Important: This blog post was published before the government announced that MTD for ITSA will be delayed until 2026. Some of the information below is no longer accurate.
This article was updated on 29th September 2021.
Making Tax Digital (MTD), the government’s initiative to transform and digitise the UK’s tax system, might seem like a mountain you need to climb. We’ve compiled some handy tips that will help you prepare your practice and clients in advance of the upcoming MTD deadlines and plan your next steps with confidence.
1. Get to grips with the key milestones
A good place to start is to get to grips with the key MTD milestones to help you prioritise your MTD to-do list. Here’s a rundown of the next stages of MTD:
MTD for VAT
The scope of MTD for VAT will expand in 2022. VAT-registered businesses with a taxable turnover below £85,000 will need to follow MTD rules for their first VAT return starting on or after 1st April 2022.
MTD for Income Tax Self Assessment
HMRC will introduce MTD for Income Tax Self Assessment (ITSA) in 2024. This stage of the initiative will require self-employed business owners and landlords with annual business or property income above £10,000 to follow the MTD for ITSA rules from 6th April 2024.
MTD for Corporation Tax
MTD for Corporation Tax is expected to be the next phase in the initiative. HMRC has advised that the earliest these rules will come into effect is 2026.
2. Segment your client base
If you have a broad range of clients who are affected by MTD for VAT and MTD for ITSA, you may find it helpful to ‘segment’ your client base to identify exactly who you need to introduce to MTD-ready software and when. Client segmentation involves analysing your client base and then dividing your clients into groups.
We recommend that you consider segmenting your client base as soon as possible. To help you do this, we’ve created this handy MTD for VAT segmentation spreadsheet. If you’re looking for a more tailored approach towards segmenting your client base, you can arrange a free 30-minute consultation with one of our MTD experts.
3. Communicate with your clients
Once you’ve segmented your clients, consider when you should reach out to those affected by MTD for VAT and MTD for ITSA respectively to help them get ready.
We recommend that you communicate with clients about MTD in as much detail and as often as possible. You may find that you have to repeat certain points when discussing MTD with clients, particularly if this is their first experience of using cloud accounting software.
You might consider pulling together a list of frequently asked questions about MTD and including this as an attachment in your client emails. Alternatively, consider hosting webinars for your clients so you can explain what MTD is and how the initiative can benefit them, and answer all of their questions at the end.
4. Educate your clients
An important part of preparing your clients for the next stages of MTD is to make sure they have the right tools to manage their business finances digitally and can use them confidently.
If you take the time to teach your clients how to use accounting software in more depth, you can acclimatise them to it well in advance of their first MTD for VAT or MTD for ITSA submission.
If you use FreeAgent, we can provide you with a host of handy educational resources to help your clients get to know our easy-to-use software. With a bit of encouragement, your clients may feel more comfortable taking on some admin and bookkeeping tasks, allowing you to focus on what’s most important to their businesses.
5. Consider other important deadlines when preparing for MTD
While it might feel like there’s all the time in the world to prepare for the upcoming MTD deadlines, remember that you’ll need to commit at least some of that time to prepare for the other key accounting deadlines that will fall between now and then. With this in mind, you may want to plan your MTD preparation work for times when you won’t be busy getting ready to meet these other deadlines. You may decide to spend more of your time preparing for the expansion of MTD for VAT between August and November 2021, for example, to avoid the busy Self Assessment season in January 2022.
Looking for more information on the next stages of MTD? Check out our MTD hub for additional resources.