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MTD for ITSA: Your questions answered

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Rebecca Cave answers questions raised by attendees of the first MTD Bootcamp webinar, including the latest on the roadmap and filing requirements. 

10th Aug 2021
Tax Writer Taxwriter Ltd
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These answers are based on the guidance produced so far by the professional bodies and HMRC, the draft legislation and consultation documents. The final regulations for MTD for income tax (MTD ITSA) will be published in the Autumn (probably in October), so we can’t be confident of how the rules will work exactly until we see those regs.  

When must a business join MTD?

It is now apparent that there will be a big bang joining date for MTD ITSA on 6 April 2023 for all unincorporated businesses, whatever their current accounting period end.

Changing to a tax year basis from 2023/24 will mean that all businesses will have to report income and expenses that fall exactly into the tax year. Also, the draft legislation to bring about this change deems an accounting period ending on 31 March to be treated as ending on 5 April for tax purposes.

This combination of basis period and deeming provision means that unincorporated businesses will need to enter the MTD ITSA regime from the next accounting period starting on or after 1 April 2023. Thus businesses which draw up accounts to 31 March 2023 will join MTD ISA from 1 April 2023 not 1 April 2024.

It is possible that Treasury Ministers will be persuaded that having all unincorporated businesses joining MTD ITSA at exactly the same time, and reporting to the same quarterly deadlines, will put an impossible strain on HMRC’s systems and resources. We will have to wait and see what the final MTD regulations say when they are released.   

Will the turnover threshold change?

We do not expect the turnover threshold to change in the final MTD ITSA regulations. HMRC has made it clear that all unincorporated businesses with an annual turnover exceeding £10,000 will be required to report income and expenses under MTD ITSA.

This turnover threshold takes into account income from all businesses, trades and property. A person with £6,000 of trading income and £6,000 of rental income will be required to report under MTD ITSA as their total turnover exceeds £10,000.

Will there be any deferral of start date?

Partnerships which only have individuals as partners will have to join MTD ITSA from April 2023.

However, there will be a deferral (for an undefined period) for MTD ITSA mandation for the following categories of partnership:

  • Partnerships containing a corporate partner
  • LLPs
  • Limited partnerships

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Replies (84)

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By Paul Crowley
10th Aug 2021 18:47

Much appreciated
The 6 + 6 =12
was not on my radar at all
Still not convinced that the limit will stay fixed as clearly HMRC cannot admit that £10k was the scare tactic and in the last possible time the limit will be raised
I would put money on it at outrageously adverse odds

My clients will be a mix of digitally ecluded and wilful defiance unless they really choose to go forward blindly on their own or accept in some cases double or triple existing fees.

No issues with the VAT registered
Walk in the park for them

Thanks (5)
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By GHarr497688
10th Aug 2021 19:31

I am so lucky that I can retire 5th April 2022. Digital Records , basis period changes and six filing a year. I thought HMRC's aim was to make "customers" lives easier not so complicated that they don't know were they are and all rushed through during a pandemic.

Thanks (13)
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By memyself-eye
10th Aug 2021 19:41

suddenly the black economy looks oh so inviting.....

Thanks (14)
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By Open all hours
10th Aug 2021 20:12

Sorry, but these are the wrong questions.

No webinar, no Q&A, no presentation has yet come close to explaining how we, clients and HMRC can make MTD work efficiently.

I’ll wait.

Thanks (23)
Replying to Open all hours:
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By philaccountant
11th Aug 2021 09:39

100% this. Previously, even with being able to stagger all of our MTD ITSA clients over different quarterly rotations (as with VAT) it was looking very difficult to manage this increased workload. Now with the basis period rules and cramming all submissions into one one month, this is frankly looking completely delusional from HMRC. They obviously have no idea what they are doing.

How on earth are we supposed to structure our businesses for this? Do I take on extra staff for 1 month were we all work round the clock to make 100% of the quarterly submissions and then have them sitting twiddling their thumbs for the following two?

Does HMRC have any contact with any professionals who actually deal with small businesses? Because it certainly doesn't seem like it.

Thanks (31)
Replying to philaccountant:
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By Open all hours
11th Aug 2021 10:05

In addition to one of you working round the clock you may need an employee on the Rebecca Benneyworth model on the road running round the countryside collecting/delivering records.

Thanks (5)
Replying to philaccountant:
ghm
By TaxTeddy
11th Aug 2021 10:33

Truth is, HMRC just don't see it - their view is that taxpayers don't need agents because they can file from their tax account (or whatever they call it this week). The HMRC world view is SO different from reality, its staggering.

Thanks (15)
ghm
By TaxTeddy
11th Aug 2021 08:12

Suddenly all those husband / wife small partnerships will be admitting a corporate partner for a 1% profit share.

Thanks (7)
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By paulwakefield1
11th Aug 2021 08:27

Why not make the deadline the 7th to coincide with the VAT deadline? I assume the plan is for VAT to be pulled back by 2 days to the 5th.

Thanks (1)
My photo
By Matrix
11th Aug 2021 08:37

No idea how to price all these submissions.

I have some idea on how to support clients who do not yet use software. However, since I have no idea whether the finalisation statement will be like an SA return or not, then I am going to refrain from contacting clients yet.

Thanks (9)
Replying to Matrix:
ghm
By TaxTeddy
11th Aug 2021 10:38

Quite right. Although I have issued an "all points bulletin" about the general concept, I am waiting to contact individual clients to see how we can manage the situation for them - and I can't do that until I have exact details of how all this will work.

Thanks (1)
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By Geoff56
11th Aug 2021 08:56

Every fresh article and announcement that I read about MTD for ITSA, hardens my belief that I have no realistic alternative to retirement on 31st March 2023. With my client base being mainly the small end, paper based type, I simply cannot see anyway in which I could cope with this mad idea.

Even if there is a last minute scaling back or increase in the turnover threshold, it will come too late for me to be able to reverse a retirement decision. I do fear for my clients, whose hands I have held (so to speak) for many years. I worry also, about my very loyal and long-standing employee.

Thanks (17)
Replying to Geoff56:
Chris M
By mr. mischief
14th Aug 2021 18:22

You do have an alternative.

Making Tax Up. MTU. See my numerous posts on how this works.

For those clients choosing this low-cost option, I would be able to file all 4 quarters on 10 April 2023 or so. Of course I won't be doing this as even the clowns at HMRC will work it out. But it will be cheap for clients, easy to run and effective. HMRC will probably twig what is going on by about 2123.

Thanks (0)
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By bluebaron
11th Aug 2021 08:56

The madness continues, and the threshold ridiculously low. Crazy that someone with £6K trading income and £6K rental income would have to report under MTD. I really do despair.

Thanks (14)
Replying to bluebaron:
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By Jas28
11th Aug 2021 09:55

Not only is it crazy for someone with £6K trading income and £6K rental income to have to report under MTD, but if they use online software, they will need to pay for two monthly subscriptions, as I have not come across any online software that allows you to account for multiple businesses without paying multiple monthly fees.
For myself, my husband and I are both self-employed (both part-time and semi-retired), and we have a small amount of joint property income. He also owns one let property jointly with his sister. Therefore, I have to prepare 4 sets of accounts. If I were to use online software for this, I would need 4 monthly subscriptions - a cost which is out of all proportion to the income from these sources.

Thanks (11)
Replying to Jas28:
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By Jimess
11th Aug 2021 11:04

One subscription to VT software (around £150 per year) allows you to create multiple files for different businesses. It is not cloud software but in my honest opinion it is the best bookkeeping software out there. No frills, no bells and whistles, just simple, easy, versatile bookkeeping. VT+ copes very well with MTD for VAT and I sincerely hope that it will continue into MTD for ITSA - even if it doesn't, data from VT can be very easily exported to tax and accounting software.
Currently it has a free cash book version of the software for use by very small traders, with the same multiple businesses and data export capabilities.

Thanks (4)
Replying to Jimess:
By Silver Birch Accts
12th Aug 2021 12:18

I love VT as well, however they left it vert late to join MTD for Vat. I am not convinced they will develop MTD for ITSA. I have many clients using VT Transaction and it working well. My problem is recommending it to others without the certainty of future development rather than a software dead-end.

Thanks (2)
Replying to Silver Birch Accts:
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By Jimess
12th Aug 2021 12:45

Check out their "Hot Topics" on the VT website - they have announced that they intend to develop VT+ for the quarterly submissions and for the EOPS

Thanks (1)
Replying to Jimess:
By Silver Birch Accts
12th Aug 2021 13:01

Good news, thank you I will have a look.

Thanks (1)
By Duggimon
11th Aug 2021 09:39

There is as yet nothing in the proposed rules that indicates there's anything wrong with having your clients file a load of [***] by themselves every four months and then just doing their tax returns as normal, only using the four quarterly submissions as adjusting entries.

Thanks (10)
Replying to Duggimon:
Paul Beck
By paulbeck
06th Sep 2021 17:42

Hi Duggimon,

Each business (self-employment) and a client can have three types of property businesses. The data submitted for the quarters have to be digitally linked. So theoretically, each business could have an excel spreadsheet containing date, category and amount with a single row that the client enters, and this would be filed with HMRC using MTD for ITSA's API's. HMRC can ask where the figure come from as they do need to be digitally traceable. But as the figures are provisional and the source is digitally traceable, the client is not breaking any rules. It is going to be a lot of work preparing all the quarterly submissions the unincorporated for accountants. I’m not convinced quarterly will even help revenue improve anything.

Thanks (0)
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By lh3f9764bg1g
11th Aug 2021 09:50

It seems to me to be totally improbable that we could make all these submissions within the required time.

Thanks (5)
Replying to lh3f9764bg1g:
By ireallyshouldknowthisbut
11th Aug 2021 09:55

O I am sure we will, but the quality will be appalling, and the whole exercise utterly pointless apart from the software companies collecting the ££££ and the government ministers putting it on their CV's

Thanks (3)
Replying to ireallyshouldknowthisbut:
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By Ammie
11th Aug 2021 10:26

Couldn't agree with you more.

Is it just me or has the quality of work fallen significantly as more and more of our work is digitalised. Some of the information I see is pure tripe. Too many clients, certainly the smaller ones, (below VAT registration), have all but dispensed with supportive documentation and provide answers on what I call the "about" basis, to which I reply perhaps I should send you an "about" fee and HMRC and "about" liability.

For some, it has become a rushed data entry task with little or no thought of the reliability or accuracy, on the basis that it is "about" right!

Thanks (6)
By ireallyshouldknowthisbut
11th Aug 2021 09:54

No staff holidays in July and first week in August then. Just 12 hour * 7 days a week grinding away.

Think of the new January in store.

Back in on the 1st Jan with your quarterly reports, AND the laggard SA's all in one hit. Bliss!

Now where did my poo flicker go......

Thanks (4)
By Michael Beaver
11th Aug 2021 09:56

The 5th February 2024 deadline is going to be horrible - to put it mildly. 31st January 2024 will still be the filing deadline for the normal tax returns for the year to 5 April 2023.

And they thought January 2021 during Covid was bad?

Thanks (6)
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By Ammie
11th Aug 2021 10:18

I have put it to all my clients and most couldn't careless, that's what they pay me for! Although as the fees stack they will focus more or look elsewhere where they will face the same.

As I have said before, HMRC will adjust their stance once the ball starts rolling, and will also need to be more forthright in providing resources to satisfy the requirement.

As has been mooted before there may be some truth in the suggestion that HMRC has a desire to push out the small practitioner with limited resources and the cowboy representatives, not to mention the flood of penalties, surcharges and interest that have become an HMRC staple.

I am most curious how all the numbers will slot together as I fear the theory will be far from the reality.

Thanks (5)
Replying to Ammie:
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By Articled Clerk
11th Aug 2021 11:00

Firms who lose key members of staff for any reason may well have great difficulty in replacing them and as such will be limited in resources I would suggest.

Thanks (1)
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By Articled Clerk
11th Aug 2021 10:18

My concern is that HMRC are not engaging with taxpayers on this and are relying on the accountancy profession to make their dream work. For those who can remember the transition to self-assessment, HMRC held workshops for both agents and taxpayers well in advance, so both agents and clients had a good idea of what was coming. SA was billed as a simple taxation system which for the post part did what it said on the tin; it did away with quite a lot of the complications of the old scheduler system (e.g. Sch. A unfurnished lettings on prior year basis, Schedule D case VI furnished lettings on actual basis), I could go on! A far as I can see, SA is about as good as it gets as a tax system, replacing it with MTD ITSA will only make life harder for everybody, including HMRC. I think the tax system will suffer if there is a high level of non-compliance from unrepresented taxpayers, mainly through ignorance, who will want to know what on earth is going on and why they are being penalised; most will want to appeal against the penalties which in turn will cause unnecessary work for HMRC. If we must have this system, then the initial concept of bringing in landlords first will be the best way forward as this will be akin to a walk-through test.

Thanks (3)
Replying to Articled Clerk:
ghm
By TaxTeddy
11th Aug 2021 10:44

Yes, but back in those days, HMRC was still a respected organisation with quality staff who cared. Not any more.

And of course self-assessment solved an age old problem whereby clients just didn't file the tax returns on time and were constantly listed for hearing before the general commissioners (remember that?) with three or more years' tax returns being filed at once. So SA gave everyone an incentive to file the tax return each year which was often not the case at that point.

But MTD is a solution looking for a problem.

Thanks (4)
Image PN
By Mr Hankey
11th Aug 2021 10:27

Working on my own, my time is already stretched and there is absolutely no way I will have time to carry the extra workload this brings, so I will be dis-engaging from all sole trade & rental income work.

Unfortunately I am nowhere near retirement, but fortunately I have enough limited company work to fall back on.

I do sympathise for those practices with work ranges skewed more towards old school paper-based sole traders.

Thanks (3)
Replying to Mr Hankey:
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By Geoff56
11th Aug 2021 10:32

But what will you do when MTD for CT arrives, perhaps in 2026?

Thanks (0)
Replying to Geoff56:
By ireallyshouldknowthisbut
11th Aug 2021 10:42

Companies are much less of an issue as they will be much larger and probably already VAT registered so you can just rip some number off that report and stuff them into the CT report.

Moreover you can spread the year ends on Companies (mine already are) through the 3 quarters so you don't have the big mess of "feast and famine" of doing all the work in one month and then nothing for two months.

Thanks (5)
Replying to Mr Hankey:
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By bluebaron
11th Aug 2021 11:04

This is exactly the position that I am taking. It will be a shame to lose some of my sole trade clients, but I am no way getting involved in multiple submissions per year, with tight deadlines, and I am warning my clients now to look elsewhere.

Thanks (2)
Replying to bluebaron:
Image PN
By Mr Hankey
11th Aug 2021 11:51

Yes, I think MTD for CT (especially when VAT registered) would be more manageable, as quarterly electronic bookkeeping is already being carried out.

I do have a heavy heart about dis-engaging, as some clients have been with me a long time and it will feel like I'm hanging them out to dry. However, I can't put my stress and blood pressure levels through the roof and risk having a heart attack by the time I'm 40 just because I don't want to say no to people.

Thanks (3)
Replying to Mr Hankey:
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By bluebaron
11th Aug 2021 12:48

Yes, ditto. It's a shame for clients who have been with me a long while too. The prospect of more deadlines with more fines attached is a nightmare for me. I just don't want the stress and anxiety of MTDfIT.

Thanks (1)
Replying to bluebaron:
Paul Beck
By paulbeck
06th Sep 2021 17:50

@bluebaron I feel small self employment business's may find it easier to incorporate. Very small self-employed business cost will increase if they incorporate and will still need to do the clients Self-assessment with the dividends but you would avoid having to register for MTDfITSA and do the quarterly . Property business are harder to simply switch registration. I feel it just will be too much effort for a lot of accountants to do the extra MTD submissions while trying to keep the costs affordable to the end client.

Thanks (0)
Replying to paulbeck:
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By lh3f9764bg1g
08th Sep 2021 06:56

Incorporation benefits for smaller enterprises would be very short lived. Surely not worth the additional efforts and costs to them just to buy a few years?

Thanks (0)
Replying to lh3f9764bg1g:
Paul Beck
By paulbeck
08th Sep 2021 21:33

@lh3f9764bg1g Yes. And incorporating will bring higher costs and CT to follow behind by a couple of years. Frying pan into the fire type of choice I'm seeing.

Thanks (0)
Replying to Mr Hankey:
By Bagas.Ynnya
11th Aug 2021 19:17

Yes, but how long will it be before all of your Limited Company clients also have to file quarterly??

Thanks (0)
Replying to Bagas.Ynnya:
Paul Beck
By paulbeck
06th Sep 2021 17:52

@Bagas.Ynnya Limited companies will not need to register for MTDfCT (corporation tax) be before April 2027 but your point is 100% valid.

Thanks (0)
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By North East Accountant
11th Aug 2021 10:31

We have many hydrid partnerships and LLP's..........reckon we'll have lots more.

No MTDfIT for an undefined period so;

Either
Sole traders become hybrid partnership with wife and dormant Company, or
Sole trader becomes an LLP.

Bob's your uncle no MTDfIT.......now that's going to make a lot of people happy.

And how mad that we are going to have the existing system that works well still running alongside the new crazy system.

Thanks (1)
By ireallyshouldknowthisbut
11th Aug 2021 10:35

how are they going to deal with people who are bouncing in and out of the £10k threshold?

Clearly there is a huge extra admin cost of going over £10k in the hundreds of pounds per annum in software and accounting fees so keeping under will be important for many sole traders who want an easy way to report and pay their taxes.

My turnover breakdown for 19/20 is, sub £10k, 129 returns, £10k to £25k 61 returns, over £25k, 39 returns.

Out of the sub £10k about 40 are £8-10k, and will in some years go over, but of course neither I or the client knows until it happens.

Thanks (2)
Replying to ireallyshouldknowthisbut:
By Duggimon
11th Aug 2021 10:46

Well, at a guess, they'll deal with it the same way they did for MTFfVAT - once you're over the threshold you're in, once you're in you're in forever.

Thanks (5)
Replying to ireallyshouldknowthisbut:
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By GDavidson
11th Aug 2021 16:02

I don't suppose you know what the base period for the £10,000 is do you? ( I have looked.) Is it the previous year? Or the current year so that as soon as you reach £10k you need to start (if you have been below £10k in previous years)?

Then the following year if you don't reach £10k in 12 mths you drop out again for the subsequent year?

Thanks (1)
Replying to GDavidson:
Paul Beck
By paulbeck
06th Sep 2021 17:58

@GDavidson, it is the combined turnover of all self-employed and property businesses from two years previously that is used to determine the £10k threshold. And yes, theoretically, you could bound back out of MTDfITSA after being forced to register. Also, an individual won't need to register for two years if they start a new unincorporated business.

Thanks (0)
ghm
By TaxTeddy
11th Aug 2021 10:36

Although I completely understand their point of view, it saddens me greatly to hear of so many practitioners considering early retirement because of MTD.

Personally, I don't have the choice so I will soldier on but I am absolutely sure that each and every one of the practitioners who is now going to bow out would be providing, or at least striving to provide, an excellent service to their clients.

What a loss to the profession these practitioners will be, and all because of some idiotic tax administration scheme.

Sad days indeed

Thanks (19)
Replying to TaxTeddy:
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By Jimess
11th Aug 2021 11:34

Like you I am unable to retire before MTD for ITSA disrupts our lives, but I am in the twilight of my working life so unless some miracle happens before 2023 the last five or six years of my working life will be spent grappling with this extremely badly thought out system. It takes more than enough time and energy to deal with my clients in the current regime, particularly in the last year when they have needed so much extra support, so the thought of spending huge amounts of additional time in the years during which I should really be winding things down just fills me with cold dread. I know some clients will take it on board and deal with the quarterly reports reasonably well, but most will not know where to start and will not want to know either. I have retirees with rental income above the £10k threshold that up to now have had fairly simple tax matters, but the quarterly reporting requirement will put them into a tailspin. I have subcontractors that just don't want to get involved with their record keeping requirements - they are extremely busy people themselves, when are they going to get the time to do this? It is not tax simplification - it is adding layer upon layer of complexity, more and more chances for HMRC to increase revenue from penalties, and I suspect it will come to the point where some taxpayers regard penalties as an extra expense because they simply do not have the time or capabilities to deal with this.

Thanks (8)
Replying to TaxTeddy:
Paul Beck
By paulbeck
06th Sep 2021 18:04

@TaxTeddy, MTD for ITSA is gov mandated. As accountants, there is change and I do feel for the end individual clients as their costs and time will be increased for MTD. For accountants, it'll be likely the need to pass these costs on to keep your clients profitable. There are millions of people that do their own tax returns for free. I can't see the majority of the people doing their own tax being able to do it themself with the increased MTDfITSA requirements.

Thanks (0)
By Michael Beaver
11th Aug 2021 10:51

Can anyone else foresee a segment of the population who will be underserved and will struggle to obtain accounting and tax advice?

We have quite a few paper people, and we'll be working on them to at least do their records electronically (excel or otherwise). And with the expected volumes I think we can cope. Just.

But if we can't cope, our first option will be to disengage with some of the sole traders who are struggling with electronic records.

Multiply this across many practices, it doesn't take a rocket scientist to figure out that there are people who are going to be effectively shut out of the advice market.

Thanks (10)

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