Everything you need to know about HMRC’s Making Tax Digital programme

The first pilot for the Making Tax Digital (MTD), Income Tax Self-Assessment (ITSA), begins on 22 April 2024. Here’s what businesses, landlords and accountants need to know, and how they can prepare for the upcoming changes.

In the coming years, we’ll be stepping into a new era of tax filing, one marked by a shift from traditional paper-based processes to a digital-first approach. HMRC’s MTD initiative is at the heart of this transformation, aimed at addressing inaccuracies that previously resulted in substantial losses to the exchequer, estimated at £8.5 billion for the fiscal year 2018/19.

This move isn’t just a change in process; it’s a reimagining of the tax system to be more transparent, efficient and easier to manage for VAT-registered businesses and individuals generating over £30,000 annually from business or property income from April 2027. These changes are poised to bring operational improvements and encourage a more collaborative approach to managing taxes.

Key changes in HMRC’s MTD ITSA

Here are five key changes that ITSA tax filers should know about — gathered through ongoing conversations with industry experts and a careful examination of the upcoming updates:

1. Eliminating duplicate efforts. The removal of ‘End of Period Statements’ addresses the community’s feedback and helps move toward greater simplification and efficiency.

2. Easing the joint landlord burden. HMRC has simplified the reporting requirements for joint landlords, acknowledging the administrative and logistical challenges posed by the previous approach.

3. Automatic exemptions for unique circumstances. For individuals in unique situations, such as foster carers or those without a National Insurance Number, HMRC has now instituted automatic exemptions. This move simplifies the process for individuals who previously were required to apply for exemptions.

4. Facilitating multiple agent interactions. HMRC have committed to accommodating for multiple agents who manage various aspects of a client’s financial affairs, for greater flexibility and efficiency.

5. Simplifying submissions with cumulative reports. The transition to more cumulative, quarterly submissions is a new step toward a more agile and accurate tax filing system — freeing taxpayers and accountants from the sequential submission process and needing to resubmit previous quarters where corrections are required.

Helping clients prepare for these changes

The role of the accountant is increasingly evolving to include strategic business advisory services.

With the upcoming MTD changes, accountants may be asked to play a crucial role in preparing clients, answering questions, solving problems and offering guidance through the transition period. Here are some ways accountants can prepare:

• Become familiar with MTD-approved software and tools. Accountants should first familiarise themselves with the digital tools and software options approved by HMRC for digital tax filing. From there, they will be better prepared to assist their clients in selecting the MTD-compatible software that best fits the size and complexity of the business, as well as the client’s technical capabilities.

  It’s also helpful to understand the options available that comply with digital record keeping. Digital records can be maintained in spreadsheets if the data within them is transferred to submitting software via digital links and not manually re-keyed.

• Provide training sessions or resources. Accountants can help clients set up new software and learn how to use these new digital tools. Training sessions can help ease the transition from traditional paper-based systems to digital records, and it will also help make the future filing process smoother.
• Stay up to date. Accountants should help clients plan ahead by understanding and adapting to new submission schedules. They should also continuously stay informed on further developments and updates from HMRC, to keep clients appraised of the most recent and relevant information.

The road to a digitised tax system

Although there will be challenges ahead, the recent changes aim to improve efficiency and accuracy — reducing manual data entries and cutting down on the number of human errors associated with traditional, paper-based systems. Digital interfaces can guide users more effectively, reducing the chances of mistakes from misinterpretation of complex tax laws.

For accountants, this shift toward digitisation could also be a step toward regaining some clarity and control of client accounts. For instance, digital record keeping and real-time access to financial data — that can be made visible to both to the client and their accountant — might help prevent surprises at the end of the financial year and support better financial planning.

The notion that a single approach could suit every client is a misconception. Many clients are proficient with digital bookkeeping tools, yet some still approach tax season with a box brimming with receipts. The crux lies in identifying and implementing a tailored solution that aligns with the unique needs and proficiency levels of each client, especially before regulatory mandates come into effect. This requires careful planning and a good understanding of the options available.

By Jenny Strudwick, Product Director at IRIS Software Group

IRIS Software Group will be exhibiting at Accountex London at stand 940 on the 15-16 May 2024 at ExCeL. 

You can register for a free ticket here.

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