If you’re a freelancer, it’s likely that you’ve been told that, “you need Making Tax Digital (MTD) compliant software.” But, if you’re not familiar with the freelancer tax environment, you may even be wondering what exactly MTD is.
Here, we’ve put together everything you need to know about this new government initiative, so you’ll know exactly how it will impact you.
MTD was first announced by the government in 2015. In short, it requires the vast majority of businesses to submit their tax in an entirely digital format. This includes a fair number of freelancers too, who can technically be classed as ‘businesses’, regardless of whether or not they are a director of a limited company.
First rolled out to VAT in April 2019, it’s expected that MTD will be extended to corporation tax (limited companies only) and income tax in April 2020. If you aren’t VAT registered, you won’t have to consider MTD at this point – though you may be required to in the future if you ever do sign up for a scheme.
Those who are VAT registered might not actually need to submit this tax electronically. It’s only mandatory for those freelancers whose earnings are above the registration threshold of £85,000. Many opt to sign up for a VAT scheme to benefit from what it offers, for example, reclaiming VAT you’ve been charged and appearing as more reputable to clients. And so, whilst they’re registered, this doesn’t mean they’re legally required to comply with MTD for VAT.
There are also a range of other reasons you might not have to file your tax digitally. These include age or living in a remote location.
If you are required to submit your VAT digitally, then whilst MTD was initiated on 1st April 2019, this is not when the returns are due. The MTD deadline will depend entirely on when your first VAT period from this date begins. For example, if it started on this very same date, then electronic records will be compulsory only from 7th August 2019.
The type of business you own can also impact this date. There is an extra six-month extension that applies to specific types of organisations. However, it’s unlikely as a freelancer that you’ll find yourself under the remit.
Any freelancer who is required to meet HMRC’s digital path will need to use specific Making Tax Digital software, which must be a compatible package or bridging software. The latter allows the use of spreadsheets – so is a popular choice for many.
Before choosing your software, you’ll want to ensure that whichever solution you choose is on HMRC’s approved list of suppliers. Search ‘Liquid VAT Filer’ and you’ll discover our HMRC MTD software on there.
With Liquid, maintaining the electronic path isn’t the only benefit. Our tools also connect to whichever accounting software you choose. There’s also one-time-only data entry, saving you time and increasing your efficiency.
Whilst your freelance business may not need to file the next quarterly VAT return yet, there’s no harm in getting ahead of the digital tax age. Contact the Liquid Accounts team to advance your accounting using our MTD software. Simply call us on 0161 413 5050 or email firstname.lastname@example.org.