Good morning. Yes, Making Tax Digital is part of HMRC’s drive to digitise the economy, effectively. And it’s always been part of their plan to expand Making Tax Digital regulations. So, from next April 6th, it will apply to all self-employed individuals who, at the moment, only have to submit one digital tax return a year.
The new requirements will be for individuals who, in 2026, earn more than £50,000 a year to make a quarterly return — but it has to be through a recognised software package like Xero or QuickBooks, or something along those lines. The individuals will be required to keep all their records digitally. So there’ll be no more turning up on bookkeepers’ doorsteps with a carrier bag full of receipts. The provisions will extend to people who earn over £30,000 in 2027, and £20,000 in 2028. So effectively, HMRC are going to make everybody who is self-employed submit their tax returns on a quarterly basis through a digital system.
That’s a big admin change for a lot of self-employed people and for sole traders, isn’t it? You said it’s being rolled out next year. Is there any good practice that they could be getting into now, or anything that you would advise, just to hit the ground running?
In terms of their current practice, I suspect they can. Currently, HMRC’s published objective is to reduce “errors” in the tax system, and they believe that 18.5% of revenue is incorrectly reported. They believe they’re going to recover £5 billion from the process.
In terms of the process going forward, the requirements don’t start until next April, but individuals may well want to consider their options before April 6th next year, because they’re going to have to have something in place to start the next financial year.
And if they fall under the VAT threshold, does that have any bearing on what will happen?
No, neither VAT nor, indeed, CIS has any particular implication. The requirements are simply for people who are registered as self-employed, who are sole traders.
So from a contractor’s point of view, this isn’t a step change for them at all — but is there anything that they should be advising their subcontractors?
In terms of contractors, presuming that they are already submitting their information via the Making Tax Digital regime, which they probably are, there’ll be no major impact on those. But of course, it’s going to be a big issue for sole traders who haven’t had to do anything like this in the past.
Does Making Tax Digital change how CIS deductions are handled at all?
No, CIS remains exactly the same. This is just a quarterly report.
And if they use a payroll company like EEBS, will Making Tax Digital be handled for them?
I can’t talk for other payroll companies, but at EEBS we are making major changes that will allow subcontractors, via an app, to submit the information to us. We will then be able to act as their agents and send the information on their behalf to HMRC. So, if they’re being paid through EEBS, we’ll have the whole process covered for them. So there’ll be very little disruption for subcontractors engaged by EEBS.
