Get your practice ready for Making Tax Digital

15th Mar 2021
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Following several delays, the government has announced Making Tax Digital (MTD) for Income Tax will land on 6 April 2023. 

As happened with MTD for VAT, the government will turn to accountants for advice and guidance to educate their clients about the requirements. 

This represents business opportunities and a chance for practices to grow their service offerings. 

Read on to find out how your practice can start preparing for the next phase of MTD. 

Start date for MTD for Income Tax 

Most of those within the scope will be required to follow MTD for Income Tax rules in their first full accounting period starting on or after 6 April 2023. 

For accounting periods prior to this, they will continue to use the Self Assessment system. 

In other words, even after signing up for MTD for Income Tax, your clients will still need to submit a Self Assessment return for the 2022/23 tax year by 31 January 2024, or 30 December 2023 if they want HMRC to collect taxes due from wages and pensions via PAYE (although if they’ve already signed up for the MTD for Income Tax pilot, this will not be required). 

Self Assessment will still be required for individuals outside of the scope of MTD for Income Tax, and for other types of declarations – for example, for claiming certain tax reliefs of benefits, or making charity donations outside of salaried employment. 

Who is affected by MTD for Income Tax – and how? 

The majority of businesses and landlords with business or property income above £10,000 will be required to sign up for MTD for Income Tax, and then use compatible software for their income tax accounting for the first full accounting period starting on or after 6 April 2023. 

In other words, MTD for Income Tax will affect those who would normally declare more than £10,000 in the self-employment or property boxes of the Self Assessment tax return. 

To fall under the MTD for Income Tax scope, all of the £10,000+ income will have to come from either self-employed business or property rents. 

For example, should one of your clients have just £9,000 from property rental to declare for income tax, and £2,000 from savings interest income, that will not require them to sign up for MTD for Income Tax. 

Opting out of MTD for Income Tax  

As with MTD for VAT, it won’t be possible for most clients to opt out of MTD for Income Tax if they fall within its scope. 

However, it’s likely that those who fall under the digital exclusion rules as defined by MTD for VAT will be able to apply to HMRC to be exempted from MTD for Income Tax. 

This includes people whose disabilities mean they can’t use software, for example, for people whose remote location means internet access is impossible. 

What MTD for Income Tax means for accountants 

It’s hard to overstate the changes MTD for Income Tax will bring for you. Here are two things to be aware of. 

1. Your clients will have to use software 

Your clients will be required to use compatible software to record their business and property income and expenditure, and send five updates every year to HMRC. 

There’s likely to be automation for each of these steps, minimising the administrative impact. But your clients will still need to be aware of the requirements expected of them. 

This will require a substantial change in attitude from your clients in how they approach their accounting. 

It’s certainly the case that the ‘shoebox’ client who dump receipts on their accountant’s desk in January each year will have to change their ways. 

It’s your role as their accountant to communicate this need for change, and to encourage it to happen. 

In return, you are given significant privilege to guide your clients towards the best solution for their needs – and to bring positive changes to their clients’ businesses. 

You can offer training in the software, perhaps as part of the sales package, or as a separate service offering. 

At the very least, every UK accountant will need to be proficient in the free software package the government intends to offer because they will be facing client enquiries about this on a very regular basis. 

2. You have the opportunity to offer additional advisory services 

Although MTD for Income Tax should mean clients are more aware of their accounting, it doesn’t mean your fundamental role will change. 

You’ll still be required to help your clients be compliant, and to help them with fundamentals such as making deductions and calculating a final income tax bill. 

While it’s possible some small business owners may have an epiphany moment when they get to grips with accounting software, and realise the power it delivers, the fundamental fact that many people hate dealing with figures and the ensuing admin burden isn’t going to change. 

You have nothing to fear from technology and, in fact, lots to gain. 

You will go from having a single point of contact each year, to potentially having at least five situations where your clients may need help with their accounting when they make those quarterly reports, EOPS and the final declaration. 

These situations can be used to forge stronger relationships where you’re not viewed as just a number cruncher, but more of a business partner. 

Using cloud software that ties in with your clients’ accounting gives the ability to monitor for problems or opportunities, and to give advice based on this. 

Start now with preparations 

If your practice dealt with the implementation of MTD for VAT, you’ll be well aware that starting early with preparations will put you and your clients in good stead. Place your practice ahead of the legislation changes and register for our free webinar to hear expert advice on how to make your practice and clients MTD ready.