Everything you need to know about Making Tax Digital for income tax self-assessment

28th Oct 2020
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Things are moving quickly with Making Tax Digital for income tax (MTD for ITSA) and Capium is prioritising development to ensure accountants have what they need to nail it.

Having been subject to various delays for months, in July 2020, the Chancellor quietly announced a new schedule for the rollout of Making Tax Digital (MTD).

The new timeline looks like this:

  • From April 2022, MTD for VAT will be extended to all VAT-registered businesses.
  • From April 2023, MTD for income tax self assessment (MTD for ITSA) will kick in.

The Government’s argument is that the difficulty of administering COVID-19 support for business highlighted the need for “a more flexible, resilient and responsive tax system”, as Jesse Norman, financial secretary to the Treasury put it.

In practice, what this means is that in the next few months, HMRC will be releasing continuous APIs into their IT test environment.

API stands for ‘application programming interface’ which is a tool that acts as a go-between allowing different bits of software to interact with each other and read from or write to each other’s databases.

The ultimate vision is that software partners should be able to deliver self-assessment tools within their own apps, through their own interfaces. So far, though, the Government has only released 20% of the necessary APIs.

More important MTD dates

  • 20 December 2020 – core API development for landlords and individual tax positions to be released.
  • 21 April 2021 – HMRC should have a product set to test end-to-end along with 85% of the necessary APIs.
  • April 2021 to April 2022 – the so-called ‘smoke test’ period, working with accountants to make sure the process works in practice.
  • April 2022 – Release of the public beta, drawing in early adopters and advocates. The Government wants to avoid a sharp peak of late uptake as with MTD for VAT in 2019/20.
  • 6 April 2023 – MTD for ITSA goes live and is mandated for all – though no doubt there will be issues to iron out after this date.

Ultimately, the vision for MTD for ITSA is for all businesses to be in the system, giving HMRC full, real-time visibility of their tax positions. HMRC says it expects this will help businesses with cashflow and avoid the shock of unexpected, large lump-sum tax demands.

Is your firm ready for MTD for ITSA?

The first question to ask yourself is if the software you have in place is keeping pace with developments in Making Tax Digital. Capium prides itself on this, of course, but if your software partner isn’t giving you what you need, don’t be afraid to query it or switch.

You should already be in a position to process your clients’ financial data digitally, from beginning to end, without the need for import-export processes or – heaven forbid! – manual entry or copy-and-paste.

A comprehensive programme of client communication and education should also be under way. Small and medium-sized businesses look to their accountants for expert advice and are more likely to listen to you than to any number of Government bulletins.

Consider regular emails, social media updates, blog posts, webinars and briefing videos. Don’t be afraid of repeating yourself – this is important stuff and the message must be driven home.

Get the right cloud partner to save yourself headaches down the line. Capium’s self-assessment software starts from as low as £180+VAT per year, all in.