Making Tax Digital: The countdown to MTD has begunby
Welcome to our Countdown To Making Tax Digital series in association with Sage. This introductory article by Kevin Salter covers the current position with MTD and over the next few weeks, further articles and videos will follow that examine specific areas in more detail.
These topics will include:
Timetable for the 2022 MTD for VAT intake and the MTD ITSA implementation now due in 2024.
An overview of digital links, client segmentation and needs assessment – who will need the most handholding, and when.
Tools and technologies available to fulfil MTD requirements.
Communicating with and educating clients.
Internal processes and service changes, including pricing.
No delay to MTD for VAT
While the profession largely breathed a sigh of relief following the announcement on 23 September that MTD for Income Tax Self Assessment (MTD ITSA) will now apply from April 2024 (and not April 2023) for unincorporated businesses and landlords with total business or property income above £10,000pa, there was no reprieve for those in the VAT net.
From April 2022, the requirements to keep digital VAT records and send returns using MTD-compatible software will apply to all VAT-registered businesses. The extension means that even voluntarily VAT-registered businesses below the VAT threshold must meet MTD rules. This is the next stage in the HMRC 10-year strategy for the tax system “to improve its resilience, effectiveness and support for taxpayers”.
According to HMRC in September 2021, around a third of those VAT registered businesses with turnover below the registration threshold had chosen to join MTD; however, there is no indication of the numbers this represents and the number yet to join the MTD regime.
Resource challenges for practices
The Covid-19 pandemic increased the workload for practitioners with new demands for cash flows and forecasting, job retention scheme claims, SEISS claims and so on. But the annual self assessment cycle is still in place and the priority for many in practice over the next 3-4 months will be meeting the 31 January tax return filing deadline.
Operationally, this will tie up resources and staff time that could be devoted to identifying and speaking to clients who have yet to make the move to filing under MTD for VAT. Those remaining lower turnover clients are likely to be the most challenging and have probably resisted attempts in the past to move them early to MTD to avoid last-minute panics.
There will be many clients for whom “digital records” are of no interest to them whatsoever. This will be the same, and indeed probably a lot worse for ITSA when it finally arrives – for example, elderly couples with rental income that have never seen the need for computers in their lifetime and don’t want to start now.
From a workflow viewpoint, it is essential to know which clients are already registered for MTD for VAT filing, which clients need to be moved to MTD VAT, how the accounting records are currently maintained and whether these meet the criteria for digital records, and whether agent authority is in place for VAT filing etc.
The right tools for the job
It will also be necessary to have a range of solutions available to fulfil the requirements – whether this is full-blown accounting software, a bank account that has accounting and filing capabilities built-in or whether spreadsheets coupled with bridging software will be adequate. Practitioners will probably be prioritising VAT filing in the short term, but the ITSA requirements also need to be kept in mind.
Many practice processes and systems will need to change, especially when the volume of submissions shoots up for MTD. Quarterly submissions of summary business income and expenditure information will be required to HMRC ITSA, though there is no requirement to make any accounting or tax adjustments, and it appears no balance sheet information is required at this stage either.
How will you price your services?
There is also the requirement to consider pricing and methods of charging – as many firms learned during the pandemic, it is very easy to work for nothing!
HMRC estimated just two minutes are needed to submit each quarterly return electronically, but the practice must decide how much the data is checked before the filing button is pressed. There is no requirement for the data to be accurate at this time, though! A fifth filing – the end of period statement (EOPS) will be lodged, and this will include all the adjustments and other tax claims such as losses, capital allowances and so on. How all the MTD for ITSA filings interact with self assessment was covered in a recent article from Rebecca Cave.
Despite all the other work pressures, it is simply not practicable to leave MTD for VAT planning until March 2022. Clients will need educating, cajoling, perhaps even a firm nudge, backed with a lot of training, handholding and ongoing support! So start your planning NOW.
AccountingWEB's John Stokdyk discussed some of the issues raised in this article in a recent video, where he was joined by Chris Downing from Sage and Sam Mitcham from SJCM Accountancy covering how to assess and segment your clients.
This article is the first in a seven-part series from AccountingWEB sponsored by Sage. You can access all of Sage's MTD resources and support on the Sage MTD Hub.
Want to keep up with the debate around MTD? There are over 60 panels, workshops, seminars and lectures at AccountingWEB Live Expo this December, covering MTD, Autumn Budget and much more - many with CPD attached.
AccountingWEB Live Expo takes place on 1-2 December 2021 at Coventry Building Society Arena, Coventry. Registration is now open. A full content programme was announced in early October enabling you to register for specific sessions. Please visit the AccountingWEB Live Expo website for full details and to sign up for our newsletter.
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Semi retired(!) apparently - after 42 years in the same practice, now a consultant with the practice, as well as working with 2020 Innovation Training Ltd - responsible for producing and updating 2020 Tax Tips and Tools and Forms Letters and Tools, and a director of my own consulting firm BBS Computing Ltd.