MTD ITSA: A question of capacityby
Making Tax Digital for income tax self-assessment is going to lead to a significant increase in work. Paul Aplin raises alarm over the capacity issue this will create in accountancy firms.
Over recent months more detail has emerged about the mechanics of MTD ITSA: how the quarterly reports will align, the complexity that basis period reform will add for many businesses and the reporting detail set out in the recent HMRC notices.
As the MTD ITSA pilot expands, we will gain even more insight into just how different things will be at a practical level from April 2024.
Many firms will be reflecting on how they may need to adapt their business models to cope with the new regime.
The way we work now
I spent 40 years in practice, mainly advising small and very small businesses. Some clients used accounting software, some used spreadsheets and some kept manual records. I saw good and bad records, irrespective of the record keeping medium. Over the last few years, because of the general trend towards digital and with impetus from MTD for VAT and Covid 19, more and more businesses have made the transition to accounting software. It has been evolution rather than revolution, but MTD ITSA will trigger a quantum shift, with over four million self-employed and landlords affected.
Currently, information is imported into the agent’s software either by keying in from manual records or digitally (by mapping directly from the client’s software or spreadsheets). The agent makes the necessary adjustments for the final accounts and tax return. This is generally a once-a-year exercise unless the agent does the VAT returns.
For a small, VAT registered sole trader with some property income the reporting obligation amounts to four VAT returns plus the self-assessment return – five in total.
How it will change
From April 2024, the same taxpayer will be required to file four MTD VAT returns, four MTD ITSA quarterly returns on the self-employment income, four MTD ITSA quarterly returns on the property income, two End of Period Statements (one each for the self-employment and property income) and a Final Declaration – 15 in total. Even at the most superficial level that is a very significant increase in work.
The question is who will do it?
Simply based on the number of reporting events, having the capacity to move from the current to the new regime will be challenging, but there is more to it than that.
Capacity and responsibility
We now know that the MTD ITSA quarterly returns will be linked to the tax year rather than the accounts year. Where the client looks to their agent to deal with the quarterly returns, that linkage will make it even harder to spread the increased workload, because the peaks will be around the same quarters for every client in MTD ITSA – the months of July, October, January and April will be virtually unavoidable pressure points.
Some firms will look to flexible working to cope with the peaks. Others will look to bookkeepers to help spread the load.
MTD ITSA will, I believe, provide a significant opportunity for bookkeepers to take on a central role, dealing with the quarterly reporting as well as maintaining the core digital records. If I’m right, that will raise new issues.
For a start, bookkeepers will need authorisation to deal with the quarterly filings and to view the relevant information on HMRC’s systems. The question of multi-agent authorisation under MTD ITSA is under active discussion with HMRC, but time is short. With only twenty months to go until the big bang in April 2024, this is an urgent issue.
While pressure on capacity will provide some of the incentive to share the additional workload between agents and bookkeepers, some will also be down to the difficulty of making a profit – or even recovering – on the increased work at normal charge-out rates.
There will be practical issues to consider, such as the digital handover from bookkeeper (or client if they do the quarterly reporting) to agent.
- Where will responsibility rest for the accuracy of the quarterly returns and EOPS?
- How easy will it be to make corrections and adjustments for the final accounts and tax?
- Will engagement terms need to be revised?
- Who will be responsible for avoiding late filing penalties (given the fact that each new filing obligation will create a new potential trigger for penalty points or charges)?
Advice and support
It isn’t, of course, just about the mechanics of the new reporting requirements. Someone has to advise those adopting accounting software for the first time on the choice of software and apps. Someone has to oversee installation and set-up. Someone has to train the client if they intend to keep the records themselves. Someone has to provide ongoing support.
Again, I suspect many firms will struggle to do this as the staff who are best at it (knowledgeable about software and with good teaching skills) will be in high demand.
And where will this activity sit within a firm? Will it be with the tax team (as MTD ITSA is fundamentally a tax compliance matter), the accounts team (getting from the core business records to a set of accounts being their province), or – if the firm has one – the business support team?
Whatever the answer, care will be needed to ensure that the focus is not just on MTD compliance but on helping clients get something useful for running their business from the software and apps.
Again, I see potential for an enhanced role for bookkeepers here.
Things will undoubtedly be very different, not just in terms of the mechanics of MTD ITSA, but in the way it will change what we do and who does it.
Capacity – especially in the run up to April 2024 and the transition – is going to be a problem, but I believe that good bookkeepers will be well placed to provide a significant part of the solution.
The role bookkeeping will play in MTD ITSA with the subject of a recent AccountingWEB ‘MTD Bootcamp’ webinar. You can catch up with this episode on demand now.
AccountingWEB MTD Bootcamp
Even after a 12-month delay, there’s still plenty of work for practices to prepare their sole trader and landlord clients for MTD ITSA. We’ve teamed up with AutoEntry, FreeAgent and Xero to run a series of MTD Bootcamp webinars through August.
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Paul Aplin was for many years a tax partner with an independent West Country firm. He is a past president of ICAEW, a former Chair of the ICAEW Tax Faculty, a member of CIOT Council and the Tax Technology Committee of CFE. He is a non-executive director of three companies, a member of HMRC’s Admin Burdens Advisory Board and the OTS Board....