I've not been paying attention: making tax digital??

[KatyMac]

Sorry i havent been paying attention to this but separate filing for each income stream?

So I make & sell and I teach and i lecture under one name

& I teach, do, lecture and create under another

So ill have to do 2 returns instead of 1 - is that right? Not one for teaching, one for making and selling etc

What is the cheapest app I have to buy to make this happen (after 2028 I think?)

I've just come across this guy on Youtube - he doesn't try to sugarcoat the pill - he says nobody knows what the hell is going on, and he expects it to be painful and costly for sole traders. Interestingly, he suggests the option of becoming a limited company to avoid the new regime. If you're thinking of doing that, please let us know!

The comments under the video are interesting - eg people retiring early to avoid this.

I'm actually wondering if the best thing to do is to not try to increase my hours like I have been, and trying to stay under the potential threshold. It's hard because with a mortgage and cost of living incraese etc, I'd been hoping I could work more, but this sounds like it would make everything worse! So maybe I'm better off not. I would have been over the limit for the 24-25 tax year, but since the summer, I have had much less work, so this year I might not be, and maybe I could keep it like that. I don't know how that works with the 12-month rolling thing though, as I don't normally work out my income that way. If they at least give a bit of notice, then I could make sure I'm under the threshold, but if they, say, start it in April - or sooner?! - then that would be harder. I can't retire yet, not for anotehr 15 years or so.

Thanks. That sounds like there’ll still be one main reporting date and the others are sort of staging posts along the way. I already do my own VAT returns so maybe I’ll end up also doing three mini returns alongside.
It’s a faff, but my biggest concern was having to pay four sets of fees per year.

@TakeMeToAnIgloo I’m a services provider and am on the flat rate scheme. My accountant suggested it for that reason, I don’t really buy materials. I feel reduces the admin when it comes to keeping your accounts in order. Obviously it’s better not to have to register for VAT at all, of course.

I'm an accountant to small businesses and I'd echo the PP who said this is only going to benefit software providers. For everyone else it's a huge time and money suck with no obvious benefits. Unfortunately there is no sign (yet, at least) that it will help you keep track of your tax bill through the year.

in terms of tips which might help a few people

• very good and free or nearly free software included Freeagent with a qualifying bank account, as above, and also QuickFile which is very cheap
• for landlords, less cheap, but great to use, Hammock.
• thresholds are based on raw turnover, before any costs
• initially at least, accuracy is irrelevant - enter your best guess for income and a figure for total expenses.
• in the final (5th, yes 5th) return, you do what you currently do in your tax return and get all the numbers right. That will override all the numbers you put in previously.

over time, I have no doubt that they'll start requiring accurate quarterly figures and taking tax quarterly, but we are years, if not decades, away from that in my view.

If anyone has questions I'll keep an eye and try and answer them here.

If they’re not going to take tax quarterly, what’s the benefit to HMRC, @NeedingCoffee ?

I presumed it was being brought in so there is a year round supply of tax money.

The idea was announced over 10 years ago by George Osborne. Tech still isn't really there. There is no benefit but like emperors new clothes no one can say anything

@PerfunctoryFunk i completely agree - that has to be the end game. But they have underestimated the complexity and potential interrelationships - you'd be amazed how many people don't have straightforward linear affairs - and the chances of gathering enough accurate info to then work with our ridiculously complicated web of allowances, thresholds and different rates for different income streams and calculate accurate tax midway through a year are slim. I don't doubt they'll try, but MTD has been a decade in the making so far and it's still a clusterfuck in my view.

So you will be allowed to put all your expenses at the end of the year, perhaps? Because most of mine are things I calculate annually, like a share of my household expenses, subs, professional fees etc. It's just easier to work it all out at once. I don't mind sending a simple figure for my earnings each quarter, but it would be better not to have to do all the faff with expenses and deductions for charities, pension, bank account interest, that kind of thing, more than once a year. I already just transfer a chunk of money every couple of months to my income tax, so I kind of do pay throughout the year anyway, but it's my choice as to how much and when, rather than a set amount. So the theory of it I don't mind, but the faff. I just keep track of lessons and thus amount earned on a spreadsheet, for each month. I don't get paid by the month, but I keep track of it that way.

It's the VAT that really worries me. I am going to try to reduce my work to keep under the threshold if needed.

I have a barclays savings account that is mainly used for business income, but I also transfer small random bits to and from for other things if people pay me for tickets I've bought or my mum gives me a money gift or whatever. I suppose I should separate that out. But they don't really see my actual account I don't think. I keep track of whether people have paid for the sessions, and calculate the total monthly income from that.

I wonder if Barlays has a business account that includes any software, as it would be easier to stay with the same bank. I have used a company called ablegatio ftax to submit my yearly return, but I don't think they have a simple form yet for the digital tax. I don't need any complicated software that does billing or invoices or keeps track or anything - I just literally want to enter my income, in the form that the tax people want, and not much more until the final return! All the software seems so much more complicated. But I guess my spreadsheet isn't good enough now and i need it in some other form that automatically calculates something?!

The Mettle app and FreeAgent mentioned above looks like it could be worth switching too perhaps. It will take a while to learn how to use it though, but maybe if I start in in the new year, and have a couple of months to get used to it, before having to start properly in April. And give time for clients to get the new numbers saved etc. It doesn't say that it's ready for the MTD yet but just that it's coming, so I guess nobody really knows yet how that will work! It all seems so much more formal than my usual email to people to say what their half termly bill is. And some don't pay half termly, but monthly or weekly. I have always kept track of the work by the month, regardless of when I was actually paid, so this will look different!

Freeagent has a ‘knowledge base’ where they answer all the pertinent qeustions and guide you through with screenshots.
Honestly, at this point I feel like I should be on commission for them.
It takes no time at all to get to grips with and for the PP who said they get lots of paper invoices, you upload a picture of the invoice to match the bank transaction when it pops up on your freeagent app.
Here’s a shot of the mettle bank feed within Freeagent - the little paperclip icon next to the ticks means I’ve uploaded a photo.
If transactions needs matching, it pops up in the unexplained section in a different colour

It’s going to be a right old pain for farming that’s for sure.

This is what the cash bank account I created looks like, obviously everything has to be done manually with it because there’s no actual bank feed.
If you have a lot of cash transactions then it’s going to be time consuming so you could just use a single daily figure.

I like to keep them seperate because there’s usually official paperwork so it would make it easier to track down individual customers.

Still sounds very complicated! I will look into it for the new year I think to get used to it. My expenses tend to come from my personal account, as they are things like stationery, books from amazon, apps from my apple account, and that sort of thing that all come out of my current account, as it's spent via my debit card, or along with other shopping, or accounts set up with amazon or apple, or zoom or whatever. So I'd have to upload those into freeagent manually I guess? My household bills and stuff are all from the current account as well.

And then I would take drawings from the business account into my current account for all the actual spending I do. I hope that will work.

Yes, you manually add it as an expense and snap a picture of the receipt.
For income going into your personal account then yes, it comes under drawings, whether bank transfer or cash.
As long as stuff is in the correct category, it’s a piece of cake.
I had an issue last year that I didn’t pick up on until I checked over the auto filled tax return, Freeagent had ‘guessed’ that DH’s drawings into our joint account of £2k a month were somehow a Salary expense so it had mucked up the Expense figures. As I’m paid a much lower salary, it was easy to spot that it was wrong .

I think I won't use any auto-filed return, as I also have some very small employment income, money paid into private pension, charity donations, savings interest and some tiny amount of foreign income that I put on the normal self-assessment, plus claiming things like work from home expenses and so on, but maybe it does do all that kind of thing as part of it. It all sounds like a lot more functionality that I need for what I've been doing, which has been pretty simple. My receipts are just things on my amazon account which usually say not for tax purposes! I guess I could screenshot them but doesn't sound like the right format. I keep things like my council tax bill or a screenshot from my bank account that shows money going out for zoom subscriptions or professioinal insurance or dues, since i don't really get receipts for that sort of thing - it's all email.

My plan for now is to join mettle and freeagent in the new year, try to set it up so that the payments go into the mettle account, learn to upload the few expenses via receipts, try to figure out how to document the other expenses that are from bills and current account etc. And then hopefully it'll be set up OK for April. And pray that the VAT thing doesn't happen!

I read that the first MTD submission will be in August 2026, so if I start keeping the records on free agent in April, then hopefully I have that time to work out and upload the expenses over those few months. Or if some of it is annual, I guess you might be able to just add them all at the end of the year. My household stuff like phone and zoom and broadband etc I have always just worked out as a proportion of the annual cost. Having to split everything up into quarters is a lot more work.

Thanks everyone here for answering questions and giving recommendations - very helpful to know of people who have used this sort of software already

You have to opt in to linking your HMRC account to Freeagent.
There are a few of the supplemental forms that it doesn’t support.
I only have to do the personal and self employed sections for DH.

Just an email screenshot is sufficient for expense transactions, it’s not mandatory but I find it easier to just add them.

For direct payments into your Business account, the transaction itself is all that’s needed as it’s already ‘digital’.
Same with Direct debits out for insurance etc.

I hope they don’t lower the VAT threshold too, it would be a disaster for small businesses.
DH would just deliberately stay under the limit, he manages to stay under the higher rate tax limit by employing me, plus I get NI credits. I have to run payroll but it’s a once a month thing and no NI is due on either side thanks to the £10k allowance.

I pay for some expenses in dollars, and Xero charges over £50 a month if it needs to include non Sterling currencies. Has anyone looked into how to deal with payments and receipts in dollars etc?

I know that the idea of MTD came from the Tories, but it's Labour who'll be blamed for it. My idea of a truly bad government is a government that makes life more difficult for its citizens for no good reason. That's oppression.

I've set up clearbooks free and a separate bank account for my property income and it hasn't been as bad as I'd feared so far to get everything logged - I have actually captured quite a few little expenses that might have slipped through my old systems as a result. It's also been useful e.g. I've been able to easily reconcile a series of instalment payments with the relevant invoices to make sure it all adds up.

MTD will actually be FAR easier for everyone,
VAT registered businesses already use it don’t forget.

accounting software saves massive amounts of time. Even if you pay for it, it’s the best use of £20 a month.

Some years ago we ran a retail partnership as a sideline, selling online and at events and I remember the hassle of adding up all those receipts and filling in Tax returns by hand.

MTD will take all of 20 mins, once every 3 months, a matter of checking the figures in whatever platform you use.

My expenses come from my current account, though, as most of them are not wholly business, and/or it's easier to use my debit card/amazon account to buy them. There are a few that I could switch to a new business account, though, like the insurance. I guess as long as I have a record somewhere, it doesn't matter to start with.

Does free agent allow you to access the whole self-assessment form with the various other sections like employment and foreign, or do you still have to buy that from some other provider? (or I think HMRC might have some of its own online form?). For this coming year ending March 2025 I wouldn't have all the expenses in Freeagent anyway, as I'd just be trying it out for a couple of months to get used to it, so I'll use my old provider of the form for that as usual, but after that, if I'm using Freeagent already it would be handy to be able to do all of it for the bit that has to be done at the end of the year.

It really is making it a hassle for no reason!!

And the VAT would be a nightmare. Ive been trying to calculate how much I'd have to reduce my hours to stay under the threshold vs how much extra I'd have to pay, how much I'd have to increase my fees by to even partly compensate for it, how much work I'd lose just by doing that, whether I'd then be under the limit again, and it just goes around in circles!

I remember when they talked about changing NI rules for self-employed people, and it was so obvious that neither the government nor the general public had any idea how many people were self-employed and in what kind of industries, and how many small 'businesses' like this would be affected. They think it's all entrepreneurs and contractors and so on, and forget about the tutors and the speech therapists and the freelance musicians and the many other services that have had to go private as there is no funding for anyone else to hire them. And this would be the same sort of problem, with so many people affected that they probably don't think about.

I disagree Borg. I work for a limited company employing 30 people, I have been self employed in the past and both dh and ds are sole traders (music tutor & freelance musician). Accounting software will not save either of them time and it is arguable as to whether it would save us time here.

This is incentivising me to keep my turnover under the threshold!
I wonder if there will be so many complaints and so much confusion that they'll end up scrapping it?