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Help your clients to get ready now for MTD for ITSA

29th May 2024
Brought to you by
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Coconut’s simple bookkeeping and tax app is specifically designed for sole traders, helping them...
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Making Tax Digital for Income Tax Self Assessment or MTD for ITSA for short. Yep, that again. Although delayed four times since it was first announced in 2015, HMRC is encouraging accountants and their sole trader and landlord clients to start to get ready for what is likely to be the introduction proper.

HMRC wants to expand its current trial for MTD for ITSA, which is why it is encouraging accountants to consider which clients can sign up and then sign them up to take part in the expanded private beta testing trial in 2024/25, which was relaunched on 22 April 2024.

When will MTD for ITSA be introduced?

  • From 6 April 2026, sole traders, freelancers and landlords with a gross income of more than £50,000 will need to comply with MTD for ITSA requirements.
  • Sole traders, freelancers and landlords with an income of £30,000-£50,000 will need to comply with MTD for ITSA requirements from 6 April 2027.
  • There is an ongoing government review into how MTD for ITSA can best meet the practical needs of sole traders, freelancers and landlords with income below £30,000. No introduction date has yet been set and there has been no announcement about when MTD for ITSA will be introduced for unincorporated partnerships.

So, how can you help your clients?

Whether through face-to-face meetings, emails, enewsletters or however else you communicate with your sole trader, freelancer and landlord clients, you should remind them about MTD for ITSA and tell them it hasn’t been scrapped, merely delayed. They should know about the above dates, so they know when they need to comply.

Also remind them of how reporting will change under MTD for ITSA. In brief:

  • Sole traders and landlords will have to keep digital records using MTD-compatible software (or bridging software that allows MTD reporting using their existing accounting software).
  • Every three months, their software will create “quarterly updates” summaries of business/landlord income and expenses.
  • After submitting an update, an estimated tax bill will be shown within the software.
  • After the fourth quarterly update has been sent, the software will show income and expenses for the whole tax year. At this point, adjustments can be made, such as removing disallowable expenses, claiming capital allowances, adjusting for accruals and prepayments, etc.
  • They will then need to finalise their Income Tax position for the year, and they may need to send HMRC information on other personal income sources, such as savings or dividend income (they may be able to use their MTD software to do this). Then they can make their final declaration, confirming that the information they have provided is correct and complete and their Income Tax position for the tax year has been finalised. This declaration must be made by 31 January following the end of the reported tax year.

The importance of digital record keeping

The need to maintain accurate, up-to-date digital records is at the heart of MTD. If your clients are already keeping digital records of their income and expenses and updating them regularly, MTD for ITSA’s introduction should prove fairly painless. In the meantime, they’ll need accounting (or bridging) software that enables MTD for ITSA reporting requirements. 

Obviously, the challenge is going to be far greater for clients who do not currently maintain digital records. However, encouraging them to start using accounting software now to record their income and expenses will help to prepare them for MTD for ITSA and make it much less of a challenge when introduced.

Many sole traders and landlords who start to use accounting software soon begin to wonder why they didn’t do so much earlier. It’s often far easier than they imagine. We hear this a lot from new users of Coconut accounting software.

Accounting software for sole traders and landlords

Coconut is the easy-to-use accounting software that was created for sole traders, freelancers, landlords and their accountants. It enables sole traders, freelancers and landlords to better organise and manage their income and tax expenses. Users can better understand their business’s financial health in real time wherever they are, which can help to keep their cash flow healthy.

Coconut can be linked to more than 30 bank and credit card accounts, so expense payments are automatically entered. Users can also use their smartphones to take photos of receipts and securely store them online. Sole traders can also use Coconut to send customised invoices and get reminders when payment is overdue.

Accountants and bookkeepers can get free instant access to their signed-up clients’ real-time accounting information, with money-saving discounts available to accountants who sign up their clients to a Coconut subscription. That’s great news for accountants and their sole trader and landlord clients, while making MTD for ITSA seemingly much less of a big deal.  

Want to learn more about how Coconut can help you get MTD ITSA ready? Book a demo now.