The road to Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is long and winding, but the end is in sight. From April 2024, sole traders and landlords with a total annual turnover above £10,000 need to use MTD for ITSA compatible software to keep digital records and file returns.
We spoke with Alexa Whyatt, Personal Tax Manager and Macauley Brammer, Personal Tax Senior at Best Accountancy Services (Plymouth) Ltd, who have successfully onboarded five clients using Xero’s MTD for ITSA product. They talked us through their MTD journey so far.
First, how did the team get started?
Alexa says, “We began our MTD for ITSA project in February this year. January tax returns were out of the way, so we got our heads together and started with client segmentation. From this, we highlighted ten key clients, a mix of straightforward and more difficult cases – those with shoeboxes full of paper – to really test it.”
The team has so far gone ahead with five of these clients. As for how they began conversations, both Alexa and Macauley are adamant about the importance of banging the MTD drum.
Macauley says, “We tried to discuss it as soon and as often as possible, whether that’s through emails, phone calls or face-to-face conversations. We even added short MTD summaries to tax returns. Clients need to know this is coming – communication is a vital part of MTD for ITSA.”
Answering tough questions
Alexa is clear, however, this wasn’t all plain sailing: “We often hear from clients, ‘What’s it going to cost me?’ or ‘I can’t do this because I’m bad with technology’.”
She explains that there will be a period in which costs are higher for clients, namely in the transitional year when practices will essentially be doing double the work.
Alexa adds, “We’re very engaged with the goal of MTD for ITSA, but that transitional year will be a challenge for overworked practices and clients who will need to pay more, albeit temporarily.”
Getting onboard with Xero
Despite these concerns, Alexa and Macauley are both convinced of the value of MTD for ITSA in the longer term. This is why, after a series of targeted emails, follow up calls and a degree of hand holding, they onboarded five clients to MTD for ITSA, using Xero.
Macauley explains, “The process of working with Xero and onboarding clients is great – we can already see they’re engaged. Communication has been excellent, and any changes we request are made straight away. The Xero team has been extremely helpful, even speaking to HMRC on our behalf.”
Alexa elaborates, “With MTD for ITSA you can use a range of products, but we’re keen to stick with Xero. We know it, we understand it, we love it. Xero does everything we need it to.”
As for surprises during the process, Alexa describes the level of detail required from HMRC when signing into the agent services account. “This required a lot more information than we expected. We got through it smoothly, but this is definitely something to be aware of.”
Discussing the benefits of MTD for ITSA, Alexa says, “MTD for ITSA means we can process more and take on more clients. There will also be less ambiguity over receipts, while the ability to access real-time figures will help landlords, sole traders and their accountants understand their taxes better.”
Macauley continues, “For clients, we explain they’ll have a much more immediate handle on what they owe at any time in a year. While this may invite more questions for the practice, it will help them gain a greater understanding of the process.”
Efficiency is another big benefit, according to Alexa: “Using software, the process should tick along nicely. No more shoeboxes.”
Asked whether they’re encouraging more clients to get the process underway, Alexa says, “No encouragement is needed. We explain they have to take this up, and it’s our job to smooth the process. We have fantastic software, we’re using Xero’s MTD for ITSA beta product, and we’re ahead of the game. We’ve got your back.”
Tips of the trade
Finally, the team at Best Accountancy Services (Plymouth) Ltd share their tips for other practices. Macauley explains, “First, If you’re not looking into it already, do it now. We’re always amazed to hear practices haven’t started yet. One of our stated aims is to get every client on software by the end of March 2023.”
He adds that practices have to do their due diligence on the legislation. “You need to be able to offer technical guidance, so know your subject. Also, make sure you have a plan and work towards it. Understand segmentation, what you’ll agree to, and have a set timeframe.”
Alexa concludes, “Understand costing. Everyone – your clients, your boss – will ask what this will cost. Do you need more staff, more clients, or new IT resources? This could be a very successful project if you get the costing right. If you get it wrong, it could be disastrous. This is one of the reasons we’re taking part in Xero’s MTD for ITSA beta – it helps us understand how this will look in two years.”
Find more information about how Xero can help your practice prepare for MTD for ITSA.