How to make the most of the MTD ITSA delayby
The start date for MTD ITSA may have been kicked down the road, but that doesn’t mean accountants should stop preparing their practice for digitalisation.
As accountants are well aware, HMRC finally announced in late December that MTD ITSA would be delayed by a further two years, with the mandation date now set for April 2026.
Whilst many accountants on AccountingWEB were pleased, there was also a large number frustrated that the efforts they’d put in to prepare themselves and their clients were wasted.
Undeniably, for all the businesses that would benefit from the increased digitalisation and access to real-time data, there were many accountants saying that their clients were simply not ready and that some of their smaller clients were unlikely to see real benefits from being forced to change their processes, or would be unable to afford the increased costs. So it’s never really been a question of simply being for or against MTD ITSA.
What about the tech firms' view?
Tech firms have been very vocal and positive about the wider benefits of digitalisation and obviously stand to benefit from more people needing to use software solutions. HMRC had previously said that it expected MTD ITSA to affect 4.2 million taxpayers. With the new limits, HMRC estimates that the changes will mean that around 700,000 taxpayers will be affected in 2026 at the £50,000 limit, increasing to a further 900,000 taxpayers, or 1.6 million in total when the limit reduces to £30,000 in 2027.
Vendors will undoubtedly have incurred significant costs in developing their software to meet HMRC’s ever-changing guidelines and deadlines, so the delay is likely to be rather frustrating. But the general impression from speaking to vendors is that they are being positive about the situation.
Speaking to AccountingWEB, Stuart Miller Head of Industry Engagement, Xero said: “When HMRC announced the delay to MTD for ITSA, we were quick to voice our support of the news, as it gives accountants, bookkeepers and their small business clients more time to prepare.
“What’s more, given the current economic climate, HMRC's attempt to make the transition as simple as possible is welcome. And regardless of this delay, all businesses will need to keep digital records in the future – something that may seem overwhelming, but promises serious benefits in the long run.”
What to do with the extra time?
Whilst many accountants and businesses may welcome this additional time it doesn’t mean that they can simply forget about MTD ITSA, far from it, in fact now practices will actually be able to focus more on the benefits that digitalisation can bring for their clients and the practice itself. Miller expanded on this saying,
“MTD, and more broadly, the adoption of digital tools will help you and your clients optimise onerous tasks, tackle cash flow issues and improve the efficiency and accuracy of the tax process. Even if MTD for ITSA is further away than expected, this is a journey worth undertaking.”
Many practices have already started preparing their practices for MTD ITSA, segmenting the client base by turnover, digital capability and so on, and making choices about how to manage the digital records and statutory filings. For them, the delay simply means that the filings will be simpler, without the need for quarterly updates for at least two years. It also means that they will be able to take advantage of the software they use with their clients to focus on ways they can improve their businesses.
This should be a positive thing and mean that they can become more efficient and productive, deliver more profitable advisory services and still have a few years to get ready for the move to quarterly updates.
For those practices who haven’t yet started the process, perhaps because they did not believe that HMRC would be ready for the 2024 MTD ITSA implementation date, there may be a sense that they were right all along. But, simply waiting for another two years would be a missed opportunity.
Instead, these accountants and bookkeepers should look again at the clients who would benefit from the better financial information and understanding of their business that real-time digital records can offer. There is now a longer period to investigate the various solutions that could help their clients and their own practice, through automation and digital tools. And with the new limits meaning that MTD ITSA will only affect larger businesses and landlords, the argument that clients will not be able to afford to use software or change their processes is alleviated.
The future is still digital
It’s hard to deny that in most areas of our lives, digitalisation can bring benefits. In our private or working lives, nearly everyone in the UK has access to the internet and a smartphone as a minimum, and they will agree that it makes many things easier. Most people are comfortable with how things like emails, booking tickets, running a bank account, shopping online, taking photos, or accessing entertainment such as music, films and TV can be done anytime anywhere on a variety of devices.
It’s no different with running a business and digital finances, it’s very rare for a business not to have some form of online presence, and even traditionally tech-averse trades such as construction are seeing the benefits of taking photos of receipts or issuing invoices quickly while at the job. So, moving to software to help with digital records should not be a huge obstacle to most of your clients.
Most of the accounting software vendors had already announced they were ready for MTD, and the additional time given by the delay should see them offering better more complete solutions for your clients. Miller commented
“At Xero, we’re ready for the legislation, and will use the time to make our product even better, and deliver the best user experience possible while preparing you for a digital future.”
Now that the stick of MTD ITSA mandation is temporarily on hold, accountants and bookkeepers should focus on the carrot - the benefits that digitalisation can bring to clients and to their own practices.
Join Stuart Miller from Xero, Emma Rawson from ATT and AccountingWEB Technology editor Tom Herbert on 21 February for our joint webinar on the MTD for ITSA delay and what it means for your practice.
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