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Making tax Digital

Making Tax Digital

Here at Swan Saunders, we know that most local businesses will need support using the required software to comply with the Making Tax Digital requirements.

We also know that now is the time that many businesses will need the right kind and level of support.

HMRC Making Tax Digital: What Sole Traders, Partnerships, and Freelancers Need to Know!

The UK’s Making Tax Digital (MTD) initiative, aimed at simplifying and modernising the tax process. But what does this mean for you as a sole trader, partnership, or freelancer?

What is Making Tax Digital (MTD)?

MTD is a UK government initiative designed to make the tax system more efficient and easier for taxpayers. By moving away from paper-based records and annual tax returns, MTD aims to create a fully digital tax system.

How Will MTD Affect You?

  1. Sole Traders

    • Digitised Records: You’ll need to maintain digital records of your income and expenses using cloud accounting products such as Dext, QuickBooks, Xero and Sage.
    • Quarterly Updates: Submit income and expenditure summaries to HMRC every quarter through compatible software.
    • Year-End Submission: Confirm your annual figures through a final declaration, replacing the traditional self-assessment tax return.

  2. Partnerships:

    • Digital Record-Keeping: Partnerships must keep digital records of all financial transactions in the same way as sole traders.
    • Quarterly Reporting: Each partner’s income share will need to be reported to HMRC quarterly using MTD-compatible software.
    • End-of-Year Procedure: A final year-end declaration will be required to confirm the year’s tax data.

  3. Freelancers:

    • Digital Tracking: Freelancers must track all business income and expenses digitally, again using cloud accounting products.
    • Regular Updates: Provide HMRC with quarterly summaries of income and expenses through approved software.
    • Annual Summary: Complete a final end-of-period statement to reconcile yearly income and expenses.

When Does MTD Come Into Effect?

MTD for VAT has been in place since April 2019 for businesses above the VAT threshold. For income tax, MTD will be mandatory from April 2026 for self-employed businesses and landlords with income over £50,000. From April 2027, it will extend to those with income over £30,000.

What Will Be Required?

  • MTD-Compatible Software: You’ll need cloud accounting software that can connect to HMRC’s systems. This software will help you maintain records and submit updates.
  • Digital Records: Keep all financial records in a digital format.
  • Quarterly Submissions: Report your financial data to HMRC every three months.

Why is This Important?

MTD is designed to help you get your tax right and keep on top of your business finances. It reduces the risk of errors and makes the process of managing tax more straightforward. By adopting digital tools, you’ll have a clearer picture of your financial position and can make better-informed business decisions.

Stay ahead of the curve and start preparing now! Embrace the digital future and enjoy a smoother, more efficient way of managing your business finances.

Get in touch.

Making Tax Digital might sound a little scary initially, but it has been set up to make it easier for businesses to pay their taxes and gain a firmer grasp of their business finances. 

For advice and support, contact a member of our team. We’ll be happy to discuss the changes and set up any systems and requirements to comply with the new regulations.

Visit the Knowledge centre and read our blog post ‘What is Making Tax Digital for Income Tax Self-assessment?‘, to find out how it will affect you.