“The hardest thing in the world to understand is the income tax,” Albert Einstein famously said, and most self-employed workers would agree with him.
Every year they’re required to file and pay their taxes, which can be a long, arduous and stressful task which is usually put off until the last minute.
There are around 4.5 million freelancers in the UK, according to the Office for National Statistics (ONS), who are currently filing their taxes in this slightly antiquated way.
But change is coming, and one of the biggest shake-ups to the tax system for self-employed workers is arriving on 6 April with the new tax year.
Making Tax Digital (MTD) will apply to millions more workers from April – to anyone with a turnover of over £50,000 – requiring all of these people to change the way they file their taxes.
While it may seem daunting, thanks to modern technology and AI there are solutions to this big change that don’t require any more effort or work – such as the free service from ANNA.
These systems, known as “set and forget” filing, take care of everything; you just link your business account to one, and it will do the rest, keeping HMRC up to date with your business finances.
Here we look at what’s changing, what self-employed workers need to know, and how systems like ANNA can make things easier.
What is MTD?
Making Tax Digital (MTD) is the new way of paying tax for self-employed workers. It’s for sole traders or landlords with a turnover of more than £50,000, although those who earn less will need to adopt it in the next few years, as this figure will fall to £30,000 on 6 April, 2027.
The system has been in the pipeline for a long time, first introduced in 2019 for VAT-registered businesses with a turnover above £85,000 and then extended to all VAT-registered businesses in 2022.
It is being introduced to make the tax system simpler and easier for both self-employed workers and landlords, and for HMRC. Instead of an annual return, real-time information will be shared with HMRC about a business’s finances. This should give more accurate information, and it should make things easier for business owners.
Under the new system, self-employed workers will need to file their taxes every three months. If they fail to do this, they will face penalties.
Filing tax returns is often put off until the last minute (Photo: Getty)What do freelancers need to know?
If you’re eligible for MTD, you need to start getting prepared. The next wave of people to join it on 6 April 6 are those who earn more than £50,000.
This includes sole traders, landlords, and anyone who has an income from work or property with a turnover of over £50,000.
Some people are exempt, including anyone without a national insurance number; those who are disabled and receive the blind person’s allowance; and those receiving care relief who earn income from property or self-employment.
If you have a limited company, you also won’t have to change anything as the move to MTD in April is just for individuals.
‘Set and forget’ filing does everything digitally for you. You simply connect your business account to it (Photo: Getty)What is ‘set and forget’ tax filing?
‘Set and forget’ simply means you set up a system which will then automatically send your tax reports to HMRC, without you having to do anything.
HMRC doesn’t provide its own system to use, so you’ll need to choose a company to do this for you.
You can sign up for an MTD service such as ANNA by yourself, or if you have an accountant or bookkeeper, they can do it for you, for a fee. You can find more information on the companies available on the HMRC website.
The type of company you choose will depend on factors such as the nature of your business, how much money it makes, how it is structured, and if you hire other people.
There are two main types of MTD schemes to choose from. One requires you to file a return every three months, filling in each of your income streams and expenses (a bit like the old system), while the other, also known as “set and forget” filing, does everything digitally for you. You simply connect your business account to it, and everything is sorted.
This is how the ANNA MTD solution works, and it’s designed to help self-employed workers by automatically filing their income and expenses to HMRC so they don’t have to do anything.
However, there are also companies which require a monthly or annual fee, which you can sign up for. Some of these include additional features and software, but before you sign up, it’s important to evaluate if you’ll actually need or use the extras included.
ANNA uses AI to automatically file your quarterly returns (Photo: Getty)Why can ANNA help with automatic filing?
ANNA is just one MTD-compliant scheme you could use. The reason it’s worthy of being on your list is firstly that it’s free (some packages do require payment), and secondly, it’s designed to help.
It takes away the need for extra paperwork and admin, allowing you more time to focus on your business. It uses AI to automatically file your quarterly returns, and after you’ve linked your bank account, it will do the “behind the scenes” work of sending your reports every three months to HMRC without you having to be involved.
It doesn’t require you to have any previous accounting knowledge or for you to learn anything new, and you also won’t be sold any extras that you don’t need, such as expensive software features, courses and guides on “how to do MTD properly’”.
When can self-employed workers sign up?
From 6 April, anyone with a turnover of more than £50,000 will need to be ready to start using the MTD system.
But if that’s not you, it doesn’t mean you can sit back and ignore the changes. Those on lower incomes will be included in the new system over the next few years.
Signing up early is beneficial as it gives you a head start on how things will change, and you’ll have time to get used to the new system. It also lowers the chance of penalties from late or missed returns and reduces the last-minute panic.
If you choose a “set and forget” system like ANNA, you only need to sign up once, and it will take care of the rest, again freeing up more time for you to work on your business.
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