Making Tax Digital (MTD) is HMRC’s initiative to make the UK tax system effective and efficient in today’s digital world. MTD is intended to make life easier and to file tax returns more accurately for the taxpayer.
Currently, it is now mandatory for all VAT registered businesses with earnings above £85,000 and businesses that are voluntarily registered for VAT, to comply with MTD for VAT rules.
However, MTD is set to move forward with HMRC’s plan to roll out MTD for other types of tax, such as Income Tax and Corporation Tax.
Similar to MTD for VAT,
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will introduce a new, more efficient way of reporting earnings to HMRC, replacing the existing Self-Assessment tax return for many taxpayers.
Since most freelancers submit details of their income through Self-Assessment, it’s big news for the freelance sector.
These plans are set to impact freelancers with a taxable income above £10,000 a year from April 2024. If this applies to you, you will be required to keep digital records of your income and expenditure on MTD-compatible software, from April 2024. This software will be used to send quarterly updates on their business income and expenditure to HMRC in addition to an end of period statement by the end of January following the tax year (EOPS) for each income source to finalise the reporting. This will replace self assessment tax return for many people but the requirement to pay any tax liability by 31 January will remain. This information should provide freelancers with a year-to-date summary of the tax owed.
It’s recommended that freelancers start thinking about digitalising their records now, rather than later.
Choosing an MTD Compatible Software
To comply with MTD for ITSA rules, freelancers will need to choose a MTD-compatible software, such as
QuickBooks,
Free Agent or
Xero. These software packages use API technology to send information directly to HMRC. We can help you find the right software that best suits your business with our
Cloud Accounting services and dedicated cloud accounting in-house team.
If you’re wondering how MTD for ITSA may affect you or your business,
contact us to get in touch. We offer a free initial consultation.