What freelancers need to know about Making Tax Digital
Making Tax Digital was an initiative announced in the March 2015 budget, as part of a pledge from the UK government aimed at 'making tax easier'. By 2020, the tax return as we know it won't exist and all businesses will need to submit regular tax summaries digitally.
FreeAgent surveyed over 500 microbusinesses in 2016, and 43% were not aware this change was coming, so here are the key points to be aware of:
Everyone will have to file digitally
Once Making Tax Digital is fully rolled out, HMRC will require businesses to use accounting software or other 'digital record-keeping software' that can link to HMRC's digital accounts. It won’t be providing its own bookkeeping/accounting software, and instead will be relying on software providers like FreeAgent to provide tools.
Info will be required at least quarterly
Businesses will need to send 'summary information' about their income and expenditure four times a year, or more frequently if they prefer. HMRC is hoping that this will be a simple thing to do, since all of the business’s bookkeeping information would already be held digitally.
£10,000 threshold for sole traders and partnerships:
At the moment, HMRC is proposing that Making Tax Digital would only apply to sole traders and partnerships with a turnover or annual income above £10,000. It is likely to also apply to limited companies, but we don’t have the details yet - HMRC has promised a separate consultation for limited companies and their directors later this year.
Optional voluntary payments
HMRC isn't planning to change the current tax payment dates, but is proposing businesses have the right to make 'voluntary payments' towards their tax liabilities throughout the year. This will mean businesses can decide how often and what amount they want to pay, offering them more flexibility.
New penalty system for late filing
HMRC is proposing to get rid of the current penalty system for late submissions of tax payments. Instead, it would change to a 'points' system (similar to driving licence penalty points) and a financial fine would only be imposed when the points reach a certain number.
For more information on Making Tax Digital, you can read the consultations, or join the Making Tax Digital discussion on FreeAgent's website.