If you’re self-employed, you’re probably no stranger to filing taxes and managing your finances.
But with the UK government’s shift to Making Tax Digital (MTD), it’s time to rethink how you handle your tax responsibilities.
This change may seem daunting at first, but once you understand how it works, it’s all about making the process easier, faster, and more efficient for you.
What Exactly is Making Tax Digital (MTD)?
Well, Making Tax Digital (MTD) is HMRC’s initiative to bring the UK tax system into the digital age.
For self-employed individuals, like you, this means moving away from the traditional annual tax return to a streamlined digital approach. Instead of paper forms and spreadsheets, you’ll use specialised software to manage all elements of your business taxes.
If you want to find out more about why HMRC are making these changes, check out this blog post.
When Will MTD Affect Self-Employed Individuals?
The rollout for self-employed individuals has been phased:
- April 2026: If your annual business income exceeds £50,000
- April 2027: If your annual business income is between £30,000 and £50,000
If your income is below £30,000, you’re currently exempt, but it’s wise to stay informed as these thresholds may change.
How Will MTD Affect Your Tax Filing Process?
MTD will significantly change how you file your taxes. Rather than submitting an annual Self-Assessment tax return, you will now be required to:
1. Keep Digital Records
Instead of using paper receipts, physical invoices, or handwritten notes, MTD requires that you keep your financial records in a digital format. This will help improve accuracy and ensure that all your transactions are easily accessible.
Many businesses already use accounting software, like Xero, Quickbooks or FreeAgent, which are MTD-approved. These tools automatically link to your bank, categorise expenses, and help you maintain a clear record of your income and outgoings.
2. Submit Quarterly Updates
Instead of filing once a year, you will submit updates to HMRC on a quarterly basis. This means you’ll need to stay on top of your finances throughout the year, keeping your records up-to-date and submitting them regularly.
But don’t worry…the software will do the heavy lifting for you by calculating taxes, linking to your bank feeds, and filing your quarterly returns automatically.
3. End of Year Final Declaration
You’ll still need to make a final declaration for the end of the year, which is a summary of all the quarterly submissions made over the year. This declaration will allow HMRC to calculate the final tax due.
The Benefits of Embracing MTD
While change can be uncomfortable, Making Tax Digital offers several advantages for self-employed individuals, including;
Better Financial Visibility:
With regular updates and digital record-keeping, you’ll have a clearer picture of your finances throughout the year; meaning no more tax bill surprises and improved cash flow planning.
Save Time Long Term:
Once set up, the quarterly process will likely take less time than the annual scramble to gather information and complete your Self Assessment.
Meaning you’ll have more time to focus on the elements of your business that actually excite you!
Improved Business Insights:
Most MTD software provides reports and analytics that can help you understand your business performance better.
With this information you can use it to make smarter business decisions that will drive growth and increase profitability
More Timely Support:
At Right Click Accounting, we leverage this digital approach to offer you and our clients more timely, proactive advice all year round…not just when tax season rolls around.
Common Concerns and Answers
It’s normal to have questions when something new comes your way, especially when it comes to managing your finances. We’ve compiled answers to some of the most common concerns our self-employed clients have shared with us.
Most MTD software is designed with user-friendliness in mind. Plus, there are plenty of tutorials and support resources available.
Plus, the Right Click Accounting, team are here to help you choose the right platform for your level of comfort with technology.
Obviously, the introduction of new software could incur additional costs, however, there are a number of low-cost (and even free) options available.
It’s important to remember that improving your understanding of your business finances might actually help you save money through better tax planning and fewer errors.
The quarterly updates aren’t final – you can make adjustments in your End of Period Statement. HMRC understands that estimates may be necessary in some cases during the year.
While it’s always good practice to keep original documentation for some period, digital records will be your primary evidence. Most software allows you to attach photos of receipts to transactions for complete record-keeping.
Prepare for MTD Success with Right Click Accounting
As Making Tax Digital approaches for self-employed individuals, taking proactive steps now will ensure you’re prepared and compliant when the deadlines arrive.
At Right Click Accounting, we understand that the transition to MTD can seem overwhelming. But we’re here to help you every step of the way, whether you need; assistance setting up your MTD-approved software, advice on keeping digital records, or help with your quarterly submissions, we’ve got your back.
Get in touch today, and let us help you navigate the Making Tax Digital process smoothly and stress-free to make sure your business is future-proof and ready for the changes ahead!