Freelancers’ Questions: Are digital tax accounts for freelancers now live?

Freelancer’s Question: I’m new to sole trading but already know of one high-end freelancer who’s got Making Tax Digital records and software all in place, as opposed to a mid-to lower rate freelancer -- a bit like me, who hasn’t. So are digital tax accounts for freelancers now meant to be live?

Expert’s Answer: The answer is, ‘it depends.’

For VAT-registered businesses generating in excess of £85,000, MTD did become law on April 1st 2019. Therefore, such businesses, and that includes sole traders and their incorporated counterparts (Limited Companies), should be keeping digital records ahead of their first digital submission which is due at the time of their first VAT return. HMRC has said that for the lion’s share of affected businesses, who file their VAT every quarter, that submission won’t be until August 2019, at the very earliest. So, April 1st wasn’t a ‘cliff-edge.’

Nonetheless, there is a digital switchover that’s going on about now. We say ‘about now,’ because although April 1st was the go-live date, it’s likely not all affected traders were ready last week, as awareness levels of MTD’s commencement have been patchy.

But the switchover is not universal. For VAT-registered businesses generating less than £85,000, Making Tax Digital is only going to be required at a later date not yet specified by HMRC.

Reassuringly if you’re a trader who likes to take one (digital) step at a time, at Spring Statement 2019 the chancellor specifically confirmed that MTD will not be expanded to any new taxes or customers in 2020. Put another way, and reading between the lines, digital tax accounts will not cover taxes additional to VAT until at least April 2021.

Finally, we’d like to point out that rather than making paperwork more complex and time-consuming, MTD is designed to help you keep on top of your taxes. There will be benefits including more transparency, less room for error and ‘joined-up’ technology, resulting in you no longer needing to give the taxman certain details that he can get from other sources, such as your bank.  There are ongoing disputes over the cost that MTD will impose on affected businesses but, on balance, we think the advantages will be more than worth it.

The expert was Lee Murphy, founder of Pandle, the cloud bookkeeping software specifically for small businesses and the self-employed.


9th April 2019

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