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A Practical Approach to Prepare for MTD ITSA (Making Tax Digital for Income Tax Self-Assessment)

25th Apr 2024
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The latest MTD notice from HMRC, published in February this year and covered in AccountingWEB by the ATT’s Emma Rawson, brought its customary mix of detail and uncertainty for accountants who will soon be obliged to update their systems.

A Practical Approach to Prepare for MTD ITSA
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The latest regulations confirm that Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will be implemented in stages, as announced in December 2022. In the first stage, starting from April 2026, the regulation will apply to businesses (sole traders and partnerships), self-employed individuals, and landlords with incomes of more than £50,000. Subsequently, from April 2027, this regulation will also apply to those with incomes between £30,000 and £50,000. 
For now, it can be assumed that individuals earning less than £30,000 will not be subject to MTD ITSA.

This will be a significant change for many sole traders and partnerships, with many accountants understandably wary about how their clients will react to the new reporting requirements, tools and potential extra costs this will bring.

As the deadline looms closer, firms will need to find a balance between managing the workload for their teams and clients and keeping their customers compliant. For those businesses for whom standard limited company cloud accounting software is overkill, focusing on the challenge of record keeping and compliant submission through more straightforward tools like Receipt Bot can solve these key issues.

Understanding the Requirements of MTD for Income Tax

Under the MTD for ITSA businesses, self-employed individuals, and landlords are required to: 

  • Maintain digital records of their income and expenses using MTD-compatible software. 
  • They must send quarterly updates of these records to HMRC and submit a final declaration at the end of the tax year. 

The specifics of what needs to be recorded include totals of income and expenses, categorised according to specific requirements that differ depending on whether the income is from trading or property, and whether the property is in the UK, EEA, or elsewhere.

Many firms have expressed concerns about the practical implementation of MTD for ITSA, particularly around the complexities and administrative burdens it might impose on self-employed taxpayers and their advisers. These include the costs associated with purchasing MTD-compatible software and the potential for increased compliance workload.

While cloud solutions for smaller businesses exist, many solutions have either too many features that clients don’t need, or they are too limited to mitigate the extra work that digital record keeping and submission require. 

The simplest solution for clients

Receipt Bot is an all-in-one solution for managing business records in compliance with MTD requirements, while also enabling firms to automate a large portion of the manual work involved in digital record keeping, including: 

  • Automated Data Entry: Receipt Bot automates the entry of bills and receipts, significantly reducing the time and potential for error associated with manual data entry.
  • Real-Time Payable Calculations: The tool calculates payables in real time, ensuring that businesses have up-to-date financial information for making informed decisions and maintaining compliance.
  • Extracting Data from PDFs: Receipt Bot extracts supplier statements directly from PDFs, simplifying the accounts reconciliation and preparing for quarterly updates.

Combining compliance and functionality

Crucially, for those without dedicated tax filing software, firms can also use Receipt Bot to submit VAT returns. The returns are auto-generated based on uploaded purchase and sales invoices and submitted via an integration with HMRC’s VAT MTD system. The Receipt Bot team is working to integrate with HMRC’s MTD ITSA system when it becomes available.

  • For clients for whom offerings such as Xero and QuickBooks are too complex or expensive – and include automation features only as an extra cost add-on – Receipt Bot provides a balanced solution to solve the workload and compliance issues that MTD ITSA poses.
  • Receipt Bot's pricing structure is designed with flexibility in mind, making it a simpler option for firms looking to offer MTD ITSA compliant services without committing to set cost bundles typically associated with providers like Xero or QuickBooks. 
  • Unlike these fixed bundles, Receipt Bot allows firms to choose from a range of subscription plans based on the volume of documents processed, which can be scaled up or down depending on client needs and seasonal fluctuations in business activity.
  • Receipt Bot automates many tasks out of the box, immediately adding value and saving costs for the accountants. 

This approach not only helps manage costs more effectively but also ensures that firms can offer tailored services that directly align with the specific requirements of each client, enhancing both affordability and client satisfaction.

Threading the needle on MTD ITSA

As the MTD for ITSA rollout approaches, accountants must keep playing a critical role in guiding their clients through the digital transition. 

With complete manual processes on one side and overly complicated cloud packages on the other, Receipt Bot can help firms thread the needle for a large set of clients who require the right balance of functionality and price and enable them to stay compliant. Given that Receipt Bot application is already at the leading edge of automation and integrates with MTD VAT, accountants can start exploring the transition options today and get ahead of the game.

To find out more, book your demo today.