At a glance
- Start telling clients now about the upcoming MTD for IT changes.
- Update your internal processes and choose the right software for quarterly filings.
- Ensure accurate bookkeeping for compliance, partnering with specialists if needed.
Next year’s arrival of Making Tax Digital for Income Tax (MTD IT) will force many sole trader and landlord clients to change their administration habits. Some will have to maintain digital records for the first time, and to submit quarterly returns to HMRC.
With the clock ticking towards the April 2026 start, accounting firms should prepare themselves and their clients for the new MTD for IT requirements. Accountants that Financial Accountant has spoken with recommend avoiding the following six potential costly and time-consuming errors.
Error 1: Delaying MTD communications with clients
Until now, many self-assessment clients have experienced irregular communication with their accountants, because self-assessment is a retrospective exercise each year. Firms often do a single year-end data request for bank statements, receipts, and invoices. Says Robert Hadden, tax manager at Onside Accounting: “Self-employed individuals typically engage just once a year, providing records and receipts often at the last minute. MTD for IT will be a big change for them.”
At Onside, he’s been preparing relevant clients for incoming changes over the past year by mentioning MTD at every appropriate opportunity. “Every time we have a conversation, if anyone is potentially going to fall into the scope of MTD for IT, we’ve been telling them the changes they need to make by April. Despite HMRC’s campaign, many clients remain unaware of the incoming changes.”
Error 2: Not reviewing pricing
MTD for IT will push many firms to increase fees for clients, as they feel the additional workload of quarterly filing obligations.
Hadden believes firms should consider the level of fee increases alongside the question of whether particular clients will do the regular bookkeeping themselves or outsource it to their accountants.
“If we manage the bookkeeping and track the income and expenses, we would charge this separately to the quarterly submissions,” he says. “However, even if clients do the bookkeeping themselves, there may still need to be an ancillary fee for us to check whether the bookkeeping is accurate to make any adjustments.” (See our full guide to raising prices without upsetting clients.)
Error 3: Retaining unprofitable clients
Incoming MTD for IT changes provide a fresh opportunity to shed unprofitable self-assessment clients, who are likely to keep draining your resources if they fall into the scope.
Robyn Milstead is director of tax at LKA Chartered Accountants and founder of the MTD Therapy WhatsApp group. She stresses that accountants must look beyond the fees charged, as sometimes staff provide additional time that isn’t billed.
“In the group, we are finding that some accountants are willing to go the extra mile for clients as they want to do a good job,” she explains. “They may wish to retain clients, but it’s important to remember that we aren’t charities.”
Milstead also points out that going that extra mile can take its toll on staff, creating overwork and stress.
Error 4: Neglecting to update processes
The new tools that firms adopt for MTD for IT filings may require many firms to re-engineer processes in line with the actual capabilities of their new software. Many will also need to pay attention to administration related to internal processes. They may need to set up recurring quarterly tasks for MTD filings and assign them to team members.
Failing to take these actions may mean firms struggle to complete filings on time and to a high standard. Says Milstead: “There is a lot of process in MTD for IT. Firms need to consider who will be doing the bulk of the new work for filings … and to update engagement letter processes.”
Error 5: Picking the wrong software tools
Practices should use HMRC’s software finder tool to assess the full range of MTD for IT options available.
The right software won’t necessarily be the same for every client. Relatively simple self-assessment clients may only require very basic software. In contrast, larger ones with more complex needs will need tools with in-depth features and connectivity to third parties.
Take Penelope Allard, director at Essex-based Wild Bookkeeping. She assesses that FreeAgent is suitable for her firm’s smaller freelancer clients, “who issue a few invoices per month and have minimal expenses”. But she says she’s using Xero for larger self-assessment clients “that have significantly more expenses”.
One Xero advantage is that it connects to Apron, the tool that Wild Bookkeeping uses for data capture. The integration helps the team to reconcile transactions and match documents.
Error 6: Underestimating the importance of bookkeeping
Due to the historical nature of self-assessment assignments, many accounting firms have not completed regular bookkeeping for these clients and don’t necessarily have the expertise in-house.
Allard believes that accounting firms that don’t specialise in bookkeeping services are at risk of maintaining subpar financial records. That may create inaccuracies that in turn cause MTD for IT compliance issues.
“Many accounting firms don’t value bookkeeping and see it as low-level data entry,” Allard warns. “I speak to many accounting firms, and they don’t understand how to make bookkeeping profitable. By partnering with a bookkeeping practice, accountants will be able to offer high quality real-time data with a solid foundation to make quarterly compliance filings almost at the press of a button.”
