Accountants rise to MTD tax challenge with techby
The adoption of Making Tax Digital (MTD) will remain a concern for accountants over the course of the next 18 months. Kevin Sefton considers the challenges, opportunities and education that will arise between now and April 2023.
The next chapter is MTD for Income Tax Self-Assessment (MTD ITSA), mandated from April 2023 for self-employed people and property landlords turning over more than £10,000 – 4.4m people. It will require quarterly digital submissions ‘in year’ with an end of year wrap up.
Helping the self-employed navigate the journey towards digital tax reporting
Taxpayers range from the very analytical and organised, to those who need many reminders before delivering paper records just before the deadline.
While there’s an obligation to keep digital records, the reality is that most businesses already do some of this – even if it’s as simple as online banking.
MTD ITSA brings new reporting obligations, and deadlines every twelve weeks. This will affect those who may not even see themselves ‘in business’ – from Etsy craft hobbyists to online influencers. For them, most will be able to use the short tax return approach rather than needing to worry about detailed classification.
Filing quarterly returns is not necessarily complex, but there will be questions to be answered. Who will help educate them, inform them of their tax responsibilities and help them navigate the journey towards digital tax reporting?
A massive opportunity for accountants
With 62% of returns currently submitted by agents, accountants seem like the obvious solution. What does MTD ITSA mean for them?
We see some clear themes:
Will small businesses pay for the extra time to prepare quarterly submissions? Should accountants continue to support them? What does this mean for chargeability?
How can we deal with edge cases of people who really don’t use technology?
What’s the migration process for existing clients?
How can we use this as an opportunity to use software to simplify onboarding and support a new audience of potential clients who may pay less on a per-client basis, but collectively will be valuable to the practice?
Practices that choose their approach early will be best placed to benefit. This will enable them to see MTD ITSA as a full programme rather than simply a migration. It also means seeking opportunities to use MTD ITSA as a way to streamline working and to bring insights to their clients.
This will come soon – it’s just over 80 weeks to April 2023. HMRC will also be putting a rush on – thus a slew of consultations, including one over basis period reform which is due in at the end of August.
MTD ITSA does not exist in isolation – it’s just one part of an individual’s tax needs. Will you be taking the trading income from an MTD ITSA solution to enter elsewhere into a tax return, or will it all be in one integrated place?
The march of technology
Firms should not miss this opportunity to assess what systems and technology will really transform how advisers work and communicate with clients. Particularly so when considering the scale of the opportunity and the need for some deep thinking – such as managing submissions that are all due at the same time (vs the staggered periods for VAT).
Next-generation systems are developing at a rapid pace to enable taxpayers to manage their financial obligations, to make it easy to refer questions to accountants, and to support a relationship based on value and trust where you’re an expert adviser.
Accounting software moves on, and new entrants are often the right solution. When Xero emerged, it didn’t have the burden of a legacy of desktop users and architecture.
It’s much easier for a new product to integrate into other systems than you may expect, and to support more than one product for your clients. The trends to look for are around software built using APIs, which sync bank data and other sources such as portfolio information, capital gains reports or property records, all via an intelligent interface. No rekeying – data is automatically submitted straight to HMRC.
Embrace the future
We’ve seen first-hand how accountants succeed by embracing technology and moving their business model. The reality is that small business owners want to get on with their lives, and care about their livelihoods – rather than their actual accounts.
For some advisers, MTD ITSA could mean more work – it will certainly involve more reporting. That’s why it’s particularly important to use software that makes things as smooth as possible.
Together we can help the millions of self-employed people to file the right information in the right way as we head closer to the start of MTD for income tax.
We’ll be asking not what does MTD ITSA mean for accountants, but what does it mean for businesses? And what can accountants do to support them?
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Leading team at untied.io, a disruptive service simplifying self assessment tax returns and other reporting.
It comes after a career of serial hands-on entrepreneurship designing and initiating multiple start-ups including the development and launch of new products following a blue chip career with a "Big" professional services firm...