How to prepare landlord and sole trader clients for MTD ITSAby
Accounting software provider FreeAgent offers some tips on tackling the challenges facing practices ahead of Making Tax Digital for income tax self assessment.
The introduction of Making Tax Digital for income tax self assessment (MTD ITSA) in April 2024 presents some major challenges for accountants and bookkeepers – from deciding on pricing to making clients aware of the changes – so it’s vital to start planning now to ensure a smooth transition.
The initiative also presents an opportunity for accountants. Anyone with annual income from self-employment and/or property totalling £10,000 or more will have to comply with the new rules around digital record keeping and quarterly filing, which means millions will need to use accounting services for the first time.
As the deadline approaches, accountants can expect a host of enquiries from “accidental landlords” and workers with side hustles who find themselves within the MTD ITSA income bracket. Getting ahead of the curve now means practices will be better able to advise these new clients as well as support their existing client base.
What are the challenges?
At a recent MTD Bootcamp webinar, Andy Thomas from Abacus Jack and Karen Hays from The Accountsmith discussed the issues and challenges facing the industry, and they agreed that educating clients about MTD is one of the most significant hurdles facing practices.
Thomas’s firm has started by speaking to a select group of clients who are likely to engage with the topic, rather than trying to do a mass communication to all clients. He says: “I won’t start actively communicating with a wider client base until later this year. I hope to do that with short, sharp messages, perhaps using video rather than long-winded emails.”
“The way we interact with clients has to change,” adds Hays, who stresses that it’s essential to communicate in a positive way and to emphasise that there are benefits to the new system. She says: “Quarterly filing will help them ascertain where the business is (Is it profitable? What are the potential tax liabilities?) so there will be no surprises at the end of the year.”
It will take time not only to migrate affected clients to accounting software but to get them set up to make the required submissions to HMRC, so the sooner you can get started the better.
Thomas says: “We’ve cherry-picked some clients who already keep good-quality digital records and meet the eligibility criteria. We’ve put them through training and we’re getting them on to the pilot scheme. The thinking is that if we can crack it with the ‘easier’ clients, we can look at the lessons learned and deal with the slightly more challenging clients after that.”
The landlord sector could pose difficulties for many practices, as many clients with property income will require additional accounting services in order to comply with MTD ITSA.
Thomas says: “I know the type of questions we’ll get: ‘What do you mean I have to do four submissions? My rental income is only £11,000 – this seems ridiculous, surely there’s a simpler way?’ We’re going to get that kind of resistance. If they won’t accept the fees that come with the extra work then that’s going to be a challenge.”
This leads to another key issue facing practices: creating a pricing model for MTD ITSA. Thomas says: “In terms of trying to standardise it – to say: ‘We will charge you X to support your submissions’ – I don’t think I’m going to have that luxury. Some clients are going to need a lot of support and hand-holding while others will be more self-sufficient.”
Hays adds: “We’re dealing with people who all have different understandings and different expectations, and I think that makes it so much more difficult for us.”
How to plan your approach
To help you tackle these challenges, here are five steps you can take to give your practice the best chance of a smooth transition to MTD.
1. Review your tech stack
With so many software choices out there, it’s important to focus on what will allow you to deliver the best service for your clients. Thomas recommends sticking to a limited number of MTD ITSA-compatible solutions – perhaps just two. “You can’t support everything all the time,” he says, “but we try to make sure each client is on the right platform for their business.”
2. Segment your client base
Grouping your clients into segments will provide you with a deeper understanding of their needs and can help you adapt your approach to suit each segment. For example, one segment could contain landlord clients who’ve never used accounting software, while another might contain sole traders who are already up and running, and so on. By developing a strategy for each segment, you can create a standard process for each type of client.
3. Calculate how much time is required
Once you’ve determined how many clients are affected by the upcoming changes, you can start to estimate the workload for your practice when it comes to communication, migration and support. You can then devote a suitable amount of time to MTD ITSA preparation each week and avoid getting snowed under as the deadline nears.
4. Review your pricing model
Pricing around MTD ITSA is likely to be one of the thorniest issues for practices and their clients. Thomas says: “There are going to be difficult conversations, but it’s also an opportunity as a practice owner to restructure fees. Hopefully, we can ensure we’re providing value but at the same time make sure we’re getting paid for the value we’re providing.”
5. Devise a communications plan
Creating a communications plan will help you identify the key messages you want to share and how best to share those messages so clients feel confident about what’s next. Consider whether your clients prefer emails or phone calls and how you can deliver your messages concisely. If your clients are completely new to the world of digital record keeping, you can start by outlining what MTD actually means and how it will affect their businesses.
Looking for more advice on MTD ITSA? Book a free consultation with one of FreeAgent’s MTD experts, who can help you create a plan that's tailored to your practice.