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How to prepare your clients for Making Tax Digital for Income Tax

30th Jul 2022
Brought to you by
Anna Money the business account and tax app for your small business.
ANNA (Absolutely No-Nonsense Admin) is a business current account and business admin app that helps...
Save content
Have you found this content useful? Use the button above to save it to your profile.

 

Now that MTD for VAT is in full swing, the next tax HMRC is initiating the new processes towards is one of the most common taxes in the UK, income tax.

 

This article will run through a quick introduction of what to expect from MTD for ITSA and take you through the steps you can take to prepare your clients for the changes to come for their businesses in the coming future. 

 

MTD for Income tax will be introduced in April 2024, with the intention to replace the system for self assessment tax returns. So if you can manage to get your clients proactive and prepared from now, it will only be a smoother ride. 

 

In its first phase, the new rules will only apply to landlords and self-employed business owners with a gross profit of £10,000.00 minimum. But in April 2025, you can expect to see an extension in its application to partnerships, aswell. 

 

What changes can we expect?

 

  1. Digital record keeping

 

As with MTD for VAT, HMRC will expect clients to maintain all business records digitally, within functional compatible software. 

 

  1. Quarterly reporting

 

Firstly, rather than an annual one time submission of a self assessment, a client will be required to prepare and submit quarterly reports. Every 3 months, a record of business income and expenses will need to be submitted to HMRC using MTD-compatible software. In response they will receive an estimated tax calculation from HMRC based on the information provided to help them budget for their tax. 

 

The deadline for these reports will be as follows:

 

  • 5th August
  • 5th November
  • 5th February
  • 5th May

  1.  End of period statement (EOPS)

At the end of the tax year they will need to finalise their business income, including any tax adjustments and a claim of any reliefs. An EOPS will need to be submitted for each source of income the client has. 

  1.  Final Declaration 

The final declaration will bring together all the data that a client needs to provide to HMRC to reach their final tax liability for that particular year of reporting. Prior to this, the client will have seen estimates only, based on the quarterly submissions.

Final steps will be to:

  • tell HMRC about any personal income a client has
  • submit claims for reliefs and allowances
  • Any deductions to be made
  • submit final declaration for the tax year.

The deadlines for finalising tax affairs and making payments are not changing. 

What can you do to get your clients ready to roll as soon as April 2024 kicks in?

  1. Firstly, are they VAT registered? If so, they will already have a headstart in understanding the requirements for MTD and the changes happening within HMRC and its tax functions. Reassure them they have a head start already - they are maintaining the records digitally!

 

  1. If they are not VAT registered, they may need to understand what making tax digital is.  Send them over this easy to read article, giving them the information on what they need to know about Making Tax Digital. We know it can be difficult finding resources which break down technical info into an easy read. 

 

  1. Are they using MTD compatible software yet? If they can get comfortable with software which is MTD compliant sooner, they could really get a big head start. Most software ticks boxes for the requirements of keeping digital records and maintaining digital links in tax return preparation. We have seen with MTD for VAT that a lot of clients have been stressed and tried finding solutions last minute, which has put Accountants under a lot of pressure in and around April 22. Clients transitioning sooner, will only place them and you in good stead for the future of your businesses. Have a look at ANNA Money’s Business Tools where signup is free. ANNA offers a variety of support for business admin, They also offer MTD compliant tools and software for VAT. 

Soon to come is MTD compliant software for Income Tax, so keep an eye on ANNA Money and see if they could work for your clients.