A checklist for the January 31st tax deadline
It’s boring, but if you’ve saved money specifically for this purpose, it shouldn’t be painful. Here’s what you must do to get through your self-ass...
Navigating through the HMRC’s self-assessment gateway is an exasperating experience. With every click you can hear the walls creaking. Each ‘Next’ button takes you deeper into a maze of Windows 95 nostalgia. If only Clippy, the friendly office paperclip assistant, was there to help make sense of it all.
Filing tax returns and paying your fair share isn’t supposed to be a pleasant experience, of course. But it shouldn’t be this confusing either. The struggle is clearly real for many of us. According to HMRC, avoidable input mistakes cost the Exchequer more than £9 billion in revenue every year.
So, you get the idea: the whole system could do with a revamp. In 2017, the chancellor announced sweeping measures designed to do exactly that. The Making Tax Digital (MTD) initiative is the cornerstone of HMRC’s ambition to become one of the most digitally advanced tax administrations in the world.
MTD will require businesses and freelancers to keep digital tax records and submit their returns using accountancy software approved by HMRC. Paper records and cut-and-pasted excel figures will no longer cut it.
MTD will also change how often you connect with HMRC. The vision is that invoices and accounts will all be connected and synced in the cloud. The accountancy software will be able to send income updates to HMRC throughout the year, bringing an end to the annual all-in-one panic on January 31st.
The main aims of MTD are to simplify the tax process. They seek to cut out errors and provide businesses with more clarity on their standing throughout the year. With digital accounts established in the cloud, small businesses and freelancers can see their tax owed and plan accordingly.
Paul Nicklin, technical director at freelancer bookkeeping platform inniAccounts, said the move could be a precursor to a more efficient taxation system. Achieving something closer to the PAYE system regular workers are used to.
“The longer-term objective of MTD is probably real-time tax collection. While this feels like HMRC is stealing your money, it’s really only them not lending it to you for 19 months. Then, you have to find a large amount to cover the tax bill when it does come through,” he says.
The first question freelancers will have about the MTD rollout is: What does it mean for me?
The simple answer is probably nothing – yet – unless you are earning above the VAT threshold (£85,000). From April 1st 2019, around 1.2 million VAT registered freelancers and small businesses around the country will have to meet HMRC’s new digital standards.
If you are working as a freelancer and that £85k is but a speck in the distance, you have a whole extra year to get to grips with the new system. In the meantime, you can still use HMRC’s online portal, but that doesn’t mean you can’t, or shouldn’t, make the move to digital sooner.
Lee Murphy is the founder of Pandle, a company specialising in accounting software for small businesses and freelancers, and one of many that has been approved for MTD by HMRC. He believes that the modernisation of your accountancy processes is nothing to be intimidated by. In fact, freelancers should embrace the opportunity.
“For those that are still using a paper-based system, it is essential that you switch to software,” Murphy says.
“This may sound grim for people who love paper or Excel, but they may be pleasantly surprised. Modern online bookkeeping software can do all sorts of labour-saving activities automatically. Including checking the banking and sending chase emails to late-payers.
So, while some may be reluctant to embrace technology, they may discover that going digital saves time and money, in the long term.”
If you already pay an accountant to handle your taxes, it’s likely that your shift to MTD will be relatively seamless. If not, you will eventually need to pay to use software that can provide the link HMRC will soon require.
If this article is the first you’ve heard of MTD, join the club. Last year, research by the Institute of Chartered Accountants in England and Wales revealed, rather worryingly, that more than 40 percent of businesses about to be affected by MTD for VAT in April were not aware of its existence.
Tax regulations don’t tend to make exciting headlines as it is. When you schedule a radical overhaul of the tax system within three days of Brexit, the details are bound to get lost in the noise.
But now that you know, there’s no reason not to start preparing. Aside from the gains in efficiency, and financial insight, another positive could be the sudden rush within the marketplace to create freelancer-friendly accountancy tools.
“For self-employed freelancers, expect a flurry of apps that will allow you to file via MTD. If you aren’t using bookkeeping software of some sort already, then now really is the time to embrace it. It might be scary, but I expect once you’re in, you’ll never look back,” says inniAccounts’ Paul Nicklin.
“If you embrace digital, and find one of the many excellent smartphone-based solutions, you can do everything in real time. You can take payment for a workshop you delivered at a client’s office and have no paperwork to deal with. No more keeping one day a month aside for paperwork. Or, staring at spreadsheets after a long week in the office!” he continues.
The bottom line is that MTD is an opportunity for freelancers to get organised. It unearths an empowering accountancy tool and cuts the uncertainty from tax dealings.
“It’s very worthwhile getting started, because you’ll have an accurate picture of your accounts and will be able to better plan financially. If being freelance is about flexibility and control, then being able to forecast, and see when you can take time off, will be invaluable.”
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