MTD (Making Tax Digital)
MTD stands for “Making Tax Digital” and is a Government initiative, first announced in the 2015 Budget. The concept is to further digitise accounting records and increase the frequency of income tax returns to HMRC and other changes further on in the proposed changes.
MTD (for Income Tax Self Assessment) is abbreviated to “MTD ITSA” and is the biggest single change in UK tax administration since “Self Assessment” was introduced in 1999. It is going to have a significant impact on both accountants and their clients.
From April 2019 VAT registered businesses with a turnover over the VAT threshold (currently £85,000) have had to file their VAT returns through approved compliant software as part of MTD for VAT.
From April 2026 MTD will apply for Income Tax affecting around 10 million self employed, landlord and other taxpayers who file Self Assessment tax returns. MTD ITSA has been deferred a few times, which demonstrates that neither Government, HMRC or taxpayers are ready for this onerous, costly and burdensome change. MTD will adds software costs, complexity and time spent to complying with the UK Income Tax system for taxpayers.
Latest Update: Update 20 December 2022.
Making Tax Digital
IMPORTANT UPDATE: MTD (For Income Tax)
In 2015 the Government announced “Making Tax Digital” and MTD ITSA (for Income Tax) is coming Tax from April 2026, recently deferred again as was to be introduced from April 2024.
MTD (ITSA) is the biggest single change in tax since “Self Assessment” was introduced in 1999, and is now getting ever closer to going live.
MTD for VAT is already here and compulsory for VAT Registered businesses and the filing of MTD compliant VAT returns.
MTD (Income Tax) will mean significant changes to how records are kept and how, and when, returns are submitted to HMRC.
It would be very unwise for taxpayers to leave being fully ready for MTD (for Income Tax) until it goes live in April 2026.
Those that survive and thrive under MTD will be the ones that have put everything they can in place pre MTD going live.
When “Making Tax Digital” (MTD) goes live for Income Tax taxpayers from April 2026 will mean some significant changes to the way many small businesses keep accounting records.
Many are going to find it a challenge to cope with MTD, in both time spent, and the additional costs of complying, including software costs, bookkeeping and accountancy costs.
MTD implementation has been deferred a number of times since it was announced and currently there are no signs of it being further deferred or scrapped. With MTD now looming we are busy working with existing clients to ensure they are MTD compliant, ready for when it goes live.
When MTD goes live, it is likely to make life more difficult for both taxpayers and their accountants, and could take a few years for everyone to adjust to the new MTD era.
MTD – DETAILS
You can read about the Governments planned MTD introduction here: Making Tax Digital for Income Tax – GOV.UK (www.gov.uk)
HMRC have more MTD detail here: Using Making Tax Digital for Income Tax – GOV.UK (www.gov.uk)
A quick brief explanation of what is coming with “MTD for income tax” is:
1) Keep records in an MTD compliant way, using MTD compliant software, e.g. Quickbooks.
2) Send updates to HMRC every 3 months (NEW), within 30 days of each quarter, so very tight new deadlines
3) Confirm end of period statements and submit year end statements
4) Make a final, annual declaration, by 31 January following end of tax year
PLUS, separate digitally complaint records are required for each business.
For example, if you run a business and are also a landlord you will need to be MTD compliant seperately in the business income and it’s records and the rental “business” and it’s records.
OUR RECOMMENDED SOLUTION FOR A NUMBER OF REASONS IS: QUICKBOOKS ONLINE “PLUS” VERSION (QBO)
We can help our clients with:
– significant discounts off the QBO list price,
– making it one of the cheaper, as well as
– better solutions
We have been keeping a close eye on MTD since it was first proposed, and it’s implementation has now been deferred three times by the Government. Covid-19 was one likely reasons but others are probably that:
a) it is the biggest single change in the UK tax system since “Self Assessment” was introduced in 1999,
b) Government has maybe realised not everyone is going to be able to cope with MTD well or easily,
c) more returns and compliance requirements will likely lead to increased costs and resources needed to use MTD, and
d) HMRC themselves are possibly struggling to be ready for MTD.
MTD is likely to increase the workload and resources required to ensure all deadlines are met. This will also likely increase costs and fees. It will put other strains on both clients and their accountants.
The filing deadline for each quarter is only 30 days from the end of each quarter, which will put a substantial strain on resources. Many accountants will want to limit the number of clients they have, to ensure they are able to cope with MTD, utilising the staff and resources they have, and the clients they are helping.
It is also likely to mean that accountants need closer than ever relationships with their clients to ensure that all queries, problems or issues are resolved, efficiently, quickly and effectively to meet the very tight filing deadlines & extra compliance requirements.
Currently, tax returns have a 9 month filing deadline, e.g. tax year end 5 April 2023 tax returns have to be filed within 9 months by 31 Jan 2024.
WHAT’S NEW UNDER MTD
However, under MTD,
a) increasing the number of returns to 4 quarterly interim returns plus a final “confirmation” return, and
b) significantly reduced filing deadlines down from 9 months to 30 days for the interim returns,
is going to pose serious challenges to many.
If you also factor in;
i) client holidays,
ii) staff holidays or time off,
iii) potential sick leave or illness for clients or their accountants and staff,
iv) practical, technical, software issues,
v) HMRC website issues (which are frequent and often poorly resolved)
vi) and other potential pressures on time and resources
All these factors mean that the risks and pressures under MTD are going to increase, significantly.
There will be PENALTIES or FINES for being late.
YOU NEED TO MAKE SURE YOU ARE READY & AND HAVE ADAPTED BEFORE MTD GOES LIVE
SOME OF THE EFFECTS OF MTD WE ARE SEEING
We are aware that some of the other local accountants, and we suspect accountants generally, are either,
i) trimming their client base or services to be able to cope going forward,
ii) increasing fees, and minimum fees significantly, to reflect the extra work required, and/or,
iii) not taking on smaller clients at all
iv) changing traditional ways of working, and
v) some accountants are retiring or exiting the industry before MTD goes live.
These are all indications of how seriously MTD needs to be taken, and the impact it is going to have.
ACCOUNTANCY FEES & OTHER ACCOUNTING COSTS
Traditionally, sole traders, landlords and other “Self Assessment” businesses have been able to expect annual accountancy fees for one tax return as year of between approximately £350 and £750 (including 20% vat). This level of fees is going to be seriously challenged by MTD for the reasons we have summarised here.
Plus, clients are likely to see increased costs for MTD compliant (and efficient) software needs, such as Quickbooks Online, which is our recommended product for a variety of carefully considered reasons, and our experience of various products.
WHAT ARE T4 DOING
a) help existing clients with implementing, and using efficiently, effectively and wisely software e.g. Quickbooks Online
b) help clients with all the new requirements that MTD will entail
c) implementing strategies to survive & thrive under MTD and other changes
d) automating many accounting & admin processes to reduce time and costs
e) help and train clients how to cope with MTD effectively
We have never previously had to limit the availability of our services to new clients.
Our recent changes are, for the most part, due to MTD ITSA coming, but today (20 Dec 2022) announced is deferred to April 2026.
Lots of changes have been, and continuing, to take place in a short period of time and that will require adapting to them.
MTD is also going to require close, good client and accountant cooperation to manage tight 30 day deadlines.
Those that adapt, change and implement the right strategies will survive & thrive under MTD.
Carefully selected new practices, procedures and systems will help manage the extra burdens of MTD.
MTD & Digital Records
At T4 Tax Limited we looked at this issue carefully and can advise clients as to digital record keeping.
We know the requirements.
T4 also have superb, market leading solutions to make keeping digital records a breeze.
Free, or cost effective, software and app solutions.
A well thought out process that brings a whole host of time saving and cost saving benefits.