In September, HMRC announced that MTD for ITSA would be delayed by one year, coming into effect from April 2024 instead of April 2023.
The pandemic has caused so much disruption to sole traders that the government has introduced the delay in recognition, and to give companies the chance to catch up.
This isn’t a drawback though, it’s an opportunity.
Accountants can now make the most of this extra time to ensure all of their sole trader and partnership clients have started using MTD compliant cloud accounting software before the government-mandated deadline. And it would be a good idea for accountants to also use the time to sign some of their clients up to HMRC’s pilot, so they can get ahead and iron out any creases.
As a result, the delay will be welcome news to accountants. It will give them and their clients additional time to automate and digitise finances. And it’ll also create an opportunity for accountants to position themselves as advisors by introducing value-adding services.
A glimpse at the new MTD for ITSA timeline
MTD for income tax will now be mandated from the tax year beginning April 2024 – so it’ll be relevant for filings related to the 2024/25 tax year. This will require eligible businesses to maintain digital accounting records and update HMRC quarterly through MTD software. The date when taxes become payable won’t change.
The new legislation will apply to sole traders and landlord businesses with a turnover greater than £10,000. General partnerships will not have to join MTD for ITSA until the tax year beginning April 2025, and the date other types of partnerships will be required to join will be announced in the future.
HMRC is already operating a pilot for MTD for ITSA – it’s ongoing and is due to be expanded during the 2022/2023 tax year, with larger-scale testing expected to commence from 2023/24.
Eligible businesses can sign up to the pilot now either directly or by asking their accountant to send them an authorisation link.
Making the switch to MTD for ITSA software
A complete list of compliant MTD for ITSA software is listed on the government website, alongside an up-to-date summary of vendors who currently have solutions in development.
Software available today includes options related to general sole trader businesses and those specialising in sectors such as property. And many vendors have free versions available, which means accountants can check the most suitable solutions for clients and try a variety of different products.
Moving to digital record keeping has many benefits
Adopting MTD for ITSA compliant software now means accountants and their clients will be better prepared for the regulatory rollout. And in any case, both parties will benefit from automating and digitising many core accounting and finance processes.
Digital record-keeping will allow businesses to see accurate data in close to real-time, and they can make better-informed decisions as a result. On top of that, moving to cloud software is so much more secure – data is less likely to be compromised after being moved around.
As well as core MTD for ITSA accounting software, accountants should look for third-party tools to automate more functions. Modulr’s Payments Dashboard is one option – it automates pay runs, speeding up outsourced accounts payable functions, and clients are able to approve payments with just one click.
With more time on their hands, accountants will be able to become more embedded within their clients' businesses and reposition themselves as financial advisers. Rather than just fulfilling compliance requirements (such as company filings), they’ll be able to provide higher-margin services such as cash flow forecasting, access to finance, and business planning. And their clients will benefit by enjoying better growth and profitability.
Sign clients up to the pilot to ease the transition
Accountants should make the most of the additional time to sign up clients already on MTD for ITSA compliant software to the pilot so that they don’t have to move them all across at the same time.
This will buy them some time to broaden their firm’s knowledge base, as well as their end clients. And any errors or issues related to migrating clients will be better understood and mitigated if they’re isolated to a subset of clients rather than the entire client base.
Firms should also consider charging a tech-savvy staff member with the status of an “MTD champion,” giving them ownership and responsibility of migrating clients across during the pilot.
The delay to MTD for ITSA timeline should be used as an opportunity to nudge clients towards cloud accounting and complementary tools and tech to increase automation.
Early adoption of MTD for ITSA software, along with signing up to the pilot, means clients will be able to accelerate their shift away from compliance to becoming the most trusted advisor of sole trader and partnership businesses.