Let’s start this with another question. Should you be talking to your clients about Making Tax Digital for Income Tax? Guidance around it is still fairly generic, so it’s difficult to offer clients much in the way of detail.
But, with the internet slowly filling up with articles rehashing what little is known about it, clients are likely to start worrying if there’s something they’re missing. There are some steps that you can take now, to help pre-empt the flurry of worried clients.
Explaining MTD for Income Tax to clients
MTD has been industry news for a while, but for some clients the rollout for income tax might not feature on their radar.
HMRC describe Making Tax Digital as a paperless, entirely digital way of submitting tax returns in order to streamline the process.
MTD for VAT
The initiative has been in motion since April 2017, with Making Tax Digital for VAT being rolled out in April 2019. From the 1st April 2021 MTD for VAT will be mandatory for a business’ first VAT period. This is a deadline which has recently been extended in light of the Coronavirus pandemic, though businesses can volunteer for MTD rules now.
MTD for Income Tax
The move to MTD will eventually leave behind Self Assessment returns and instead, records will be kept and regularly submitted online using software.
The information is sent directly to HMRC from the software, avoiding the need to send a separate Self Assessment tax return.
Businesses can start to follow MTD for Income Tax rules voluntarily, but for self-employed businesses and landlords whose business income is above £10,000 the rules become mandatory for the accounting period which starts on after 6th April 2023.
Helping clients understand what MTD for Income Tax means for them
The biggest concern for accounting clients will be understanding what the changes mean for them. Though the details of exactly how everything works aren’t yet available, it might help to explain the benefits, as well as things to consider now.
How clients can benefit from MTD for Income Tax
- A much quicker, more efficient way to file and submit information to HMRC
- Less data entry reduces the risk of data entry errors
- Automated reminders
- Year-to-date overview of how much Income Tax is owed
- Becoming paperless helps boost a business’ sustainability efforts
- Reduced risk of unexpected compliancy checks from HMRC
Cost to them
According to HMRC, the average cost to those making the transition to Making Tax Digital is predicted to be around £280. Whilst it costs nothing to actually make the move over, some businesses might find there are training and software costs involved.
For those clients already using an MTD compliant software like Pandle, there will be minimal change in terms of the services they are using. However in order to sign up to MTD for Income Tax, taxpayers will need to have access to a compatible software before they can register.
Helping clients prepare for the transition to MTD for Income Tax
Introduce them to compatible software now
There’s no time like the present and getting your clients familiarised with MTD software features now will only benefit you both in the long run. If you or your clients are already using a compatible software, get in touch with the provider to find out when their Income Tax features will be rolled out.
Let clients know what they need to do to comply
In order to comply, your clients will need to have access to compatible software, sign up, keep and submit digital records, submit Income Tax updates every 3 months and then submit a final declaration (including personal income and relief) on an annual basis.
Make the move voluntarily
At the moment, MTD for Income Tax isn’t mandatory but will be for a business or individual’s next accounting period that starts either on or after April 6th 2023 (if the taxable income exceeds £10,000). However, taxpayers are able to sign up to MTD for Income Tax voluntarily as of now – something we recommend doing to make the transition a smoother and more gradual one for both you and your client(s).
Establish if your client qualifies for exemption
Making Tax Digital will apply to a vast majority of businesses and individuals, with the eligibility criteria expected to expand as the initiative continues to roll out. However, HMRC have acknowledged that there will be some taxpayers that might qualify for exemption from MTD.