The pain points of MTD ITSA and how to deal with them

Making Tax Digital (MTD) for Income Self Assessment (ITSA) will come into force in April 2024, but action is needed now.

Although the implementation is two years away, accountants and clients need to be working together now to plan and ensure readiness for the 2024 deadline.

The Government is running a pilot scheme to allow some businesses to test the service before it becomes mandatory.

MTD ITSA will apply to self-employed business owners and landlords whose income and property exceed £10,00 in a tax year.

MTD ITSA will involve

• Four quarterly updates to HMRC detailing income and expenses.
• End of Period Statement (EOPS).
• Final declaration at the end of the tax year.

MTD ITSA requires more administration than the previous system so scrupulous record-keeping will be essential moving forwards.

We spoke to accountants and industry specialists to find out how they are helping their clients prepare.

Implement compatible software now so you can iron out issues

Clare Bowen, Director, Monahans

There still isn’t enough guidance around Making Tax Digital Income Tax Self-Assessment (MTD ITSA) from HMRC and it’s making the changeover for accountants a harder job than necessary.

The biggest challenge is helping clients see the value of MTD. In our nature as humans, we can be reluctant to change, especially when it comes to assets such as finances. We’re needing to work hard to showcase to clients that this move is in fact a positive one.

It’s about demonstrating what other benefits the business can leverage from MTD ITSA compliance. The best way is to showcase how much time this way of working saves a client and what that translates to financially. Additionally, MTD ITSA enables clients to be more aware of their cashflow, which helps them to budget better and ultimately become more profitable.

The whole process of digitising accounts has promoted an explosion in the software market. This means that there is choice, value, and quality to be found from providers. While some are better than others, overall, it’s a win for businesses.

Next steps: Decide on the best compatible software for your situation and begin filing that way as soon as you can. If you have any hiccups along the way or need support, now is the best time to get issues ironed out well before 2024.

Verdict: Consider implementing compatible software now to ensure enough time to iron out any issues before 2024 deadline

Transition to digital record-keeping and look into MTD ITSA compatible software

Marina Trinchese, executive tax manager, Rayner Essex

There have been several delays with MTD ITSA so I understand why businesses may not be taking too much interest in this at the moment. However, following the successful introduction of MTD for VAT over the last few years with the scheme extended earlier this month to all VAT registered businesses, there is no doubt that it is a matter of time until MTD ITSA is introduced.

Next steps: Businesses who are not already keeping digital records should look to transition to digital record-keeping. For individuals who currently submit their own tax returns and intend to continue doing so following the introduction of MTD ITSA, they will need to ensure they have software that is compatible with MTD ITSA as they will not be able to use the current self-assessment HMRC software once MTD ITSA has been introduced.

For individuals who will engage a tax adviser to prepare and submit the quarterly updates and end of year submissions to HMRC, their adviser should write to them setting out the process they will need to follow once MTD ITSA has been introduced.

Verdict: Transition to digital record keeping and start to look into MTD ITSA compatible software.

Streamline existing software systems and use compliance automation where possible

Jim Scott, MD of accountancy, IRIS Software Group

I don’t believe the average individual or SME impacted by these changes has really processed the implications of MTD ITSA on them and their business. Or more importantly, the things which need to change in order for them to fulfil their new legal obligations.

Failure to prepare is preparing to fail. While it seems far away, the April 2024 deadline will come around quickly. Businesses must start talking to their accountant now to clarify responsibilities on both sides.

One issue I’ve observed is that accountants don’t always have a clear picture of the type of businesses (or personal circumstances) their clients have. In many cases, this means they can’t anticipate the level of income or expenses each client will generate and worse still, can often mean they’re in the dark about clients’ record-keeping processes. This will tie their hands when MTD for ITSA comes into force in April 2024. They won’t be able to plan resource effectively or predict and mitigate potential road blockers ahead of time.

Next steps: Consider streamlining existing software processes using compliance automation where possible, in place of unconnected systems or move to cloud-based platforms.

Verdict: Streamline existing software processes where possible or consider cloud-based platforms.

Check enrolment date, speak to your account and look at available software

Daniel Tomassen, private client manager, HW Fisher

There is still a lot of discussions on-going for MTD ITSA and how it will be implemented effectively. Businesses should firstly check when there expected enrolment date is. It differs between self-employed and certain partnerships.

Businesses need to be speaking to their accountants for updates on the implementation on MTD. There are also numerous online webinars which businesses can watch for free, which can provide them with an overview of things to look out for.

Next steps: Although the deadline is a few years away, businesses should be looking at software which can assist them with meeting their obligations. There are numerous different providers, with different capabilities. Furthermore, the providers themselves have different grades of packages. One provider/package may suit one business but not another, if the businesses start researching now, they can ensure by the time they are required to enrol they have a package which suits their needs.

Verdict: Check enrolment date, speak to your account and look at available software.

Annie Makoff is a freelance journalist and editor.