In order to better regulate general compliance, HM Revenue and Customs (HMRC) are working to digitise many aspects of taxation.
Under the umbrella scheme of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), HMRC are looking to remove paper filing for Self-Assessment tax returns.
By far, the biggest impact this has is on sole traders.
With over 900,000 sole traders likely to be impacted by the changes to MTD for ITSA, there is an increased need to dynamically respond to the changing tax reporting landscape.
The changes to MTD for ITSA are part of a staggered process, giving traders with lower incomes more time to prepare for the changes.
Over the next few years, most tax filings with be digitised as part of the Government’s desire to make tax ‘Digital by Default’.
The timeline for the implementation of MTD for ITSA is:
- April 2026 for those with incomes over £50,000
- April 2027 for those with incomes over £30,000
- April 2028 for those with incomes over £20,000
Rather than becoming stressed about keeping pace with the upcoming changes to the system, utilising MTD-compliant software can help your clients stay on top of their finances and assist with staying on HMRC’s good side.
By far, the most substantial change brought in by MTD for ITSA is the shift towards quarterly tax returns.
Rather than a single annual return, there is now a desire to cut down on the mass of processing that comes once a year and spread it out across four different filings.
As a result, it will become more important than ever to stay on top of financial records to ensure that these filings can be conducted in a timely fashion.
Missing any of these deadlines will incur a steep penalty, so compliance is increasingly important.
How can I stay compliant with the changes to MTD?
Given that there is a phased implementation of MTD for ITSA, not everyone will be impacted immediately.
However, regardless of when someone is due to be pulled into the scheme, it is imperative to plan as early as possible.
Finding the right software can be a challenging process, and then training a team to utilise it effectively can take some time.
It is also wise to allocate time to reach out to clients to inform them of the upcoming changes, regardless of when those changes are due to impact them.
Your clients will be grateful for any advanced notice they can receive regarding compliance changes so that they can rest assured that you still have their best interests at heart.
Adopting a new software solution early will also allow you to stay on top of the changes.
It is possible to automate many of the tedious processes that typically come with filing tax returns.
Good software solutions can also screen for errors and prevent inaccurate filings, which will save you the time of having to scrutinise everything manually.
Human error is often a big problem when trying to stay compliant, so reducing the risk of this is an essential part of any advanced solution.
Automated reminders can be used to follow up with clients to retrieve vital information, all the more important if that information needs gathering four times a year.
While the changes to MTD for ITSA undoubtedly place a greater administrative burden on those tasked with maintaining compliance, the emergence of advanced software solutions can be the key to staying on top of the extra workload.
As software solutions can provide a centralised compilation of essential documentation and information, they can also serve as a key to overall efficiency.
If a member of the team is ill or on holiday, someone else can pick right up where they left off and the client will never notice the difference.
The world is getting more digital and the Government seem keen to embrace digitisation as a means of improving efficiency and compliance.
You can also leap into the future by adopting a smart software solution.
Glasscubes is tailor-made to ensure that accountants like yourself can guide clients through all of their financial needs and keep them compliant with any future changes.
Don’t wait until it’s too late to adapt to the changes, find out more about our brand new MTD tool.
