It would be fair to say that the rollout of Making Tax Digital, the UK government’s initiative to digitise record keeping and increase reporting for businesses in the UK has been a gradual process. It had to be: MTD signals a huge change in the way millions of businesses approach everything from their day-to-day bookkeeping to their end-of-year reporting and the government was right to anticipate more than a few teething problems.

However, there has, of course, been one significant bump in the road that they hadn’t predicted: the pandemic.

The effects of COVID on MTD

While MTD for VAT launched in April 2019, the next stage of the MTD rollout, MTD ITSA (Making Tax Digital, Income Tax Self Assessment) was due to take effect from April 2023, and would affect all self-employed people and landlords with an annual turnover exceeding £10,000.

However, in September this year, the government announced a delay to this next phase of the initiative. Under current plans, MTD ITSA will apply to those with self-employment income or rental property income from April 2024, and those in partnerships from April 2025.

Why has MTD ITSA been delayed?

Unsurprisingly, the pandemic has caused upheaval and uncertainty for a number of UK businesses, and so the delay was introduced to give business owners (and, of course, their accountants!) an extra year to prepare for the upcoming changes.

Also, because many businesses and landlords have seen both a significant reduction in turnover during the pandemic and a financial boost in the form of local authority grants given to businesses at various intervals since March 2020, it would be harder to establish which businesses might expect to hit the £10,000 annual turnover threshold for MTD ITSA.

The planned delay means the base year for assessing turnover will be 2022-2023, which should, hopefully, offer a more realistic reflection of normal trading, post-pandemic.

What MTD ITSA means for you and your clients

While the delay might feel like a reprieve, for you and for your more digitally averse clients, it’s not a reason to take your foot off of the accelerator as you prepare for the coming changes.

In fact, if you make the most of this extra time, you’ll find the transition infinitely easier when the time finally comes to fully launch into MTD ITSA.

MTD ITSA: A quick reminder on what you’ll need to do

Under the MTD ITSA requirements, eligible businesses will no longer submit an end-of-year self assessment tax return to HMRC. Instead, they will be required to digitally submit four quarterly updates to HMRC, and at the end of the year, submitan EOPS (End of Period Statement) that confirms the annual figures.

The EOPS is best thought of as the direct replacement for the old tax return – except that under MTD the taxpayer must also make an extra step of the “final declaration” which crystallises the values submitted and generates an income tax liability. The final declaration used to be part of submitting the self assessment tax return, but under MTD this has been separated into a separate step.

While clients who already use MTD-compliant accounting software and are diligent about keeping their financial records up-to-date might not have to make much change, your less tech savvy clients will face a steeper learning curve.

Triaging your clients

The delay provides you with the perfect opportunity to triage your clients and minimise that learning curve.

For example, identify which of your clients have landlord/self-employed income over the threshold and will have to comply from April 2024, and which are operating as a partnership and won’t be affected until April 2025 and use that information to prioritise the support you provide.

Think about the clients that haven’t yet transitioned to digital record keeping at all and form an action plan to educate them about the upcoming changes and how you can help them transition from their current bookkeeping methods, sooner rather than later.

If you don’t already have a go-to option for accounting software, it’s also worth thinking about the industries your clients work in, the functionality they might need from a digital product, and how intuitive it’s likely to be for those clients that still prefer the spreadsheet approach to accounting!

Not only is Clear Books MTD-compatible, it’s also highly intuitive, easy to use (even for those with zero accounting experience), and has a wide range of functionality, including everything from automated invoicing and payment reminders to the easy management of CIS requirements.

And remember, if you or any of your clients have any questions about MTD ITSA, from queries about the best software subscription for their particular business, and concerns about the onboarding process, to worries about what recent grants might mean for their MTD ITSA eligibility, you can always talk to your Clear Books account manager about providing client training or answering those tricky questions. We’ve been working with small business owners and accountants on MTD since before the introduction of MTD for VAT so there can’t be a question we haven’t already heard and answered, at least once!

It feels like the MTD goal posts are constantly changing — and it can be hard to keep up. But one thing you can be sure of, this and any other delay, is a gift. It truly is the perfect opportunity to help your clients get online with an MTD-compliant software, get them used to more regular record-keeping, and encourage them to embrace the many, many benefits of digital accounting. 

By putting in the work now, you’ll know that you and your clients can face the upcoming changes with complete clarity and confidence.

Always here to help

As ever, Clear Books is here to support you every step of the way. We’ll keep our ear to the ground so we can provide you with the latest updates, MTD guides, and anything else you need to know to make the transition easier for you and your clients. If you need additional support at any time, you know where we are! Clear Books is here to answer any questions you might have and to help you form a concrete plan of action.

And if you’re still searching for the right MTD-compatible accounting software for your practice, we’d love to offer you a free 30-day Clear Books trial. Get started today.

Clear Books: Online accounting software for small businesses

Clear Books is an award-winning online accounting software for small businesses. Thousands of business owners, contractors, freelancers and sole traders across the UK use our easy-to-use online accounting software to manage their business finances. All users benefit from the outstanding free telephone and email support. Clear Books was launched in London in 2008 and offers a free 30 day trial with free ongoing support and bank feeds. We’re rated as ‘Excellent’ on Trustpilot.

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