HMRC have decided to modernise the tax system with Making Tax Digital (MTD). This involves everyone keeping digital records and submitting details for tax online more regularly – every quarter rather than once a year. Although this might sound like more work, the aim is to improve the accuracy of your tax account and help reduce the last-minute panic of submissions in January.
And if you think you’ve heard of this before, it’s because you have – the scheme was previously delayed.
So, who does it apply to and when?
- If you’re VAT registered with a taxable turnover of more than £85,000, you’ll already be keeping digital records for your VAT.
- If you’re a sole trader with a turnover above £50,000, MTD for income tax will apply from April 2026.
- Sole traders with a turnover between £30,000 and £50,000 will join the scheme from April 2027.
- If your income’s below £30,000, it’s not clear when MTD will be rolling out to you but it’s good to be prepared.
What do you actually need to do?
Well, the best news is that thanks to already using FreeAgent, you’re ahead of the game!
FreeAgent is fully MTD-compatible so to some degree it will be business as usual. The key thing will be keeping on top of updating your account so that you’re ready for those quarterly check-ins.
To make sure you’re ready, it’s really important to get into the habit of regularly adding expense receipts to FreeAgent, sending your sales invoices from the system and making sure your bank transactions are frequently reconciled. If you currently only really engage with FreeAgent to send your invoices or when one of the CBC team tells you that you have to, it’s time to get to grips with the rest of your financial admin.
Finance Fridays happen on the third Friday of every month and are a great opportunity to take care of these tasks if you need some accountability and group support (and of course access to me for any questions as you work through them).
The quarterly updates will be like mini tax check-ins, sharing your numbers every three months ahead of the full self-assessment return at the end of the financial year. If you’re not in the habit of keeping track of your financial position throughout the year, these updates will give you a clearer picture of your finances all year round, giving you regular opportunities to assess your progress.
How can I make things easier for you?
- I’ve already mentioned Finance Fridays, which are the perfect chance to keep on top of your FreeAgent account with hands-on support.
- The FreeAgent knowledge base has answers to most of the questions you’d ever need to know and anything it doesn’t cover you can get help with from their very responsive support team. There’s also an excellent ‘getting started’ page where you can sign yourself up for a live webinar or watch a pre-recorded version.
- I run regular training sessions in how to use FreeAgent, ranging from an introduction to the basics to using specific features. The first training of 2025 will be, helpfully enough, all about MTD. (As always, if you can’t make the live session, you’ll still receive a recording for you to watch in your own time.) If there’s a particular topic you’d like us to focus on, either in a FreeAgent or CBC training, let us know and we can work it into the future schedule.
- This year, with customer experience and customer focus in mind, if we think you’d benefit from these sessions we’ll be going ahead and signing you up if you haven’t already registered so keep an eye out for those emails.
- The dates for this year’s training are: February 13th, April 30th, June 18th, September 18th and November 13th.
Some of you will want to have all the financial admin around MTD taken care of for you. If that’s you, we can assign a bookkeeper to handle all your FreeAgent activities. This additional service starts at £240 per month. With the added workload of quarterly tax account updates for all our clients, we won’t have time for hands on tidying of your FreeAgent accounts so if it seems like you’re struggling to stay on top of your updates, we may suggest we assign you a bookkeeper to provide support. Get in touch if you’d like to talk more about this option.
Recap of key dates:
- Turnover above £50,000, MTD applies from April 2026
- Turnover £30,000–£50,000, MTD applies from April 2027
- Turnover below £30,000, no news yet
Regardless of when MTD will officially apply to you, getting to grips with FreeAgent and creating good habits around regularly updating your account is a good idea for everyone.