Making Tax Digital Network Freelance

 

If it had been announced in the Spring 2016 Budget, it wouldn't have been a surprise it getting lost and being buried amid all the EU referendum campaigning, result and subsequent fall-out, but a new policy change - very, very important to freelancers - was actually announced in the previous Spring Budget, in 2015, that has really slipped under the radar.

And still a surprising number of freelancers are unaware what this initiative is or what it entails. We are talking about 'Making Tax Digital'.

A recent survey found that over 40% of freelancers and small businesses had no idea what Making Tax Digital is.

As this is something that will significantly change the way we manage our finances and do our accounting, so here are 5 things freelancers need to know about Making Tax Digital.

 

1. It's the end of the paper tax return

Essentially, 'Making Tax Digital' does exactly what it says on the tin. HMRC is introducing a system where all tax reporting is done online, digitally - its slogan is 'Making Tax Easier - The end of the tax return.'

When the system is fully rolled-out, all businesses will be required to use accounting software that is compatible with HMRC's digital accounts. Online reporting will be a requirement and paper records will become a thing of the past.

  

2. Information will be sent to HMRC four times a year

Don't panic! This doesn't mean that freelancers will need to file a quarterly tax return! Instead what is described as 'summary information' will need to be provided to HMRC regarding income and expenditure. In theory, this shouldn't be an onerous task as freelancers will already have their accounting information stored digitally.

 

3. £10,000 threshold

At the time of writing, HMRC is proposing that the new arrangements will apply to sole traders and partnerships with an annual income above £10,000. No proposals are currently available for how it will affect limited companies, but the likelihood is that it will also apply to those that trade in this way.

 

4. Optional payments

The current tax payment dates look likely to remain, but HMRC is proposing that freelancers will now be able to make voluntary payments towards their overall tax liabilities at any point during the year. In theory, this means you could pay your tax every month if you so desire.

 

5. Penalty point system

Of course, it's no surprise that HMRC have considered what to do with those who do not comply. But there is a change ahead - the current penalty system for late submission of tax payments will change to a points-based system. This will be quite similar to the point system that applies a driving licence. Fines will only be incurred when a certain number of penalty points are accrued.

  

The roll out has begun

Making Tax Digital has actually already begun in earnest. The roll out of digital accounts for every individual taxpayer has begun, although digital tax filing isn't expected to begin until April 2018.

Details of Maxing Tax Digital have been sketchy so far (and they still are), but HMRC has now begun a period of consultation, which runs until November and all freelancers can take part in the consultation.

For more information, and to get involved in the consultation, visit Making Tax Digital: consultations 

We see this actually as a positive measure by the HMRC. Reporting quarterly ensures that you are on top of your finances and with companies like 1-Tap making life so much easier for freelancers with their FREE 1Tap APP, it couldn't be easier to manage.