**This page was updated on 23rd September 2021 following the government's announcement of a revised timeline for Making Tax Digital for Income Tax Self Assessment. See untied's response to the announcement here**
You’ve probably heard that Making Tax Digital (MTD) for Income Tax self-assessment (ITSA) will be mandated from April 2024.
If you’re reading this, you may also be wondering, “What do I need to do for making tax digital?”, or “What will MTD mean for my clients?”
These are some of the questions we hear a lot at untied, so we’re here to give you the full low down on MTD for ITSA.
untied has been innovating in this space as the first end-to-end software recognised by HMRC for Making Tax Digital for Income Tax and we’re working with accountants on our MTD early adopter programme. Our adviser portal has been co-designed with accountants, specifically with MTD in mind.
This next phase of MTD will impact on more taxpayers than any of the previous MTD phases, so it’s important to get on top of all the details…so, read on to find out everything you need to know about Making Tax Digital for Income Tax (and as we say, don’t be afraid to ask!).
What is Making Tax Digital (MTD)?
Making Tax Digital is at the core of HMRC's strategy to use technology to streamline the compliant reporting of taxes. It’s part of a digital journey that’s been unfolding since 2015, when Chancellor George Osborne announced ‘the death of the annual tax return’ and it started with MTD for VAT which began its pilot program in 2018.
MTD places mandatory digital record keeping requirements on businesses and introduces quarterly reporting requirements. Making Tax Digital for Income Tax self-assessment (ITSA) is the next phase of MTD and this will be mandatory for certain taxpayers from April 2024, but it’s already available in pilot form.
After MTD ITSA, MTD for Corporation Tax is also coming, but not before April 2026 (at the earliest) with a voluntary pilot expected to start well before then.
What are the objectives of MTD?
HMRC has said that the main goal of MTD is to make the tax administration more effective, more efficient, and simpler for taxpayers. It is part of a longer-term ambition of HMRC to become one of the most digitally advanced tax administrations in the world.
What does MTD mean for accountants, bookkeepers and advisers? Will MTD be more work?
For some advisers and clients, MTD ITSA could mean more work – it will certainly involve more reporting. That’s why it’s particularly important to use software that makes things as smooth as possible. Instead of boxes of receipts, untied have developed a solution that brings in data from clients’ bank transactions and other sources automatically, with a quick intelligent interface to tag them and submit straight to HMRC.
Is Making Tax Digital compulsory?
MTD for Income Tax will be mandated for businesses and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.
General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.
What does it mean for your clients?
Three things to know for advisers’ clients:
First, they’ll need to keep digital records. This could be as little as an Excel spreadsheet. Though we’d argue that you would want to use this as an opportunity to move everyone to something that makes everything run more smoothly, with data brought in automatically from bank accounts and other sources.
Second, quarterly submissions will be required. And unlike for VAT (where at least there is some staggering of dates), these quarterly submissions will be due at the same time for all MTD taxpayers. Recognising that this could create peaks and troughs around each deadline, you should look for software that automates the process and is able to bring in data for advisers on a continuous basis, allowing you to work on a client’s affairs at a time that suits you.
Third it’s only after the end of the year when a final – and fifth – submission is made that the actual business records are ‘crystallised’. This is where tax information that is annual is reported (such as mortgage interest which may be dependent on a statement from a lender). Other income will also be declared at this point.
Who is exempt from MTD for ITSA?
For those businesses that exceed the £10,000 turnover threshold there is very little chance of being exempted from MTD for any periods beginning on or after 6 April 2024, and if the proposed basis period reforms mentioned elsewhere in this article become law, then effectively all unincorporated businesses will be within MTD ITSA immediately from that date.
HMRC have indicated that those who are ‘digitally excluded’ may be exempted from the MTD ITSA rules, in a similar way to MTD for VAT, but we’ve yet to see the final details of how this would work in practice.
Will HMRC provide free software for MTD?
HMRC will not be providing the software for customers to make MTD submissions. In fact, it won’t be possible to make an MTD quarterly submission direct to HMRC - all taxpayers making an MTD submission will need to use an external software provider.
This is part of HMRC’s strategy for building a modern tax system that involves the use of third-party software providers to align their systems more closely with those of HMRC, in order to offer new and innovative services. Therefore, by design, MTD relies on third-party software providers (like untied) to offer the relevant software solutions for customers.
What is the timetable for the MTD ITSA roll-out?
MTD ITSA will be mandated for self-employed and property landlords turning over more than £10,000 from April 2024.
General partnerships will be required to join MTD for ITSA from April 2025, while dates for other types of partnerships are still to be confirmed.
At the moment, MTD ITSA is in early beta with HMRC. untied is one of HMRC’s recognised partners working with the tax authority and both our agents and their clients are taking part in this.
HMRC have put some limitations on eligibility for whom can join this phase of the MTD ITSA program. For example, if your client has received SEISS support, is only recently self-employed, or has multiple income sources, they may not be able to take part.
By April 2022, MTD ITSA will be opened up to more taxpayers, with significant take-up expected in 2022/2023, before it is mandated in April 2024.
MTD for Corporation Tax is also coming, but not before April 2026 (at the earliest). A voluntary pilot scheme for MTD for Corporation Tax is expected to be in place sometime before this date too, but an exact date for that has not yet been announced.
Does MTD ITSA require a year-end to coincide with the tax year?
HMRC recently published a consultation about changing basis periods to align with the tax year. The outcome of this consultation will determine how matters like this are dealt with. untied responded to the consultation about basis period reform, but we’d still love to hear your thoughts on this.
The best software for MTD ITSA
We could just say untied is the best (of course) and be done with it.
But we know there can be a number of different platforms to choose from. The key is to think about software that works for both you and for your clients. It’s important to get it right.
Take a look at our comprehensive guide to finding the right accounting software for MTD ITSA
Consider that you'll want to find software that is easy to use, can adapt to your practice, and provides five star support when you need it. You want to work with a company that listens to you, is quick to respond to new ideas and can develop those together with you.
Both you and your clients will want to be both happy well ahead of the MTD changes.
How does untied stand out?
untied is built first and foremost to be a next generation personal tax platform for end users and their advisers. We designed untied working closely with both accountants and their clients and are constantly making improvements based on their suggestions and around what their needs are.
We were also the first end to end app recognised by HMRC for Making Tax Digital for Income Tax.
"untied is far ahead of others in the market, with an MTD ITSA-ready platform that helps me help my clients. All the data I need is there in real time. It's quick, efficient and a pleasure to use"- Paul Basham, Chartered accountant and owner Lighthouse Accounting Services
Does untied only use bank account data?
untied integrates into multiple data sources – including pulling data from HMRC about your clients. Whilst linking your clients’ bank accounts securely via Open Banking can be the simplest way to gather the data needed, if you have prepared information outside of untied, it can easily be added as a manual transaction or uploaded via a comma separated value (CSV) file.
Don’t worry, we make it as easy as possible for both you and your clients.
Do I need to wait for MTD ITSA before using untied with my clients?
No. You can use untied with your clients today and we’re finding that a lot of accountants are already doing so, helping their clients get used to keeping digital records, so the transition to MTD is smooth.
We guarantee that you’ll find untied quicker and easier than current self-assessment processes, setting you and your clients up for the migration to MTD ITSA when you’re ready.
What else does untied support?
untied supports multiple income sources, and other requirements including:
- Employment income
- Property income (including FHL furnished holiday lets)
- Self-employment (trading) income
- Pension income
- Investment income
- Capital gains
- Residency forms including for non-resident landlords
What does untied offer me?
Advisers that sign up to untied are supported with a full project managed service that includes:
- A return on investment calculation for your practice
- A project plan for implementation
- Integration with your existing system
- Internal communication to your team
- Templated client communications
- Internal training awayday
- Client training
- Onboarding with HMRC
- Migration timetable
- Migration to MTD ITSA
- A personalised landing page on untied’s website
- Five-star ongoing support for you and your client
How do I migrate my clients?
Speak to untied about how we can help migrate your clients, including a managed bulk migration option.
How does untied transform the profitability of my practice?
We have been working with accountants, bookkeepers and other advisers over the last 18 months in preparing for MTD ITSA.
We know that for many advisers, the amount of work associated with the smallest clients mean they can easily be loss-making. Just think of all the chasing that you do. untied takes care of this automatically, allowing you to get on with other things.
Using untied, you can increase chargeability, identify opportunities to help clients, and reduce the cost of running your practice. We try to give you back time in your day so you can spend it on whichever side of the work/life balance you want.
"With untied my clients can link their bank accounts and import transactions saving us hours when preparing tax returns" - Stephen Barker, owner of Martin Brook Business Services
Is untied so easy that my clients don’t need me?
Your clients trust you to be their business adviser and to help them get things right. They know that you help them and their business to get their taxes right. You didn’t study for years to rekey data from receipts into Excel.
With untied, you can set up their systems to run smoothly, automate rules, and use the capability of the agent view to spot things that they can do to improve their business and reduce their tax bills.
You’ll also be part of the untied adviser community, sharing ideas and advice to make your practice run better.
How do I stay up to date on Making Tax Digital?
We hope this article has given you a good overview of what to expect from MTD for ITSA. untied will be posting regular updates as we move closer towards full MTD ITSA adoption.
Don’t miss any updates by signing up to receive our MTD newsletter or register for our MTD early adopter program. We hope you will join us on this journey!
As always, untied is here to help you with every step so please don’t hesitate to contact us if you have any questions.