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What does Making Tax Digital mean for self-employed?

  • 4 min read
  • Last updated 20 Sep 2022

Calling all self-employed 📢 Are you wondering what Making Tax Digital means for self-employed?

Whether you run your own business or earn spare cash in your free time from a side gig, it’s important you know about this set of upcoming tax changes that could impact you. 

Making Tax Digital (MTD) is part of the government’s plan to switch the UK over from paper to a fully digital tax service. This means that businesses, landlords, AND the self-employed will soon have to complete their tax records entirely online using a special type of MTD-compliant software.

Confused?

Don’t be! We’re here to tell you all about these new changes and how Making Tax Digital for the self-employed affects you.  

The self-employed brain

We know you have a lot on your mind, but we’ll give you all the facts and figures you’ll need.

Read on to find out more…👇

I’m self-employed, will Making tax digital for self-employed affect me?

That depends. 

The new MTD changes for Income Tax will only apply if you’re self-employed or a landlord and have an annual income of more than £10,000. 

So, if you already file for Self Assessment and pay your taxes this way, then MTD for self-employed will apply to you. If you meet these requirements, you’re required by HMRC to register and ensure you have MTD-compatible software before the deadline.

If you earn less than the £10k a year threshold, you can still use HMRC’s online services to complete Self Assessment as normal. 

Wait…is this happening now?!

No, not yet – so don’t panic!

Although MTD came into effect for VAT-registered businesses in April 2022, the changes for the self-employed won’t happen until 6th April 2024 (which is actually a year later than planned due to Covid-19). This deadline gives you plenty of time to search and get compatible software in place to sort your future tax records!

What will I need to submit for MTD if I’m self-employed?

So once MTD for the self-employed comes into effect, what do you need to do? The biggest change is that you will no longer use HMRC’s website to file your tax returns. Instead, you’ll have to keep and submit digital records of your earnings and expenses using MTD-compatible software.

There are three parts that you will need to submit for MTD:

  • Quarterly updates of your income and expenses
  • An End of Period Statement: you need to submit one per year for each source of income
  • A Final declaration that details all other taxable income (such as investments and savings interest)

However – once you’ve submitted your quarterly summary you won’t pay the tax you owe there and then. Instead, you’ll get an estimate of the tax due up until that period. 

You’ll still pay your tax bill on the usual deadline (31st January of the following calendar year). The hope is that this will make it easier for you to keep track of how much tax you owe in real time – making it much easier to budget for your end-of-year tax bill!

Making tax digital deadline

So I won’t have to file a Self Assessment tax return?

Nope! 

As of 6th April 2024, MTD will replace the current self-assessment system for anyone with an income of £10,000+ a year.

What happens if I miss the deadline?

MTD for self-employment isn’t happening until 2024 – so you still have lots of time to prepare. But, if you somehow manage to miss this deadline, it’s highly likely you’ll have to pay fines.

Fines? 😰

Unfortunately – yes!

Unlike businesses that failed to register in time for the VAT phase of the scheme – most got off with a warning and were given more time to prepare – there’s no guarantee HMRC will be as forgiving with the MTD for Income Tax deadline.

The bad news?

After the changes, taxpayers will get a ‘point’ every time their submission deadline date is missed – think of it as a speeding fine. When you’ve built up a certain number of points, you’ll pay a £200 fine. 

Alongside this penalty points system, there will also be a new late payments penalty system, where late payers can be fined up to 4% of the outstanding amount daily. But the good news is that none of these new fines are as harsh as the ones currently in place for submitting a late tax return or tax payment. Woohoo! 🥳

Can I opt-out of MTD if I’m self-employed?

To put it simply, no…

…unless you are classed as digitally exempt, as these people do not have to follow the new MTD rules. Exemptions might include:

  • People who are elderly
  • The disabled
  • People who live in a remote location with little to no internet access

Unless any of the above apply to you, you’ll be required to adhere to the MTD changes in April 2024.

Get making tax digital advice from Taxscouts!

If you’re self-employed and are confused by the upcoming MTD changes, then don’t worry. Get in touch with us for some simple, one-off tax advice from one of our accredited accountants. You can learn more here.

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