What the delay to MTD for Income Tax Self-Assessment means for freelancers

The delay to the start of Making Tax Digital for Income Tax Self-Assessment until April 2026 is an important announcement for many freelancers in the creative industries, writes Emily Coltman, chief accountant at FreeAgent.

How the delay to MTD for income tax purposes helps creative industry sole traders

Sole traders who have not already switched their bookkeeping to a new system may have been planning to do so during 2023 – a year which somehow we are already more than a fortnight into!

But the announced delay to MTD ITSA will give such self-employed creatives more time to research a system that will suit them and their business.

The extra time also lends itself to freelancers becoming accustomed to using a new record-keeping system before they have to begin filing regular updates to HM Revenue & Customs.

The new turnover thresholds of MTD ITSA

Freelancers with turnover between £30,000 and £50,000 a year will have another extra year to plan and researchthoroughly, since MTD ITSA will not be mandated for them until April 2027.

However, those with turnover between £10,000 and £30,000 do not yet have a date for mandatory MTD ITSA.

This delay to MTD compliance may encourage some freelancers to continue using paper-based, or manual spreadsheet-based bookkeeping systems and to not worry about switching to digital.

Are you a freelancer with politics on your mind? Even so, avoid complacency

Some freelance creatives with politics on their mind may even think that, as a general election is likely to take place within the next two years and which could result in a change of government, there could be a chance for MTD ITSA to be delayed further. Or even cancelled entirely.

However, this is extremely unlikely. HMRC has already invested a large amount of time and money in implementing the first phases of Making Tax Digital for VAT-registered businesses, and it remains committed to expanding the legislation to cover income tax.

The only thing that has changed is when this will come into effect and who it will initially impact -- so there is no reason to be complacent.

Don't you delay -- start exploring MTD compliance today

For freelancers with turnover over £30,000, it is important to start looking towards MTD compliance now.

Changing to a digital system as soon as possible will not only give them longer to adapt to the changes, but it also could potentially save a lot of time and reduce the risk of errors from manual calculations.

It could also help such sole traders to work better and more seamlessly with their accountants.

What about MTD ITSA for self-employed people whose annual turnover is under £30,000?

Business owners with turnover under £30,000 should also not make the mistake of assuming that the delay, announced on December 19th 2022, means MTD ITSA will never apply to them.

Again, the government’s wording just before Christmas points entirely to delay, not cancellation.

To reiterate, HMRC has not yet specified when freelancers making annual sales of under £30,000 will have to begin keeping their records and filing quarterly updates digitally.

But it would be foolhardy to assume that the timescale for this would be ‘never.’

Other beneficiaries of MTD for income tax being delayed include...

For tax advisers and accountants, the MTD ITSA delay also grants more time to work with clients to identify the best record-keeping system for each particular client’s needs.

What works for one client will not necessarily work for another!

Freelancers in the creative industries have a wide and diverse range of business needs and accountants will need to be clear on what their clients need from a record-keeping system before switching them across.

Final thoughts

Again, the additional time will give accountants more time to thoroughly research and investigate the products out there on the market and identify which one would be the best for each client, based on their business needs.

In that sense, this delay to Making Tax Digital for Income Tax Self-Assessment is an important announcement for all parties, none of whom can afford not to use this extra time wisely.

The author, Emily Coltman FCA, is chief accountant at FreeAgent, which makes award-winning accounting software for accountants, small businesses and freelancers.