The Making Tax Digital (MTD) pilot scheme was launched for self-employed people in March 2018, with plans to roll it out further. Although the MTD timeline was delayed by the pandemic, from 1 April 2022, it will be something that all VAT registered businesses and their accountants need to get to grips with for their next VAT period.

What is Making Tax Digital?

MTD is at the core of HMRC’s efforts to become one of the most digitally advanced tax administrations in the world. The aim is to make life easier for business owners, accountants and HMRC by improving efficiency and making it easier to comply. It should give a more up-to-date picture of finances and tax owed, as well as making submitting tax information and bills simpler and easier.

The updated system means that digital tax records will be kept, and a tax return will be submitted every three months as opposed to paper-based accounting records and an annual tax return as is widely the case now.

When is MTD happening?

Digitisation of VAT, income and corporation tax is rolling out at different stages, which makes onboarding clients to the system easier in some respects, but also risks confusion. Accountants need to ensure they are certain of the key dates so that they can prepare their clients for the changes ahead of time.

April 2022 – MTD is already a requirement for VAT registered businesses with a taxable turnover of more than £85,000 and is available on a voluntary basis for any VAT registered company. However, from 1 April 2022, all VAT registered businesses will have to switch to the new system from the first VAT period on or after that date.

April 2023 – MTD for income tax will come into effect from 6 April 2023.

Originally only a requirement for sole traders and landlords earning more than £10,000, HMRC has confirmed that this is now the effective date for all unincorporated businesses.

April 2026 – MTD corporation tax is still in the consultation and design stage, but it is anticipated that this will come into force for limited companies from 2026.

How accountants can support clients as tax becomes digital

Beyond MTD for VAT, information on the processes is fairly limited which makes coaching clients through it tricky. In some cases, the client will already know as much as the accountant. However, there are some steps that finance professionals can take to make the transition smoother, both for themselves and for clients.

Prepare clients as early as possible

Accountants should inform clients of the changes early and help with any queries or doubts that they may have as soon as possible. Doing this creates time for clients to become accustomed in good time and allows accountants to inform clients in small batches so that any issues can be ironed out in a manageable volume.

Introduce clients to digital record keeping

Recent research carried out by The Accountancy Partnership revealed that almost one fifth (18%) of small business owners use a paper filing system for their finances, one in 10 (10%) keep their receipts and documents loose in a drawer or old shoebox and 8% use their phone to keep records.

This shows that MTD is going to significantly change the way that many business owners keep their records, so by introducing clients to digital record keeping sooner, accountants can acquaint them with the procedures involved in bookkeeping this way. This could involve setting up processes in which clients supply their information to their accountant for digital bookkeeping, or introducing them to the benefits of bookkeeping software.

Prepare a FAQ list

By making an MTD FAQ page available to clients, accountants can preempt any queries that they anticipate many clients having, minimising the need to answer the same questions multiple times so that clients can get answers immediately.

Communicate to educate

The most important thing throughout the MTD process is to communicate clearly with clients and keep them in the loop as the scheme develops. No one wants to be bombarded with emails, but by using email marketing tools such as MailChimp, clients can be segmented so that they are only receiving information that is essential to them – unincorporated sole trader businesses, for example, do not necessarily need to know about what is going on with MTD corporation tax.

By communicating proactively with clients and sharing resources such as blog posts or a list of FAQs, clients will feel as though they are being supported by their accountant, making the switch to MTD seem less daunting, which is key.

Overall, accountants should avoid leaving the management of their clients’ taxes becoming digital until they are up against deadlines. By starting communications and offering relevant, useful information and training as early as possible, the transition to the modernised system will become much simpler for accountants and clients alike.