So lets start with the basics regarding what is likely to be the most talked about topic in regards to Accounts / Self Assessment over the next few years.
What is MTD ITSA?
MTD ITSA is a pseudonym for Making Tax Digital for Income Tax Self Assessment. It’s the new rules which are going to come into force in April 2024, which will effect every person who is Self-Employed or a Landlord who has a TURNOVER (Not profit) of over £10,000. In my opinion, that’s going to be pretty much everyone who is Self Employed full time, and everyone who is a Landlord with more than maybe 1 rental property. Therefore, this is going to impact millions of taxpayers!
What do I have to do?
New laws will come into force that require everyone who falls into the above category to file a quarterly return with HMRC. Whilst many of you are thinking “that’s easy, my accountant will take care of that”, in order to file, the return will need to go from MTD Compliant Software, so those of you who normally hand your accountant a box of receipts each year, even providing spreadsheets, your days are numbered!
How can I avoid it?
In simple terms you can’t. You could stop trading self-employed, or sell your rental property (which by the way the CGT submission also needs to be in 60 days from the sale – no more leaving it to your Self Assessment Return). Therefore, it’s as inevitable as paying taxes.
So I’m resigned to have to do it – what should I do?
This part is where it becomes about mindset. Either you can be dragged kicking and screaming to have to become a forced bookkeeper, learn new systems, and comply with legislation – or…..you can take the opportunity to upgrade your business, look at the efficiencies that electronic record keeping can bring you, and embrace that you’ll be able to get reports on business performance and be able to make changes to your business based on the finances – both of these involve the same thing, but depending on your mindset will depend if you can enjoy the changes or moan about them – either way, you need to do it regardless.
What will my accountant do?
Well, that depends on your accountant. If you have one who has enjoyed doing the same thing they always have for the last 20 years and hates change, I’d speculate they will retire because of MTD ITSA / Making Tax Digital for Income Tax Self Assessment. However, assuming they are going to embrace the change, the only options they have is to either increase your fees and effectively “do a simplified version of your Self Assessment” each quarter and increase your fees accordingly. Alternatively, they could train you how to do this work yourself, but unfortunately learning everything about Self Assessment is a difficult thing to teach – even a competent bookkeeper with years of experience can shy away from tax returns. I believe the best option for accountants is to find a hybrid route, whereby the client uses a good cloud based system (for example Xero), and the accountant and client work together to decide who will do which duty, and the accountant will file the MTD ITSA submissions. Whilst this will result in a large bill over a year, you should see the fee for the Self Assessment Return reducing because the information is being checked and submitted each quarter anyway.
If you’d like to discuss this, or find out more about the services we offer, click here