From XU Magazine, 
Issue 33

Getting ready for MTD for ITSA

Your questions answered

As you’re no doubt aware, Making Tax Digital (MTD) for Income Tax Self Assessment is coming. From April 2024, approximately 4.2 million sole trader businesses and landlords with turnovers above £10,000 will be included. HMRC has been drip-feeding information about MTD for ITSA to the accountancy industry for some time now.
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We hear from our customers that they’re finding it difficult to keep on top of the guidelines. Yet we are still over eighteen months away from the introduction of MTD. How will things progress as the deadline draws closer?

Why accountants and their clients must prepare for MTD now

At Wolters Kluwer Tax & Accounting UK, our customers face similar challenges. They’re already dealing with a lot of information and complexity, and trying to maximise productivity. MTD adds another dimension to the race to understand how accountants can embrace technology to move forward in their profession.

Accountants need to be on top of MTD so that they can advise their clients. It is often small business owners who may struggle with the transition. The new provisions need to be understood sooner rather than later, or the scope for misunderstanding may increase. Accountancy practices will also save time in the long run by preparing for the upcoming changes now.

Migration to new HMRC-approved software is likely to run more smoothly if accountants don’t put MTD to one side. The sooner accountants reach a clear understanding of MTD, the greater the benefit will be for practices and their clients. Below, we’ve provided our answers to some key questions that we continually hear from our customers.

What key steps will ensure compliance with MTD for ITSA?

1. Digital records must be maintained in HMRC-compatible software, or software that is digitally linked to HMRC-compatible software.

2. For each qualifying business, quarterly updates will need to be submitted to HMRC, as well as an end-of-period statement.

3. A final declaration that includes all other taxable income should be submitted by the usual 31 January deadline.

4. Tax should be paid as usual by the same deadlines that exist today.

What information needs to be recorded to be compliant?

For each transaction, the following data points must be recorded digitally.

1. The date of the transaction

2. The transaction amount

3. The category of expenses the transaction relates to

4. The trade or property business the income relates to

If the business is retail, daily gross takings can be recorded rather than recording every single transaction. However, this only applies if it’s unreasonable for the business to keep digital records of every individual sale.

Businesses must also confirm whether they keep their records based on cash accounting or accrued accounting.

Can accountants use their clients’ paper records to key into compatible software such as CCH? And when must this be done?

In HMRC’s view, one of the key benefits MTD for ITSA will provide is an increase in accuracy, due to digitally recording the transaction in real time. However, the legislation does not stipulate when digital records should be created, and so it is anticipated that some clients may continue to maintain paper records, and the accountant will become the digital recordkeeper prior to quarterly submission. To cover this scenario, we provide a spreadsheet template that can be prepared with the data required, and then uploaded into CCH for submission to HMRC.

Does the turnover threshold of £10,000 or more apply to property and trade businesses added together, or to each business in isolation?

The threshold applies to the individual taxpayer’s grand total in turnover, derived from all relevant businesses and properties. For example, within a financial year, if a client receives £5,000 income from their sole trader business and £5,500 from rental income on a property, they must follow MTD for ITSA rules when submitting their tax return.

If the combined turnover is more than £10,000 per annum, should it include employment income too (for example £30,000 salary, £3,000 self-employment)?

No. Quarterly submissions are only a requirement for the mandated sources of business and property income. All other income, including employment income, will form part of the annual declaration process after the end of the tax year.

When a client registers for VAT, are they automatically enrolled into MTD for ITSA?

They aren’t enrolled automatically. It’s up to the client or their accountant to enrol for the relevant tax reporting schemes individually.

What about missed deadlines?

There will be a teething period, as people get used to the new procedures. So how will HMRC handle missed deadlines while businesses are getting synchronised with the new reporting deadlines? In the short term, we believe there will be a ‘soft touch’ approach. In the longer term, a points system will be introduced for all taxes. Each missed deadline will accumulate a point, and points may mean penalties. However, the dates and point thresholds of this scheme haven’t yet been published.

We are your MTD partners

Wolters Kluwer will be launching its MTD-compliant software shortly. Our priority has always been to transform the customer journey into a seamless, end-to-end digital experience. MTD has made this a more pressing priority, with more accountant-client interactions than ever as a result.

We are committed to helping our customers get to grips with MTD. Our experience of the transition to MTD for VAT stands us in good stead to deliver for our customers, as we move towards the transition for ITSA. Accountancy practices can be confident we’re on hand to guide them through the process, so that the transition is achieved smoothly and in good time, ahead of the April 2024 deadline.

The above information is adapted from the brand new Wolters Kluwer ebook, “Destination: MTD”. Available to download from the Wolters Kluwer website right now, it addresses best practice in compliance with MTD for ITSA. It also clarifies many of the misconceptions that exist within the accounting community. We hope it will become a handy reference tool for our customers.

Why leave it there?

To find out more about Wolters Kluwer UK

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