MTD ITSA planning must begin “as soon as possible” despite two-year buffer

MTD ITSA planning must begin “as soon as possible” despite two-year buffer

Experts advise a highly structured approach to planning in order to achieve compliance on time

The scale of the challenge posed by Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) means accountancy practices and their clients must avoid last minute compliance pushes, market participants have said.

“Compared to [MTD for] VAT, the sheer numbers involved in ITSA are huge, so we really need to start this as soon as possible,” said Claire Bowen, director at MHA Monahans, in March 2022.

Speaking as part of Accountancy Age’s latest webinar, produced in collaboration with Sage, Bowen said it was going to be “physically impossible for everyone to move over at the very last minute.”

A core pillar of HMRC’s mission to digitalise the UK tax system, MTD for ITSA will require sole traders and landlords with an annual business income above £10,000 to file returns at least quarterly using an MTD-compliant software or a bridging tool.

They must also submit an ‘End of Period Statement’ for each income source at the end of the tax year, and “periodic update” at least quarterly. The new rules will take effect from April 2024, but general partnerships will not be required to join until April 2025.

“We need a plan because this is going to create disruption and it’s going to change our workflows,” said Chris Downing, director at Sage, referring to the more frequent and comprehensive reporting requirements due to come into effect.

“Practices need to think about how they’re going to be servicing and pricing this going forward,” he said.

Bowen took a similar stance, arguing that, in many cases, the seismic change will be complex and daunting for both firms and their clients. “I think the main thing is that change isn’t easy. It’s not easy for clients and it’s not easy internally,” she said.

“We need to look at the fact that lots of our clients have never really thought of using cloud accounting solutions. So, what we’ve really got to do is plan early and really develop those benefits above and beyond the compliance.”

Sage’s 100-day plan

In addition to urging vigilance and swift action by accounting firms in the run-up to the compliance deadline, Downing went on to outline a comprehensive plan spanning the first three months of the practice planning phase, starting sooner rather than later.

He explained firms must “focus on early wins” for the first 50-day period, going on to identify the segmentation and categorisation of clients as a particularly critical area within this.

“At its simplest stage, this is a client list, but with additional information which enables you to better understand where your client base sits in terms of numbers and client types,” he said.

For Downing, this is a key part of obtaining easy, early wins. For instance, he said, some clients may already be VAT-registered and have a piece of software in place, meaning they will require relatively little attention as far as compliance is concerned.

Concurring, Bowen said client segmentation is “absolutely key” in this initial phase of building momentum and obtaining easy wins.

“Really look at who is in your client base that, if you go to them with a new process, they’re going to be the ones saying I’ll have a go at that,” she said. “Those nice easy wins are going to help you gain momentum and feedback, and that’s going to help you phenomenally along the way.”

But the following 50-day period is equally critical to achieving compliance in a timely and efficient manner, Downing said, referring to this as the “shaping and implementation” phase.

Within this, Downing identified “planning” and the determination of timescales as a focal point for firms.

“It’s thinking about the problems ahead, which usually surround things like people, the process of implementation, and the finer details of the proposition,” he said. “Attacking that early on is very key.”

Downing also noted that, once these problems have been addressed, the potential opportunities for firms will become clear. These include having visibility of clients’ data and being able to service more clients at a higher cost per client.  “All of that is part of the master plan of delivery of MTD ITSA,” he said.

Bowen also stressed the significance of this planning phase, pointing out advisers will be commencing work on the new periodic reporting cycle, at least quarterly, also filing previous period’s returns at the same time. This is going to fundamentally alter workflows and the way in which teams interact with clients, she said.

“For the first year, the planning of how you’re going to physically do that is going to be the absolute key to getting this right,” she added. “You need to think about exactly what systems you’re using, what people you’ve got, and what roles they’re playing in that.”


For more information on how Sage can help with getting prepared for MTD ITSA visit the Sage website here

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