4 things freelancers need to know about Making Tax Digital
Heard of Making Tax Digital (MTD) but not sure what it means for you? Here, award-winning accounting software provider, FreeAgent, explains what freelancers need to know about the initiative.
Making Tax Digital (MTD) is the government’s initiative to implement a fully digital tax system in the UK. Under MTD, affected taxpayers are required to keep digital records and use MTD-compatible software to make electronic tax submissions to HMRC.
You may have only recently heard of MTD, but a phased rollout of the initiative has already begun. ‘MTD for VAT’ requires all VAT-registered businesses to keep digital records and submit VAT returns using MTD-compatible software like FreeAgent. It came into effect for certain VAT-registered businesses in April 2019 and was extended to include all VAT-registered businesses in April 2022.
If you’re a sole trader or a landlord with a combined business and/or property income of more than £10,000 a year, MTD for Income Tax (also known as ‘MTD for Income Tax Self Assessment’ or ‘MTD for ITSA’) will come into effect for you in April 2024.
Instead of sending a Self Assessment tax return to HMRC once a year, you’ll be required to use compatible software to submit four quarterly updates about your business income and expenses. At the end of the tax year, you’ll also be required to send an end of period statement and a final declaration, which will replace the annual Self Assessment tax return.
MTD is all about using compatible software to keep digital records and make tax submissions. FreeAgent is MTD-compatible for MTD for VAT, which means that VAT-registered business owners can use it to keep digital business records and file MTD VAT returns directly to HMRC. FreeAgent already supports the digital record keeping required under MTD for Income Tax and will support the required submissions to HMRC before the legislation comes into effect in April 2024.
If the thought of taking time to learn how to use new software or keep your business records in a new way seems daunting, don’t worry. FreeAgent is designed specifically for small businesses and includes a host of helpful features that make it as easy as possible to stay on top of your business bookkeeping.
You may even find that you save time by switching to accounting software. In our 2020 survey of small business owners, customers reported that switching to FreeAgent saved them an average of seven and a half hours a month, compared to their previous bookkeeping method.