MTD income tax certainly has the potential to be a more transformative change than self assessment as it will mean firms redesigning pretty much everything they do for clients within scope. Not just what they do, but how and when they do it, and for many, which staff are involved. But unlike the introduction of self assessment in the 1990s, this time we can test the new system on a small scale to find out precisely what is involved.
How early is early?
Early adoption of new systems and technology is frequently regarded as a ‘brave move’. There is undoubtedly a tendency to allow others to rub the rough edges off a new system before getting involved, saving a lot of time and potential heartache dealing with glitches. Certainly, those agents and taxpayers who signed up for the ‘MTD pilot’ as it was called a few years ago have had a difficult journey, which continues to be ‘sub-optimal’.
In April 2024 HMRC launched what was at the time referred to as the ‘Private Beta’. This (with a completely new sign-up process) marked a new phase of testing for MTD focused much more on the actual delivery structures within HMRC. A dedicated support team of the most experienced HMRC contact staff was assembled, and software providers geared up to have their products approved and tested.
I signed a client up in April 2024, testing the agent sign-up process for HMRC before it was opened to wider use. I’m proud that my somewhat challenging journey has led to a significant number of improvements in the service, which I was able to test in its latest phase by signing up another client in the first week of February. I would accept that most would regard this as a ‘brave move indeed’, but I really wanted to get my head around what MTD means to me and my clients. But almost a year later, I don’t think agents signing their clients up now would be regarded as brave.
What is in it for me (and my practice)?
Looking back to the commencement of self assessment, I was struck at the time by the fact that although I had spent pretty much three years teaching accountants about the new system, when I came to do my very first tax return under the new system the process was not at all as I had imagined! That was a valuable lesson – and has shaped my thinking for the last two decades; talking about it, thinking about it deeply is one thing; actually doing it is the only way to really find out what is involved and how it all works.
You are currently facing the biggest change that many of you have ever encountered in your professional or business life, and the opportunity to see for yourself what is involved is potentially transformative. Trying it out will help you to understand what changes you will need to make in your practice to deliver MTD income tax successfully.
Which year?
Agents planning to sign a client up before the end of the current tax year will be faced with a choice of ‘This year’, meaning 2024/25, or ‘Next year’ to enrol your client. Although 2024/25 is almost over, applying to include a client in the testing phase for 2024/25 allows you to test the entire MTD process end-to-end before mandation. For a client enrolled for 2024/25 in February or March 2025 this would mean:
- filing the three quarters that are now overdue as soon as possible – although note that there are no penalties for late submissions as any client enrolled now is voluntarily complying with the requirements;
- filing quarter 4 to either 5 April or 31 March (depending on whether you make a calendar quarter election or not) by 5 May; and
- finalising the 2024/25 year which is equivalent to completing the tax return that would normally be filed by 31 January 2026. The data from quarterly updates will pre-populate the return and same deadline applies.
With mandation in April 2026 for clients with gross income from mandated sources (self-employment and property income) of more than £50,000, you can see that enrolling a client (probably just one!) for the 2024/25 tax year is the only opportunity you will have to test the year end finalisation process before mandation. In that way you will have a clearer idea how everything will work before potential penalties for late submission commence (although these will be ‘penalty points’ rather than financial penalties at first).
Volunteers should be aware that the HMRC submission service allowing the reporting of other income not covered by MTD income tax requirements is currently closed and will remain so throughout 2025/26. It is not clear whether it will ever reopen for those in MTD income tax. This means that it is important to choose a product or products that will allow the completion of all necessary parts of the tax return and the finalisation of the income tax liability.
OK I’m in – where do I sign?
There are a number of steps to consider before committing to putting clients into the testing phase. For those not feeling brave enough to bring a client in for 2024/25, the same steps will apply to 2025/26 – the enlarged testing phase also known as the ‘Public beta’. Here is a walk through of the steps in the process.
- First contact the software provider of the accounting software that you / your client uses to check that their product is ready for MTD income tax and that they are willing for you to join the testing phase. Your usual customer service contact will probably be able to put you in touch with the right team.
- If you don’t already have one, sign up for an Agent Services Account with HMRC. Once you have done this, you will need to link it to your existing (old) log-in credentials so that the new computer system can access your authorised client list. HMRC refers to this as ‘copy across’, but it really just provides a link between the MTD system (called ETMP) and the old self assessment system (which is called CESA).You will not have to be reauthorised by the client.
- You will need to check that the client(s) that you have in mind are eligible to join the testing phase. MTD income tax is being built from scratch on ETMP so some of the less common income types or circumstances will not be built until later this year. HMRC has produced a list of the areas that prevent clients from signing up, but the sign-up process starts with an eligibility checker so you can just log on and give it a try.
- Once you have checked that you client is eligible, you will need to obtain your client’s approval to join the testing phase. You should not sign a client up without discussing this.
- Sign your client up – this allows you to test the sign-up process which you will need to use for all clients before they are mandated. Or this may determine that you will ask clients to sign themselves up when the time comes!
- Before submitting any updates, you may need to make a calendar quarter election. This is done through your submission software and can only be done before the quarter 1 submission is made for a particular client.
Obviously, in choosing a client to include in testing you will favour those clients who are up to date with their bookkeeping and already well used to digital record keeping. Although up to date digital recordkeeping is the biggest area of change for most clients, it is the MTD process that you are looking to test and how that effects the design of your client services. And if you decide to take the plunge, please do share your experiences with Caroline Miskin and Lindsey Wicks in ICAEW’s Tax Faculty.
