and a usability perspective.

We have been discussing MTD for income tax with our clients for quite some time now and we’ve found a stepping-stone approach works best. First, we ensure they are using a business bank account because nobody wants to be filtering through Netflix and Just Eat to find the business transactions.

Then we talk about software. We provide demos via screen-record videos and explain the positive aspects of using software. We then discuss service level and cost to enable clients to start thinking about whether they wish to make their quarterly MTD submissions themselves or pay us to do so.

A key lesson from MTD for VAT was to not leave preparation too late. There will be a lot of changes to workflow and we need to think about exactly how this will look in the future. Preparing this amount of work on a quarterly basis is new for us and will likely take a few years to get used to. We will need to overcome pricing challenges and also ensure we have the correct staff and capacity to service our clients well.

Verdict: It’s vital to prepare early and also think about how it will affect your practice in the longer term.

We’ll likely use HMRC’s suggested bookkeeping software

Craig Dyer MAAT AATQB, owner, CA Dyer Accounts and Bookkeeping

MTD is certainly going to have an interesting impact on accountants and taxpayers over the next few years. However, I think both HMRC and accountants will have learnt from the frustrations around MTD for VAT so we won’t see the same level of impact.

There’s been a long run-in to it and there’s access to a lot more information and support. It’s important to be proactive and we’ve been preparing by attending as many webinars and training events as possible to make sure we are up to speed on the procedures when they go live.

We’ve discussed the changes with a small number of our partners as the majority won’t be affected until the next wave at £30,000. It’s a concern that most of those we’ve spoken to were unaware of the changes. That’s a worry when it comes to those sole traders and landlords who don’t partner with an accountant.

We’ve not currently invested in new software and will likely use the bookkeeping software suggested by HMRC to submit as this will be the most efficient and cost-effective way of doing so for the type of partners we have.

Verdict: At the moment using HMRC’s suggested bookkeeping software will be the most cost-effective way for us to submit.

Caroline Roberts Journalist.