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MTD for ITSA: Five practical tips for accounting practices

Stuart Miller

Stuart Miller

Aug 12, 2021

This article was updated on Thursday 21 December 2023.

General Elections, referendums and a global pandemic have thwarted HMRC’s attempts to launch Making Tax Digital for Income Tax Self Assessment (MTD ITSA) since 2015. I remember the Chancellor at the time, George Osborne, saying the words: “We will abolish the annual tax return altogether” as he announced the biggest change to the tax system since self assessment was introduced.

On 23 September 2021, it was announced that MTD for ITSA would be delayed a further 12 months with a go-live date of April 2024 where all businesses and landlords with combined turnover exceeding £10,000 will have to report digitally under the new rules.

Then in December 2022, the UK government announced a further delay. As things stand, MTD for ITSA will be phased in from April 2026 instead of 2024. Landlords and self-employed people earning above £50,000 annually will need to follow MTD for ITSA rules from April 2026. Those earning above £30,000 will follow in April 2027.

These businesses and landlords will be required to submit quarterly updates to HMRC using MTD compliant accounting software or a bridging tool, providing summary information of income and expenditure for the quarter. After the fourth quarter, a final declaration including other sources of taxable income such as savings and investment income will also need to be submitted.

As much as some accountants want MTD for ITSA to disappear, we have to face the reality that it’s still coming, even if it is later than we thought, from April 2026. And it’ll largely be down to accountants and bookkeepers to hold the hands of clients to get them ready.

With that in mind, it’s time to get your practice ready for MTD for ITSA to avoid a significant burden in April 2026. Below are some ideas we’ve seen successfully implemented by Xero partners.

Prepare your practice for digital record keeping

We want to remove one of the early myths of digital record keeping: you do not need to keep all invoices and receipts digitally. It is only the business transactions that must be recorded in a digital form, whether that’s in accounting software or a compatible spreadsheet.

The use of software will be advantageous for a number of reasons, including the use of bank feeds that pull through accounting data on a regular basis. You can then use bank rules to do a large amount of work for you. This will make the quarterly reporting less time consuming and should lead to less human error.

Spreadsheets may play an important role in MTD for ITSA, but you need to ask whether the upkeep of these spreadsheets is going to cause an administrative burden when it comes to quarterly reporting. Accuracy of these spreadsheets will be essential for digital record keeping where formulas must be used for calculations and the ‘cut and paste’ function does not meet the digital link requirements. If spreadsheets are used, we’d suggest creating a proforma for the firm so there’s a consistent layout across all clients.

Prepare your clients for digital record keeping

An important exercise to complete now is to segment clients to identify those who are already keeping digital records, those maintaining spreadsheets, and those who still keep manual cashbooks or drop a bag of paper receipts to you once a year. This will help to identify clients who may need extra guidance in the early transition stages to MTD ITSA.

You can also see what software your clients are using and whether your team needs further training to assist with future queries.

This segmentation will then allow you to create a migration plan for all clients between now and MTD for ITSA mandation, rather than having to do this for all clients in April 2026.

Consider registering early

It will be possible to register clients for MTD for ITSA well in advance of the April 2026 start without having to be an early adopter. By doing this, you will remove a potential bottleneck of work in April 2026 if you choose to register all your clients at the same time. This will remove a significant administrative burden accountants had with registering clients for MTD for VAT.

Think about the opportunities for MTD

There is no denying that MTD is going to cause a number of headaches and issues. However, many Xero partners see it as an opportunity to not only modernise their practices, but also provide added value work to their clients.

Having access to real-time information relating to a client’s business records allows informed decisions to be made for valuable services such as tax planning.

Some partners have also welcomed the introduction of quarterly reporting to reduce the January tax rush because they will already have a majority of information available to them. 

And while we shouldn’t celebrate that the accounting profession has finally reclaimed January, digitalisation should hopefully reduce the amount of midnight oil burnt in January each year.

Know that Xero has you covered

Xero is committed to supporting our partners with MTD for ITSA. Xero Tax can be used for personal tax (as well as company accounts and tax), so you can start using Xero for your self assessment clients ahead of MTD for ITSA. This will make it a more simple transition in the lead up to April 2026. 

Xero is also committed to providing solutions for our partners for the entire MTD programme, and we’ll support MTD for Corporation Tax when it becomes mandated.

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