Sole practitioners draw up plans for MTD for ITSAby
Sole practitioner Martin Tregonning considers how he plans on tackling Making Tax Digital and expresses his concerns on client awareness.
The countdown to Making Tax Digital for income tax has left many sole practitioners wondering how they’re going to cope. For starters, the practice processes will need to change for the online filing regime. And then there are the client challenges, the big one being client education.
Like a lot of sole practitioners, Shetland-based Martin Tregonning is hatching his MTD plans this summer ahead of the inevitable client handholding parade.
Our upcoming MTD Bootcamp webcast series will explore how Tregonning and other practitioners are preparing for the next phase of MTD and the efforts they’ve taken to ensure their clients are MTD-compliant.
First stop on road to MTD
The first stop on the road to MTD for ITSA is for all VAT-registered to enter the online filing regime in April 2022. Tregonning still has work to be done here, but he has been warning clients since last year and most seem ready for the transition. At least, no one said they want to stick with their journals. However, MTD for ITSA is a different story.
“A lot of ignorance about what it is and what it means,” he said. One owner of a small business he spoke to assumed that their software already does it. “They had no idea about quarterly reporting,” recounted Tregonning.
“I am concerned about the lack of knowledge about MTD for ITSA. It would appear that HMRC’s tactic is to leave it to the accountant to deal with.”
Client segmentation and simplification
Tregonning is using these months ahead of the April 2023 transition date to get clients ready. His first step is to get everyone running on cloud software. He’s aware that this switch depends on the MTD income products that become available, but his plan is to run submissions on the solution that Sage delivers.
Like many sole practitioners, Tregonning is grappling with client segmentation and ensuring all the capabilities are in place to deal with the transition. In Any Answers recently one AccountingWEB member shared their plan to manage 100 clients. Their clients generally just leave a bag and some bank statements, so their first step is to make a list of the affected clients and those that can manage their own software.
Segmenting clients is also a chance to simplify. With MTD in mind, sole practitioners can review their client base for any overly complex structures and decide whether any clients should deregister for VAT.
Tregonning offered the example of a business that runs four companies, where they need to decide if they need all these companies or or should the partnership be a company.
This method matches the advice AutoEntry’s Brian Carolan is giving to practices: analyse your clients and assess your tech stack. “There will be some practitioners set in their ways and looking for side exits, but each practice can settle on a couple of pieces of software to manage the bookkeeping software,” he said.
It’s not going to be easy. There will always be struggles to get clients over the line, but Carolan noted that “breaking down your client base and settling on your tech stack will help to get those clients up and running easily. Then you’ll have to get the others on board and handle that data in the best way possible.”
Software-wise, Tregonning is keeping it simple for clients with one or two apps. “I’d say everybody will fit into my basic stack, the only difference is which features in the software I let them use, while others need things you can turn on or off.”
While the goal is to get all clients digitalised, Tregonning keen to wield the data and insights to show clients the value in the cloud software beyond sticking to the MTD regime.
“What I am trying to do is sell people on the idea of quarterly management reports because you need to manage your business better. The benefit is to put that into the same basket as MTD and say there is a benefit that we can bring proper management accounts,” he said.
While sole practitioners are getting started on their plans, there are likely to be a few road bumps along the way to April 2023, like the recent abolition of the basis period announcement that sets a new framework around how HMRC expects to organise the reporting workload.
The news means that some unincorporated businesses will have bumper tax bills for 2022/23 and create a significant bunching of workload for accountants. But Tregonning doesn’t see this MTD swerve making too much difference.
The big issue for him goes back to that original challenge: getting clients to keep up-to-date data. “Even with cloud software, some are still behind with their inputting. When the rubber hits the ground, they won’t have the data.”
In a live MTD bootcamp webinar on Wednesday 4 August, in association with Auto Entry, Tregonning will detail the steps he’s taken to get ready for April 2023. Rebecca Cave will also be on the panel to outline the key compliance milestones for the next couple of years for MTD.